Audit sheds new light on apartment graft

One out of five apartments in Korea was found to have flawed or questionable financial statements, a government-initiated nationwide anti-corruption audit has revealed.

The anti-corruption bureau of the Office for Government Policy Coordination under the Prime Minister’s Office, in cooperation with the Ministry of Land, Infrastructure and Transport, the Korea National Police Agency and the Korean Institute of Certified Public Accountants, audited 8,319 of the country’s total 9,009 apartment complexes with 300 or more households each.

More than 70 percent of the country’s population resides in apartments. The outcome was announced Thursday.

Auditors found faults, including missing cash-flow statements, accounting omissions, construction contract violations, maintenance fund misuse and superfluous utility charges, in the financial statements of 1,610 - 19.4 percent - of the apartment complexes inspected.

In Seoul alone, the financial statements of one out of four apartments, or 27.6 percent, were assessed to be dubious or missing information.

An amendment to the Housing Act passed by the National Assembly in December 2013 stipulates that an annual external audit on apartment complexes with more than 300 households is required. The amendment was enforced starting Jan. 1, 2015.

The anti-corruption bureau collected inspection results until October 2015 and released the data Thursday.

“When external auditors inspect listed companies every year, they find less than 1 percent of their financial statements to be defective,” said Park Soon-cheol, the deputy chief of the anti-corruption bureau. “Taking that into account, the outcome [that 19.4 percent had dubious financial statements] demonstrated the extreme lack of transparency.”

“More than 70 percent of this country lives in apartments,” he added. “The lack of transparency in their financial statements poses a serious corruption problem in utility fee management.”

Of the apartments whose financial statements were assessed as flawed, nearly half, or 43.9 percent, failed to provide cash-flow statements.

In an apartment in Cheonan, South Chungcheong, the auditors found that about 2 billion won ($1.6 million) had been embezzled by apartment manager and others over the course of four years. The apartment manager transferred 370 million won from a utility fee banking account into his personal account from 2011 to 2014.

Until 2015, an additional 240 million won was withdrawn in cash, and another 1.23 billion won was transferred to a different account. The manager failed to provide documents to explain the purpose of the transactions.

The Land Ministry and local government entities conducted separate investigations into 429 apartments with defective financial statements. In 312 apartments, or 72 percent, they found 1,255 cases of corruption, including utility fee embezzlement.

Auditors discovered that 120 million won in utility fees from an apartment complex in North Gyeongsang was missing when matching the account book with the remittance amount of the utility fee bank account. They reported the case as suspected embezzlement.

They also uncovered that the women’s association of an apartment complex in Gyeonggi had arbitrarily used 15 million won worth of utility fees. In another case in Seoul, an apartment management company withdrew 500 million won from the utility fee account; though the company returned them at the end of the month, where it used the money in between remains unclear.

Missing cash-flow statements do not always mean utility fees were embezzled. But auditors did discover many cases of fee misuse.

According to the Korea Housing Institute, apartment utility fees amount to nearly 12 trillion won annually in Korea.

In a separate anti-corruption investigation on apartment management from November, authorities booked 153 people, including apartment managers and resident community representatives. In an apartment complex in Gyeonggi, police found a resident representative had surreptitiously taken 30 million won in bribes from a fitness company to allow it to establish a center within the complex.

“Local government entities will be conducting in-depth audits on apartment complexes with questionable financial statements,” said Park, the deputy chief of the anti-corruption bureau.

The police will take over investigations if criminal activity is suspected.

However, some critics say mandating yearly audits on local government entities will not be enough to fight corruption in apartment management.

“An accountant should be selected among residents, encouraging citizen-led efforts [to fight corruption],” said Shim Gyo-eon, a professor of real estate at Konkuk University.

Residents can access audit reports at the website of Apartment Management Info System by visiting www.k-apt.go.kr.

“A systemic manual on audit inspections is needed, which should include guaranteeing residents easy access to the reports,” said Choi Yong-hwa, professor of architectural engineering at Kyonggi University and an advisory member at the Research Institute of Anti-Fraud and Anti-Corruption. “Otherwise, all this auditing will be nothing more than a formality.”

BY SUNG SI-YOON, HWANG JEONG-IL, YUN JUNG-MIN, ESTHER CHUNG [chung.juhee@joongang.co.kr]