Nowon-gu, Blocking Apartment Management Fee Embezzlement at the Source... What's the Secret?

[Asia Economy Reporter Park Jong-il] Nowon-gu (District Mayor Oh Seung-rok) is taking measures to strengthen the audit system and demand legal improvements for the overall management fees, including the apartment long-term repair reserve fund, where embezzlement incidents frequently occur.

It is judged that apartment management fee embezzlement is caused by a combination of factors such as the absence of internal control functions, poor audits by external accounting firms mandated annually, and the physical limitations of district office supervision, and this is to fundamentally supplement these issues.

When expenses are paid for internal apartment projects, even if the resident representative chairman formally stamps approval, it is difficult to correct the situation. This is because the resident representative council, which should oversee the entire management work, lacks expertise.

The annual accounting audit required from external firms since 2015 is similar. To reduce costs, the lowest-priced firm is selected, and if more than two-thirds of residents agree under the leadership of the resident representative council, the external accounting audit can be omitted. Even after the audit begins, if the management office does not provide appropriate documents, the firm can only express a “qualified opinion” or “disclaimer of opinion,” reducing the effectiveness of the audit.

The autonomous district with supervisory authority also faces difficulties in apartment management. Under the current Apartment Management Act, mandatory management complexes are those with 150 or more households, and “status surveys” and “guidance inspections” are conducted for these complexes.

The “status survey” is an in-depth review of overall management tasks including accounting, conducted by accountants, housing managers, and retired public officials over five days, allowing administrative actions such as fines and correction orders. In contrast, “guidance inspections” only allow simple investigations and recommendations for correction.

In Nowon-gu, out of 252 complexes, 172 have 150 or more households, but due to budget limitations, in-depth “status surveys” are conducted only for 116 complexes with 300 or more households. The remaining 56 complexes with fewer than 300 households receive only “guidance inspections” once every two years.

Moreover, due to a shortage of budget for external expert labor costs, which are 200,000 KRW per person per day, only 12 complexes can be surveyed annually. This averages to once every 9.6 years.

Nowon-gu aims to improve two things: “expanding district office status surveys” and “legal and institutional improvements” for fundamental solutions.

First, the number of district office status survey complexes, which has been limited to 12 per year, was expanded to 38, shortening the survey cycle from an average of 9.6 years to 3 years. To this end, two additional housing managers were hired and the program has been implemented since April, with all increased labor costs and budgets covered by the district office.

For a fundamental solution nationwide, Nowon-gu also requested amendments to the Apartment Management Act from the Ministry of Land, Infrastructure and Transport in February.

The requests include ▲strengthening the autonomous district in-depth status survey criteria from the current 300 households or more to the legally mandated management target of “150 households or more” ▲deleting the clause “no external accounting audit if two-thirds of residents agree in writing” ▲making it mandatory for local governments or the Korean Institute of Certified Public Accountants to recommend external auditors instead of the resident representative council selecting them ▲disclosing account transaction details and monthly deposit balances in the monthly management fee billing statements ▲expanding education hours for building representatives and mandating education on overall accounting processing, among others.

This is to prevent management office staff who committed embezzlement from persuading residents to skip accounting audits for cost-saving reasons and to establish grounds for punishing external auditors for poor audits.

Additionally, the introduction of a “public management office manager system” was proposed to secure the neutrality of management office managers. This involves metropolitan or local governments establishing and operating a “Apartment Management Corporation” to prevent disputes among resident representative councils, housing managers, and management office managers in advance and to enable efficient management supervision.

Separately from the central government’s institutional improvement efforts, the district office decided to proceed with immediately implementable measures internally.

In addition to the ongoing expansion of district office status surveys, a “balance confirmation checkbox” will be newly added to the management fee billing statements during the annual evaluation of apartment support projects. Also, whether the auditor was selected through the district office and the Korean Institute of Certified Public Accountants will be reflected in the annual apartment project support funding.

Meanwhile, from January 10 to 23, the district conducted a comprehensive inspection of the financial status, including management fees and long-term repair reserve funds, of all apartments in Nowon-gu, verifying the consistency of financial statements, account balances, and balance certificates. Investigations by the local police station are currently underway for apartments where management fee embezzlement occurred at the end of last year.

District Mayor Oh Seung-rok said, “While autonomous operation with minimal district office intervention is the principle for apartment complexes, detailed preventive measures are urgently needed due to the moral hazard of some management office staff causing significant harm to many residents.”

This content was produced with the assistance of AI translation services.