State funds poorly managed, audit shows

It was found that the nation`s 62 state-controlled funds, including the national pension fund, have been managing their assets without strategies, operating funds at their own will and lacking in specialty, thus causing losses to the funds.

Some funds found to have invested in operation of hotel facilities and suffered a loss, while others offered their deposits to a specific financial institution. The funds total nearly 200 trillion won, double the government`s annual budget. So it was pointed out that an overall reform in supervision of the funds is vital because insolvency in the management of the massive funds could lead to a burden on taxpayers.

The Ministry of Planning and Budget reported at the August 29 Cabinet meeting the results of a survey conducted in February by the fund evaluation team, consisting of private experts in the fields of finance, banking and accounting, on 62 funds, including 42 public funds and 20 other funds. It was the first evaluation of funds since the fund system was introduced in 1961.

As a result of the evaluation, it was found that the funds have a series of problems, including investments in profit-oriented businesses that are far from the fund`s goals, duplicated and sharing financial aids and lacking in management specialty. The pension fund of private school employees runs seven buildings, including Osaek Green Yard Hotel, while worker`s welfare promotion fund and military personnel`s welfare fund incurred losses by running subsidiary businesses.

A literary arts promotion fund spent 51.4 billion won in 858 business projects, while a women`s development fund used 200 million won in 13 different projects. Small business startups and promotion fund, informationization promotion fund and industrial basis fund were found to have wasted money by offering money to duplicated beneficiaries. Fund operation for the workers` welfare fund is examined by the board of directors of worker`s welfare corporation, so any objective screening of the fund is difficult to ascertain. In particular, most funds have failed to set specific plans for asset management and deposited excessively large amounts of money in a single financial institution or run the fund in short-term financing, thus neglecting the strategy for risk management that is vital for fund operation. The government plans to reduce the number of funds to 55 through mergers while changing 10 of 20 other funds that do not have to report settlements of accounts to the National Assembly, into public funds by the end of 2003.