The Korea Local Administration Review

The purpose of this study is to evaluate internal controls in local governmentsand suggest how to improve the accounting control system, especially focusedon an embezzlement case involving a low-ranking public official in Yeosu CityGovernment.Through evaluating internal controls in Yeosu City Government, based on fiveelements of internal control, it was found that internal control system did notwork at all in Yeosu City Government. The findings are as follows:(ⅰ) Despite the importance of a strong internal control environment, thegovernment's internal controls became weak because local high-rankingofficials took the lead in committing an irregularity.(ⅱ) Before opening the Expo 2012, the government did not evaluate and manageinternal and external risks associated with accounting operations.(ⅲ) Due to the lack of segregation of duties, one public official was in completecontrol of the situation regarding the entire accounting transaction, resultedin significant financial loss. Accounting Information System, namely e-Hojo,was circumvented by hand work. Besides, control activities includingreconciliation was performed as a mere formality.(ⅳ) Formal and informal information and communication system was notsuccessful.(v) Top management did not periodically review and evaluate internal controlsystem.As a result, such overall weak system of internal control incurred theembezzlement case of Yeosu City Government. Therefore it could be urgent forlocal governments to effectively establish and maintain internal controlmechanisms that are necessary to prevent accounting fraud.
□ Keywords: Accounting Fraud, Internal Control, Internal Control Components