The Anti-Corruption and Civil Rights Commission Recommends Improvements to the Management System of the 'Local Government Integrated Financial Stabilization Fund'

Low-Interest Savings Leaving Funds Idle... Annual Interest Loss of Approximately 103.5 Billion KRW

The Anti-Corruption and Civil Rights Commission (ACRC) has recommended institutional improvements to ensure that the Integrated Financial Stabilization Fund (Integrated Fund), which manages the surplus funds of local governments, is operated more rationally.

Anti-Corruption and Civil Rights Commission. / Photo by Hyunmin Kim kimhyun81@

On the 2nd, during a briefing held at the Government Seoul Office, the ACRC announced that it had prepared measures to enhance the management and operation rationality of the Integrated Financial Stabilization Fund, which manages 31.4035 trillion KRW, and recommended institutional improvements to the Ministry of the Interior and Safety and local governments nationwide.

A total of 220 local governments nationwide have established and operate the Integrated Fund to efficiently manage short- and long-term surplus resources from general and special accounts and various funds. However, the ACRC’s investigation revealed multiple issues, such as leaving the fund’s operating capital in low-interest products and appointing private committee members with unclear expertise to the Fund Operation Deliberation Committee.

First, the Integrated Fund should be managed through public deposit accounts with restricted deposits and withdrawals to prevent embezzlement of public funds. However, 26 local governments (11.8%) were managing the fund through ordinary deposit accounts.

The operating capital of the Integrated Fund was also left in low-interest products. A sample survey of the fund operation status in 30 local governments by the ACRC revealed an interest loss of 7.06301 billion KRW over six months. When extrapolated to all 220 local governments, this is estimated to amount to approximately 103.59086 billion KRW annually.

The 'Financial Stabilization Account' within the Integrated Fund is a reserve system intended to compensate for revenue decreases or respond to disasters such as the COVID-19 pandemic, but its accumulation was inadequate. Despite meeting the accumulation criteria, some local governments either did not accumulate or under-accumulated, or set excessively high accumulation requirements, making actual accumulation difficult; this applied to 36 local governments (16.4%).

The Fund Operation Deliberation Committee was also operated inappropriately. 118 local governments (53.6%) violated the law by handling fund integration deliberations through general deliberation committees instead of the fund integration deliberation committee, and a significant number of private members without clear expertise in the fund sector participated in the deliberations.

Accordingly, the ACRC recommended institutional improvements including ▲establishing and operating public deposit accounts ▲formalizing the obligation for efficient management such as depositing in high-interest accounts ▲including the accumulation of the Financial Stabilization Account in deliberations ▲relaxing the accumulation requirements for the Financial Stabilization Account ▲prohibiting deliberations by non-fund committees ▲deducting points in the 'Fund Operation Performance Analysis Evaluation' if the ratio of private experts (1/3) is not met ▲and strengthening management of deliberation details and financial institution deposit status.

Jung Seung-yoon, Vice Chairman and Secretary General of the ACRC, said, "This institutional improvement has laid the foundation for the Integrated Fund, which manages enormous funds, to be operated rationally," and added, "We expect local governments themselves to take responsibility for local finances and make greater efforts to prevent financial leakage."

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