Improvements of Corporate Internal Control System to Prevent Embezzlement of Funds

Abstract

A recent series of embezzlement of funds incidents in Osstem Implant, Woori Bank, Keyang Electric Machinery, KB Savings Bank CO., Ltd., MG Community Credit Cooperatives, AMORE Pacific, CLIO Professional, Lotte GRS, and National Health Insurance Service, etc. were brought on by sloppy internal control and have been dealing a big blow to many stakeholders. Therefore, public awareness on internal control system has been increasingly high in recent years. The followings are plans to improve internal control of Korean companies in order to eradicate embezzlement frequently occurring recently. First, commitment of the board and top management to internal control system is highly important. In terms of governance, they should have an independent control office and appropriately prevent from abusing power such as sloppy or self-righteous management of CEO under checks and balances. Secondly, as most of malpractices and embezzlement of funds are identified by reports, it is necessary to strengthen a whistle-blowing system and expand incentives to reporters such as giving additional points in their performance reviews or offering rewards. and also ongoing monitoring system should be actively utilized so that it can support internal control system in harmony. Thirdly, the scope of internal control in Korea needs to include non-financial areas as well and an integrated legal system should be established that covers compliance, accounting, operation management at the same time such as SOX Act in USA. Fourthly, basic preventive control measures such as segregation of duties, job rotation, and four-eyes principle should be established as they are essential means to prevent or detect malpractices and monetary incidents.