In most cases, the government’s fiscal assistance for public institutions is either direct, in the form of contributions and subsidies, or indirect, in the form of fees received for commissioned or monopolized services under applicable laws. These fees have been rising every year, and in 2013 alone, they totaled KRW 20.4 trillion at 295 public institutions.
Fee income of public institutions is often subject to looser monitoring and control than public utility charges including electric and gas charges, but has a significant impact on the national economy. In fact, many Korean nationals question the calculus behind the fees payable to public institutions in return for their services, such as airport utilization and stock trading fees, and clearing their suspicion is quite difficult. This assessment report intensively analyzes and evaluates fees garnered by public institutions for commissioned or monopolized services. Said fees are defined as fees that primarily arise as a result of these institutions’ pursuit of monopolized business or performance of business affairs commissioned on reasonable grounds under applicable laws, other than fees collected by the central and local governments.
Twenty-seven public institutions, including the Incheon International Airport Corporation, were earning fees for commissioned or monopolized services as of the end of 2012, and these fees have been rising steadily. They totaled about KRW 2.9 trillion in 2012, a 38.7% increase of KRW 802.3 billion from KRW 2.1 trillion in 2008.
Problems with public institutions’ commissioned and monopolized service fees and methods to address them are summarized as follows:
Firstly, it
is pointed out that there are no clear fee calculation standards. The fees may not, as a result, necessarily be reasonable, accurate, or consistent, and this in turn undermines consumer trust. Certain institutions, including the Incheon International Airport Corporation and the Korea Exchange, set the fee rates themselves. As there are no detailed criteria as to which costs must be factored in when setting the fee rates, however, those rates may be arbitrary. Clearly, there is a need to formulate detailed fee calculation standards for each public institution and determine the appropriate levels of fees based on the actual costs incurred.
Secondly, it
is found that most of the public institutions collecting fees do not have specific criteria for defining their services and giving them appropriate treatment in their accounting. As accurate cost accounting cannot be done under such conditions, there is no way to ascertain what constitutes an "appropriate" fee. Matters are further complicated by the fact that the aforementioned 27 public institutions receiving fees for commissioned or monopolized services are engaged in other business activities, in addition to those that entail fee collection. Absence of service classification standards and separate accounting renders precise activity-based costing for their fee-generating services impossible. The obvious solution for major public institutions collecting these service fees is to duly examine the possibility of introducing a separate cost accounting system.
Lastly, the need to periodically review the appropriateness of fees was suggested. In other words, public institutions may make excessive profits in consideration of their actual costs if the reasonableness of their service fees is not subject to regular scrutiny. As a matter of fact, the Korea Airports Corporation and the Korea Securities Depository have racked up an increasing volume of fees such as passenger fees, causing their net financial assets to expand consistently. In other words, public institutions’ receipt of excessive service fees increases their surplus assets, which prompts them to grant their employees overgenerous fringe benefits. According to the public institution normalization measures unveiled by the Ministry of Strategy and Finance (MOSF) in December 2013, the Incheon International Airport Corporation, Korea Securities Depository, and Korea Broadcast Advertising Corporation are among twenty recklessly managed institutions requiring focused control that are cited by the MOSF for granting the largest fringe benefits per person due to excessive collection of such fees. Accordingly, it was suggested that a legal provision mandating a competent agency’s regular examination of the reasonableness of major service fees be added to laws governing such fees or to Article 4 of the Price Stabilization Act. In addition, no separate agency oversees public institutions’ fees, including the aggregate amounts collected, across the board. Thus, a possibility is raised that the MOSF, which is in charge of consultation over such fees, be entrusted with preparing statistics on all fees collected by public institutions and reporting them to the National Assembly.
Fee income of public institutions is often subject to looser monitoring and control than public utility charges including electric and gas charges, but has a significant impact on the national economy. In fact, many Korean nationals question the calculus behind the fees payable to public institutions in return for their services, such as airport utilization and stock trading fees, and clearing their suspicion is quite difficult. This assessment report intensively analyzes and evaluates fees garnered by public institutions for commissioned or monopolized services. Said fees are defined as fees that primarily arise as a result of these institutions’ pursuit of monopolized business or performance of business affairs commissioned on reasonable grounds under applicable laws, other than fees collected by the central and local governments.
Twenty-seven public institutions, including the Incheon International Airport Corporation, were earning fees for commissioned or monopolized services as of the end of 2012, and these fees have been rising steadily. They totaled about KRW 2.9 trillion in 2012, a 38.7% increase of KRW 802.3 billion from KRW 2.1 trillion in 2008.
Problems with public institutions’ commissioned and monopolized service fees and methods to address them are summarized as follows:
Firstly, it
is pointed out that there are no clear fee calculation standards. The fees may not, as a result, necessarily be reasonable, accurate, or consistent, and this in turn undermines consumer trust. Certain institutions, including the Incheon International Airport Corporation and the Korea Exchange, set the fee rates themselves. As there are no detailed criteria as to which costs must be factored in when setting the fee rates, however, those rates may be arbitrary. Clearly, there is a need to formulate detailed fee calculation standards for each public institution and determine the appropriate levels of fees based on the actual costs incurred.
Secondly, it
is found that most of the public institutions collecting fees do not have specific criteria for defining their services and giving them appropriate treatment in their accounting. As accurate cost accounting cannot be done under such conditions, there is no way to ascertain what constitutes an "appropriate" fee. Matters are further complicated by the fact that the aforementioned 27 public institutions receiving fees for commissioned or monopolized services are engaged in other business activities, in addition to those that entail fee collection. Absence of service classification standards and separate accounting renders precise activity-based costing for their fee-generating services impossible. The obvious solution for major public institutions collecting these service fees is to duly examine the possibility of introducing a separate cost accounting system.
Lastly, the need to periodically review the appropriateness of fees was suggested. In other words, public institutions may make excessive profits in consideration of their actual costs if the reasonableness of their service fees is not subject to regular scrutiny. As a matter of fact, the Korea Airports Corporation and the Korea Securities Depository have racked up an increasing volume of fees such as passenger fees, causing their net financial assets to expand consistently. In other words, public institutions’ receipt of excessive service fees increases their surplus assets, which prompts them to grant their employees overgenerous fringe benefits. According to the public institution normalization measures unveiled by the Ministry of Strategy and Finance (MOSF) in December 2013, the Incheon International Airport Corporation, Korea Securities Depository, and Korea Broadcast Advertising Corporation are among twenty recklessly managed institutions requiring focused control that are cited by the MOSF for granting the largest fringe benefits per person due to excessive collection of such fees. Accordingly, it was suggested that a legal provision mandating a competent agency’s regular examination of the reasonableness of major service fees be added to laws governing such fees or to Article 4 of the Price Stabilization Act. In addition, no separate agency oversees public institutions’ fees, including the aggregate amounts collected, across the board. Thus, a possibility is raised that the MOSF, which is in charge of consultation over such fees, be entrusted with preparing statistics on all fees collected by public institutions and reporting them to the National Assembly.