Alerts issued at 36% of complexes required to disclose fees; critics call for mandatory reporting of inspection and penalty results

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Questions are mounting over the effectiveness of a government early-warning system designed to detect fraud in apartment management fees. The system flagged nearly 8,000 complexes with suspicious alerts this year, yet the agencies responsible have been unable to track whether any follow-up action was taken.

According to data submitted to Democratic Party of Korea lawmaker Heo Yeong of the National Assembly's Land, Infrastructure and Transport Committee by the Ministry of Land, Infrastructure and Transport and the Korea Real Estate Board, the "early-warning system for misconduct in apartment management" issued at least one fraud alert this year at 7,851 complexes nationwide.

Those complexes represent 36.1 percent of the 21,729 apartment complexes required to publicly disclose their management fees.

The Ministry of Land, Infrastructure and Transport built the system in 2022 and handed its operation to the Korea Real Estate Board. It screens for suspected misconduct by analyzing management fees, long-term repair reserve funds, audit records, and contractor selection data registered in the K-apt apartment management information system.

The Korea Real Estate Board makes alert results available for local governments to review, and separately notifies the ministry of any complex that triggers alerts in five or more categories.

When Heo's office asked the Korea Real Estate Board whether local governments had conducted inspections or audits following the alerts, whether any violations had been found, and whether corrective orders, fines or investigation referrals had been issued, the board said it did not have the data.

The ministry fared little better. When asked for the same information, it submitted data from only six of the country's 17 metropolitan and provincial governments, and even those figures used inconsistent reporting standards, making it impossible to assess the national picture, Heo's office said.

Against that backdrop, the ministry and the Korea Real Estate Board overhauled the alert criteria in December last year, trimming the number of anomaly indicators from 31 to 20 on the grounds that some removed items — such as simple data-entry errors — had little bearing on actual misconduct.

Applying both the old and new criteria to data from the same point in time, the number of alerts fell 87.6 percent, from 81,241 to 10,080, while the number of flagged complexes dropped 60.8 percent, from 19,752 to 7,737.

The impact on complexes flagged in five or more categories — those separately reported to the ministry — was even more dramatic: the count fell from 8,255 under the old criteria to just seven under the new ones.

Among the deleted indicators was one the ministry itself had highlighted in 2022 as a key red flag: complexes that had not disclosed the results of any sole-source contracts in the preceding year. That indicator alone had generated 2,380 alerts just before the overhaul.

Another removed item — auditors who had not registered bank statements or balance certificates for management fee accounts — had triggered 1,530 alerts immediately before the revision.

The ministry released a package of management fee reform measures in May this year, including tougher penalties for fee fraud and tighter restrictions on sole-source contracting — yet the early-warning system had already dropped the related indicators months earlier.

From December last year through September this year, the ministry sent five guidance letters to the relevant metropolitan and provincial governments, attaching lists of complexes with five or more anomaly indicators and urging active use of the revised system.

Those letters contained no requirement for local governments to report back on whether inspections had been carried out or what penalties had been imposed. The only reference to future reporting was a line stating that a regular submission process to the ministry was "planned," Heo's office said.

"A system built to catch misconduct early has been sending out alerts, but the government has no idea what inspections were actually conducted or what penalties followed," Heo said. "We need to make it mandatory for local governments to record their inspection, detection and penalty results in the system, and the alert criteria should be re-examined based on actual cases of misconduct and their outcomes."


sun@heraldcorp.com