Korail's accounting fraud

Moon administration doing nothing to reform state firms

Executives at Korail, one of Korea's major state-owned companies, are suspected of committing accounting fraud to inflate the company's net profit last year.

According to an audit of public organizations conducted by the Board of Audit and Inspection (BAI), Korail inflated its net profit by about 400 billion won ($330 million) to remain in the black. Specifically, the national railway corporation publicly announced that it chalked up a net profit of 289.3 billion won last year, when in fact it suffered a net loss of 105 billion won.

The BAI said the executives were unaware of the revised content of the Corporate Tax Act and miscalculated earnings. It's not incomprehensible that Korail and its auditor Samjong KPMG made a mistake in their calculations. However, , there are strong suspicions that they may have committed accounting fraud to appear to be a state firm in the black and receive good reviews in the government's annual evaluation of public organizations.

As a matter of fact, Korail received a grade B in the Ministry of Economy and Finance's 2018 evaluation announced in June this year, a cut above its grade C in 2017. For this reason, the chances are high that Korail may have inflated its earnings through fraudulent accounting to pretend to have performed well last year. Despite its chronic deficit, Korail paid more than 10 million won in performance-based bonuses per employee last year. Korail employees may receive a bigger performance-based bonus this year thanks to its higher grade.

Lax management and huge losses are not confined to Korail, though. Most state firms are beset by similar problems as the Moon Jaein administration is doing nothing to reform the beleaguered state corporate sector.

Yet it's surprising to find a big state firm suspected of accounting fraud. What is needed is to penalize those involved in fraudulent accounting, including the auditor, strictly to show the government's strong commitment to uprooting similar irregularities.