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4.2.8. Promulgation, veto and publication of the adopted budget

Once the draft budget is approved by the National Assembly, the adopted budget automatically takes effect on the commencement of the new fiscal year after the President signs the budget. The budget is available on the internet sites of the MPB and the National Assembly.

4.2.9. Supplementary budgets (rectifying laws)

Under the Constitution, the executive can prepare a draft supplementary budget and submit it to the National Assembly when it is necessary to amend the initial budget (Art. 56). The BAA elaborates: a draft supplementary budget may be submitted only when it is necessary to amend the budget approved by the National Assembly due to any causes that have occurred after the budget has entered into force (Art. 33). While the general procedures for approving supplementary budgets are the same as that of the initial budget, in practice, they are usually not reviewed in the context of their expected overall impact on fiscal outcomes. There are no legal restrictions on the number of supplementary budgets. Recently, two to three supplementary budgets have been adopted each year.

4.2.10. Budgetary implications of other bills

The law does not specify any special procedures on how bills having budgetary implications are dealt with. However, the MPB requests line ministries to attach estimates of the budgetary implications of draft new legislation when it is presented to the State Council.

4.3. Budget execution

The BAA requires line ministries to execute their budget in accordance with guidelines issued by the MPB, after approval by the State Council. Line ministries are required to consult with, or to obtain a prior approval of the MPB, when it is necessary for them to deviate from the approved budget apportionment plan. The MPB is required to inform the MOFE and the BAI of any changes in budget implementation plans.

4.3.1. Apportionment of expenditure authority

The BAA governs the general procedures for apportionment of appropriations. When the budget enters into force, line ministries are required to submit a draft budget apportionment plan to the MPB (Art. 35). Considering those plans, the BAA requires the MPB to prepare the annual budget apportionment plan which is subsequently deliberated on by the State Council and signed by the President with the finance plan by the MOFE. Line ministries are required to implement their budget in line with these plans.

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4.3.2. Cancellation of budget authority and other in-year expenditure controls

There is no special law governing cancellation of appropriations. When it is considered necessary to reduce or cancel part of the appropriations, supplementary budgets may be used.

4.3.3. Emergency spending, excess spending and contingency funds

In order to meet unforeseeable circumstances after budget adoption, the BAA requires that unallocated contingency funds be included in the annual budget and approved by the National Assembly (Art. 21). The BAA specifies that the contingency fund, whose use is not initially specified, is controlled by the MPB (Art. 39). When it is necessary to use the contingency fund, line ministries are required to prepare a statement specifying the reason for its use, the required amount and the basis of the estimate, and to submit these to the MPB. For large-scale natural disasters, line ministries can make a demand on the contingency fund by making rough estimates of amounts. After examining the request(s) by line ministries, the MPB prepares a statement of use of the contingency fund, which is then approved by the State Council and signed by the President. The BAA further requires line ministries to prepare a statement of the amount used from the contingency fund and to submit it to the MOFE, which then is sent to the BAI after being deliberated on by the State Council and signed by the President (Art. 40). The government is also required to submit it to the National Assembly to obtain its approval, within 120 days before the end of following fiscal year.

4.3.4. Transfer and virement of appropriations within the year

The BAA places strict limitations on the use of appropriations. First, line ministries are prohibited from using the appropriations for any purpose other than those approved by the National Assembly (Art. 36). Nor do they have the authority to make transfers among the following budget categories: ministries or agencies, chapters, sections or items, as specified in the budget. If approved by the National Assembly in advance as a part of the annual budget, for the purpose of flexible budget execution, the BAA allows line ministries to transfer and use the appropriations for purposes other than those approved by the National Assembly. In this case, the approval of the MPB is needed at the time of implementation. Line ministries can transfer appropriations for sub-items (“Se-hang”) and sub-sub-items (“Se-se-hang”) the lowest levels of budget classification, but only with the approval of the MPB pursuant to the provisions of the BAA (Art. 37).

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4.3.5. Cash planning and management of government assets and debt

The Treasury Fund Management Act 2002 specifies the general procedure for cash management. The Act requires line ministries to prepare their monthly finance plan after the approval of the draft budget. Then, the MOFE, which is responsible for cash planning and management of government assets and debt, prepares the draft monthly finance plan. This is mainly based on line ministries’ proposals, and the prospects for revenues and expenditures. The plan is submitted to the MPB, approved by the State Council and signed by the President.

The Government Asset Management Act and the Government Bond Act provide basic procedures for the management of government assets and debt respectively. Line ministries are required to consult with the MOFE when there are prospective sales or purchases of assets. The BAA requires the government to regularly prepare a comprehensive report on the status of government assets and debt.

4.3.6. Internal audit

Line ministries have their own internal audit units for budget implementation within their ministry, including any agencies and funds (BAA, Art. 118). The MPB has the authority to investigate whether line ministries implement their budget correctly and to make an order on budget implementation to line ministries after this has been deliberated on by the State Council and approved by the President (Art. 117).

4.4. Government accounting and fiscal reporting

4.4.1. The accounting framework

The government’s accounts are cash based, although this is not specified explicitly in law. The possibility of adopting accrual accounting standards for the national budget is under investigation. In the meantime, the PEBAA requires some special accounts (including the national railroad special account, the communication service special accounts, the government supply special account, the grain management special account, the agency special account) to be recorded on an accrual accounting basis. Also, the FAFM requires the public funds to be recorded on an accrual accounting basis.

