– Loopholes are emerging in the internal control system of the Korea Land and Housing Corporation (LH), which has nearly 10,000 employees. It is evaluated that the suspicion of LH employees’ speculation on land in the new city was also a deviation brought about by a weak governance structure and a poor internal control system.
As a result of analyzing the composition of LH’s board of directors, Maeil Economic Daily on the 5th, six directors, including the president, were internal employees of LH, and many external board members were from civic groups.
Standing auditor Huh Mo is a member of the Korea YMCA National Federation, and non-executive director Kim Mo (International E-Sports Federation for the Disabled) and non-executive director Yoon Mo (Hope Factory) are also affiliated with civic groups.
Pro-government figures stand out throughout the board of directors. Standing auditor Huh served as a standing representative of the Gyeongnam Regional Committee of the “People, the World, and the Labor Current Group”. He also served as co-representative at a civic camp to support the election of the Democratic United Party presidential candidate Moon Jae-in during the 18th presidential election in 2012. Former non-executive director is a former designer of Rojae Lee, a general architecture office. Lee Ro-jae is housed by architect Seung Hyo-sang, well known as a friend of President Moon Jae-in’s high school days.
Problems have also emerged in the way the board of directors operates. LH replaced five of its 10 board meetings in writing last year. Of the 35 agendas, 31 agendas (88%) were passed as they were. LH pays 100 million won to standing directors and auditors, and 30 million won to non-executive directors. In the case of eight non-executive directors consisting only of external personnel, the money received after attending five or more meetings is equivalent to the starting salary of a small and medium-sized business.
Although LH is a public company, the main contents of the board of directors are not even disclosed properly. All the agendas that were passed as they were in the original draft were left as’no opinions’, and individual opinions of the committee members were not disclosed even on the very few agendas that raised issues. This is a big difference in that the Fund Committee, the highest decision-making body of the National Pension Service, records all the detailed comments of its members and discloses them to the public.
Recently, the problem of poor accounting management has also come to the fore. In January, the Board of Audit and Inspection took cautionary measures against LH’s fiscal 2019 financial statements. This is because due diligence on inventory assets amounting to KRW 67 trillion was not properly performed during the accounting settlement process. LH included 800 million won worth of consumable incidental expenses spent on sports events, integrity education, opening ceremony and retirement ceremonies as construction cost, and there were errors in the won and long-term loans and employee loans on account books.
The problem is that there is no room for improvement. LH’s accounting audit in 2018 also showed a difference between the balance of government subsidies not expended within the fiscal year on the books and the actual balance of deposits. The scale amounted to 2.14 billion won. LH concluded the audit process by promising to identify the cause of the difference and take action, but the same problem recurred in the settlement of accounts in 2019. There was a difference of 220 million won between the balance of the unexpensive government contribution deposit and the balance of the government report on the accounting books.
In 2009, the government office was suspicious of inflating the value of assets, and in 2010, it was pointed out that 640 billion won was in error due to poor accounting management. In 2011, LH compared the debt ratio according to the old International Business Accounting Standards (IFRS) and the debt ratio according to the new accounting method on the same line. In the process, I was confused after promoting that the debt-to-equity ratio had decreased.
One accountant said, “If it were a publicly traded company, it would have been possible to talk about delisting,” and said, “If the asset size reaches 176 trillion won, it is a conglomerate that can fit within ten fingers in Korea, but lazy accounting does not make sense.” LH’s internal audit organization was identified with 50 people. In the audit report for the inspection of public office skills conducted in December last year, 99 out of 107 reported audit results were focused on catching employees’ on-site stay expenses and excessive travel expenses.
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