Law "Using Donations Received in Informal Accounts for Their Original Purpose Still Constitutes Accounting Fraud"

[Asia Economy Reporter Seongpil Cho] A court ruling has stated that if sponsorship funds were received in an account other than the designated account, it constitutes accounting fraud even if the funds were used for their intended purpose.

On the 8th, according to the legal community, the Seoul Administrative Court Administrative Division 5 (Presiding Judge Park Yang-jun) ruled against the Korean Anglican Church Maintenance Foundation in a lawsuit filed against the Yongsan District Office of Seoul seeking cancellation of an improvement order. The court stated, "Since the sponsorship funds were received in an unofficial account rather than the designated account, even if the funds were later used for the welfare center, the defendant's disposition based on accounting fraud cannot be considered illegal or unjust."

The Korean Anglican Church Maintenance Foundation, a foundation established by the Korean Anglican Church, organized festivals under the welfare center from 2013 to 2019 and raised sponsorship funds. However, it is said that the welfare center's sponsorship funds were received in an unofficial account rather than the designated account. The foundation also transferred about 50 million won out of a total of approximately 66 million won, including sponsorship funds and festival proceeds, to the foundation's account.

The Yongsan District Office regarded these actions as 'sponsorship fund accounting fraud' under the Social Welfare Services Act and the Act on Welfare of Persons with Disabilities, and in January last year, took personnel measures against the facility's accounting manager and issued warnings and cautions to related staff. The office also demanded measures to prevent recurrence of sponsorship fund-related corruption from the foundation. The foundation filed a lawsuit challenging this disposition.

The foundation argued, "Even if the sponsorship funds were transferred to the foundation's account, they were used for the intended purpose of the welfare center, and no private benefit was obtained," and claimed, "The defendant's disposition is illegal as it constitutes an abuse or excess of discretion." However, the court judged that the Yongsan District Office's disposition was justified based on the Financial and Accounting Rules for Social Welfare Corporations and Social Welfare Facilities.

The relevant rules stipulate that ▲ when receiving sponsorship funds, an account in the name of the corporation designated for sponsorship funds or an account in the name of the facility head with the facility's name noted must be used ▲ all income and expenditure of sponsorship funds, except for those in the form of goods, must be processed through the designated sponsorship fund account. Furthermore, the mayor, county governor, or district head may order improvement of the facility, suspension of business, replacement of the facility head, or closure of the facility if these rules are violated.

The court stated, "Receiving sponsorship funds in an unofficial account rather than the designated account violates accounting rules and constitutes accounting fraud, illegal acts, or other unfair acts," and ruled, "When receiving sponsorship funds, each corporation and facility must distinguish and use designated sponsorship fund accounts, inform sponsors in advance about the designation of accounts, and all income and expenditure of sponsorship funds must be processed through the designated sponsorship fund accounts."

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