2024.08.21. The Fair Economy — The Korea Democracy Foundation was found to have given grants to recipients without checking whether they were already receiving support from other institutions. The foundation also did not conduct any follow-up checks on duplicate support and failed to properly handle settlement work. Such sloppy subsidy provision and management by the foundation also led to accounting fraud by private organizations.
The Ministry of the Interior and Safety recently released the '2023 Audit Results of the Korea Democracy Foundation' containing these findings.
Duplicate support for identical or similar projects subsidized by local governments
The Ministry of the Interior and Safety reviewed settlement documents submitted by local governments for 205 non-profit corporations and groups supported by the foundation from 2020 to 2023. It found that 14 groups (a total of 50 cases, 2.65 billion won) received duplicate support from the foundation for identical or similar projects already subsidized by local governments.
In addition, in the Support Project for Inheriting the Spirit of the Democratization Movement carried out from 2020 to 2021, the foundation determined and supported recipients within the budget based on applications from private groups rather than through a public competition. It pushed forward support without establishing guidelines regarding restrictions on duplicate support with local governments.
Furthermore, there were cases in which some private organizations received simultaneous support from a total of four institutions, including the foundation, for the same or similar projects in the same year.
Negligence in verifying expenditure evidence related to improper receipt during settlement
An examination of the settlement documents of private organizations that received duplicate support from both the foundation and local governments found that some organizations submitted the same tax invoice to both the foundation and the local government, or submitted separate performance reports using the same photo but with different dates listed (4 cases, 9 million won), or submitted supporting documents claiming that the same items, such as banners, or the same services, such as performances, had been supplied by different vendors (8 cases, 47 million won).
Even though there were accounting irregularities such as reporting the foundation's grants to local governments as if they were self-funded, or conversely reporting local government subsidies to the foundation as if they were self-funded (5 cases, 21 million won), the foundation failed to catch any of it.
As a result, the foundation took no action at all regarding these illegal acts, such as canceling the selection of the recipients or recovering the grants, and simply completed the settlement process as is.
Recovery difficult due to excessive support via outsourcing contracts
Under the Subsidy Act, when the foundation re-disbursed subsidies received as indirect subsidies to external private groups for management, it could impose sanctions under the act if the indirect subsidy recipient received duplicate support or received subsidies through other improper means.
However, the foundation instead carried out projects by signing outsourcing contracts with outside private organizations or by paying costs directly to vendors that the outside private organizations dealt with.
Consequently, controversies could arise when imposing sanctions under the Subsidy Act—such as excluding from subsidy performance, recovering subsidies, imposing and collecting penalty surcharges and additional charges, publishing lists, or filing complaints—against private groups that violated foundation guidelines and contract terms by receiving duplicate support for project costs or falsely claiming project costs.
The Ministry of the Interior and Safety pointed out that if the relevant groups that received duplicate funds do not voluntarily return them, recovery may be difficult without litigation over breach of contract terms, potentially causing losses to the foundation and the national treasury.
The Ministry of the Interior and Safety notified the chairperson of the Korea Democracy Foundation to take disciplinary action against staff who neglected duties such as managing and executing national subsidies, to recover funds from private organizations that received duplicate support for the same or similar projects already subsidized by local governments in accordance with contract terms and return them to the Ministry, and to prepare and implement measures such as restricting future project participation.
It also issued a warning that, going forward, when supporting private organizations, the foundation must comply with procedures under the Subsidy Act and must not provide duplicate support for projects already funded by other state agencies or local governments, nor support organizations that are ineligible.
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