The Korea Local Administration Review

This study aims to examine the current status and problems of contingent liabilities that could adversely affect the fiscal soundness of local governments and to propose measures for improvement. To achieve this, comprehensive analysis of the financial disclosure information based on the closing standards of regional and basic local governments from 2014 to 2021 was conducted to collect data on the current situation of local contingent liabilities. The analysis results revealed structural limitations in the identification, disclosure, and management of contingent liabilities in local governments in South Korea. Based on these issues, the following suggestions for improving the system of contingent liabilities in local governments can be proposed. Firstly, to enhance the precision of contingent liability identification, it seems necessary to revise and provide clear guidelines for government officials and to conduct regular education. Collaboration with private companies or other relevant central agencies could be considered in this regard. Secondly, for the improvement of the contingent liability disclosure system, it is necessary to centralize the disclosure channels or disclosure timing. Thirdly, there is a need to increase the specificity and accuracy of disclosure information. Fourthly, for the improvement of the contingent liability management system, it is recommended to internally manage the contents of agreements related to contingent liabilities on a project-by-project basis using advanced systems like the Next Generation Integrated Accounting System. Fifthly, as an external measure for improving contingent liability management, it is suggested to review the total issuance limit, including the local government bond issuance, and to differentiate and reflect it based on the types of contingent liabilities. Additionally, a reevaluation of the accounts related to contingent liabilities and contingent liabilities for future generations is proposed.