The Ministry of SMEs and Startups will inject a record 2.2 trillion won into small and medium-sized venture corporations' research and development (R&D). But with repeated cases of misappropriation of R&D funds by small and medium-sized corporations, some warn it could become "free money."
On 25th, the ministry said it would inject a total of 2.2 trillion won into SME and venture R&D. A representative support method is to expand and advance TIPS by matching government funds to corporations with demand in the private sector. Corporations selected for TIPS can receive up to 800 million won over two years, and outstanding corporations can participate in Scale-up TIPS to receive up to 3 billion won. In addition, corporations showing strong performance overseas will receive up to 6 billion won over four years through Global TIPS.
The ministry will also push system improvements to reduce administrative burdens on small and medium-sized corporations. Of up to 20 types of documents required, only the minimum essential documents will be submitted at the application stage, and after selection, required materials will be verified retrospectively by linking to the administrative information network.
Experts agreed on the direction of strengthening R&D to boost national competitiveness, but expressed concern that the expanded, more accessible budget could become "free money."
Kwak No-seon, a professor in the Department of Economics at Sogang University, said, "Because this R&D is related to key industries (such as AI and deep-tech startups), it is important in that it seeks Korea's growth drivers," but also noted, "If support stops at initial funding for corporations and there is no screening through continuous assessments of business viability, there will inevitably be people who regard it as 'free money' and take it."
In fact, misappropriation of R&D funds by small and medium-sized corporations has not stopped. According to the "Status of R&D Misappropriation Over the Past Five Years," submitted to Democratic Party of Korea lawmaker Kim Dong-a, a member of the Trade. Industry Energy. SMEs. and Startups Committee, by the Korea Technology and Information Promotion Agency for SMEs (TIPA), there were 129 cases of R&D fund misappropriation over five years, totaling 11.3 billion won. The number was highest in 2021 at 35 cases, followed by 22 in 2022, 34 in 2023, and 25 in 2024, continuing to occur.
By type, diverting labor costs was most common at 58 cases (4.6 billion won), followed by obtaining funds without supplying goods or by inflating unit prices at 39 cases (4.4 billion won). The recovery rate is also trending downward each year. The recovery rate, which was 73.6% in 2021, inched up to 73.7% in 2022, then fell to 64.4% in 2023 and 60.8% in 2024, continuing to decline.
However, some argue that strong systems are already in place to prevent current R&D misappropriation, and that tougher regulations could burden many corporations.
Lee Dong-joo, vice president of the Korea SMEs & Startups Institute (KOSI), said, "As issues of R&D fund misappropriation have continued to be raised, we have introduced various sanctions such as imposing a penalty period for misuse or setting up a separate account so funds are used only for their intended purposes," adding, "Nevertheless, increasing regulations to prevent the moral hazard that still occurs could instead create inconvenience for many corporations."
Lee also said, "When receiving R&D funds, post-management must be strengthened by attaching details of use and receipts." Currently, when the ministry allocates an R&D budget, the Korea Technology and Information Promotion Agency for SMEs (TIPA) is entrusted with and executes the budget and conducts post-management. When the corporations that received R&D expense support submit supporting documents on uses from time to time, TIPA's audit office detects violations and recovers the funds.
A ministry official said, "We are aware of concerns that next year's expanded R&D budget and simplified evaluation and selection procedures could increase the possibility of misuse," adding, "To prevent misuse such as R&D fund misappropriation, we will strengthen online and offline education and consulting for recipients and step up close management of corporations carrying out R&D by using accounting firms."
The official added, "We will continuously monitor fund execution and conduct inspections and crackdowns when detecting abnormal signs," and "We will actively work to recover recovery funds and additional monetary sanctions to the end."