4.4.2. Government banking arrangements

There is no single consolidated account into which all revenues are deposited and out of which all expenditures are made. There are two main separate government bank accounts. First, the Treasury Fund Management Act requires a general bank account for the general and special accounts to be established at the Bank of Korea (the central bank). All revenues for the

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general and special accounts should be paid into, and all expenditures for the same account should be paid out of, this bank account only with the approval of the MOFE. Second, the public funds that have their own earmarked sources of revenue have their own accounts at the Bank of Korea. Such accounts are permitted by the individual laws establishing each public fund. Each bank account is managed by the individual ministry responsible for the management of each public fund.

4.4.3. In-year reporting to Parliament

The law does not specify the government’s in-year reporting obligations to the National Assembly on budget implementation. However, the NAA (Art. 53) requires the government to report any budget-related issue to Parliament’s Budget Committee if necessary.

4.4.4. Annual accounts and reports

The BAA requires the MOFE to prepare final accounts for central government transactions and have them audited by the BAI. For this, line ministries are required to prepare their own accounts for revenues, expenditures and public debt for the fiscal year concerned and to submit them to the MOFE no later than the end of February of the next fiscal year (Art. 42). The BAA further requires the MOFE to prepare consolidated accounts according to the same classification of the budget, which will then be deliberated on by the State Council and approved by the President (Art. 43). After that, the MOFE is required to submit them to the MPB and BAI no later than 10 June of the next fiscal year. The BAI must examine the accounts and send the result of its examination back to the MOFE no later than 20 August (Art. 44). Finally, the government is required to submit the annual accounts to the National Assembly no later than 120 days before the end of the following fiscal year. Therefore, the law allows a lag of nearly 9 months between the implementation of the budget and the submission of the annual accounts to Parliament.

Apart from the above report, the law does not require the government to submit special reports such as long-term projections or pre-election fiscal reports to the National Assembly. Like in-year reporting, if necessary, the Budget Committee may request the government to report any budget-related issue to the Committee (NAA, Art. 53).

4.5. External audit

4.5.1. Managerial, financial and operational independence

The Constitution establishes the BAI under the direct jurisdiction of the President, and prescribes its main role and its organisational structure (Arts. 97-100). The BAIA confirms that the BAI is established under the

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President. It also establishes that the BAI retains an independent status with regard to its duties, the appointment and dismissal of its officials, its organisation, and the formulation of its budget (Art. 2). The BAI is composed of seven commissioners, including the chairman, whose term is four years (Art. 3). The chairman is appointed by the President with the consent of the National Assembly (Art. 4). The other commissioners are appointed by the President on the recommendation of the chairman (Art. 5). A commissioner may only be dismissed against his/her will when an impeachment is declared, a punishment heavier than imprisonment is imposed or when a commissioner is unable to perform his/her duties due to mental or physical weakness for long periods (Art. 8).

In addition, the BAA provides special procedures for the financial independence of the BAI (Art. 29). If the requested amount of the budget is to be reduced, the MPB is required to hear the opinion of the BAI in the State Council and attach the reason for it to the draft budget to be submitted to the National Assembly.

4.5.2. Institutional coverage of audits

The BAI has the authority to audit all central and local governments, as well as direct or indirect public corporations. These include:

●The accounts of the central government.

●The accounts of local governments.

●The accounts of the Bank of Korea and the accounts of organisations where the central government or a local government holds more than a 50% share.

●The accounts of agencies established by laws that prescribe mandatory audit by the BAI.

●Organisations of the central government established under the GOA or other laws, and duties of the public officials assigned thereto.

●Organisations of local governments and the duties of the public officials assigned thereto.

4.5.3. Types of audit

The BAIA requires the BAI to examine the final accounts of revenues and expenditures in order to ensure that they are prepared in line with the laws and regulations concerned, and to inspect how the duties of administrative agencies and public officials have been undertaken in order to improve and promote the operation of public administration (Art. 20). In fulfilling these requirements, the BAI has traditionally focused on financial audits: whether the money is spent in compliance with legal and procedural rules. Recently the BAI has been broadening its scope and conducting some performance

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audits. There is no legal restriction preventing the BAI from completing performance audits. In 2004, the BAI conducted 70-80 performance audits, compared with 200-250 general financial audits (OECD, 2003).

4.5.4. Powers of investigation

The BAIA provides the BAI commissioners with various audit and inspection powers. The board of commissioners, when necessary for audit and inspection, is permitted to request the person concerned or witness to appear before it to answer questions, or to request a person of knowledge and experience to give an expert opinion or appraisal (Arts. 14 and 28). The BAIA requires persons subject to audit and inspection to submit such accounting statements, evidence, and other documents to the BAI as the BAI deems necessary (Art. 25). The BAIA also allows the BAI to seal warehouses, safes, documents and articles, if necessary, when conducting audits and inspections (Art. 27).

4.5.5. Reporting obligations and publication

The Constitution requires the BAI to report annually the results of the audit and inspection to the President and the National Assembly (Art. 99). The BAIA states the contents (Art. 41), which include:

●The annual accounts of the revenues and expenditures of the government.

●Any violations of laws or regulations found during the audit.

●Whether the National Assembly’s approval was obtained for spending from the contingency fund.

●Disciplinary action or reprimands requested and the results thereof.

4.5.6. Enforcement of findings

The BAIA stipulates the procedures for enforcing the findings of the BAI. The major enforcement tools include:

●Reparation for liability (Art. 31): after reviewing the results of an audit, the BAI adjudicates on whether an accounting official or any other person is liable for reparation in accordance with law.

●Request for disciplinary action (Art. 32): the BAI also can request the responsible minister to take disciplinary action against public officials.

●Request for correction (Art. 33): if the BAI has found a transaction that seems illegal or improper as a result of audit and inspection, it may request the responsible minister to correct it. The responsible minister is required to comply with such a request within the period set by the BAI.