COLUMBIA — South Carolina has $1.8 billion of taxpayer funding sitting untouched in a bank account where it doesn’t belong. The elected officials in charge of managing the state’s finances don’t know or haven’t said where it was supposed to go after it went unaccounted for more than five years.
Lawmakers are now demanding answers, saying State Treasurer Curtis Loftis and the office of the state Comptroller General should have addressed the extra funds earlier, returning them to where they belong.
The mystery funds are part of the ongoing fallout from a $3.5 billion accounting snafu that went unchecked for a decade by the state’s top accountant. The error, found in late 2022 by a junior staffer, revealed former Comptroller General Richard Eckstrom’s ignorance to issues in his office despite past warnings from outside financial experts.
Had Eckstrom, a Republican who was elected in 2002, not resigned last year, lawmakers likely would have stripped him from office. But even with his departure and Gov. Henry McMaster’s appointment of a replacement, problems remain, according to legislators leading an investigation into South Carolina’s financial agencies.
Unanswered questions
The origin of the issue, Eckstrom and other state officials have testified, was a chaotic, decade-long transition from the state’s old accounting system to a new one, which took place between 2007 and 2017.
Ultimately, lawmakers say financial leaders haven’t provided answers as to why, during the melee, they parked this $1.8 billion in a largely logistical account used to transfer funds between state agencies. Nor do they know why officials never fixed it, said Sen. Larry Grooms, who has led a Senate Finance subcommittee investigation into the matter.
“This is one of the things that was swept under the rug for years,” the Bonneau Beach Republican told the SC Daily Gazette.
In a statement, State Treasurer Curtis Loftis said his office regularly balances the treasury’s books to outside entities such as banks, investment partners, and the statewide accounting system.
“All monies are accounted for and appropriately and securely invested and audited,” he said.
Accounting issues
The original blunder stemmed from a computer coding error in Eckstrom’s office, which caused the software that compiles the state’s annual financial report to double-count money sent to the state’s colleges and made it look like the state had more dollars on hand than it actually did.
Eckstrom’s mistake ultimately never led to the government bouncing checks because state budget writers don’t use that particular report when doling out funds. But it may have misled the credit agencies that rate the financial health of state and local governments.
In this case, the unaccounted funds actually dampened the full blow of the comptroller’s miscalculations. The comptroller used the funds, at least on paper, to buy down the overestimation of dollars in the state coffers.
“If not for this, it would have been worse,” Grooms said.
While the botched reports involved financial miscalculations that largely lived in Wall Street spreadsheets determining a government’s financial health and borrowing power, this portion of the scandal involves actual cash.
Finger pointing
Since then, lawmakers looking further into the matter say they’ve mostly met with finger pointing between the offices of the state Treasurer and Comptroller General. Right now all those people that should have the answers don’t, said Rep. Micah Caskey, a West Columbia Republican that sits on the House committee mirroring investigative efforts by the Senate.
Treasurer Loftis has pointed to the comptroller’s office, saying the accounting agency keeps the books on all state funds. But new Comptroller General Brian Gains can’t tell in which of the state’s thousands of accounts those funds belong. That’s where the treasurer’s office, which acts as the bank for state agencies and moves money between accounts to ensure it’s there when it’s needed, would likely come in.
“What we’re digging into now is what’s required of the treasurer and is this anything more than sloppy bookkeeping,” Grooms said.
While the money sat dormant for five years, neither side raised the alarm. Nor did state Auditor George Kennedy, whose job is to independently review the state’s financial record keeping. That’s how Kennedy found himself hauled before the Senate investigative committee last week.
“You’re the auditor, when something doesn’t look right you’re supposed to tell us,” Grooms said.
Kennedy told senators his office saw the funds sitting in the off-the-radar account in 2017 but waived it off in its annual audits, believing it was a temporary measure, part of the accounting system changeover, and had no “relevant” impact on the financial statements they reviewed. By 2022, they found out they’d been wrong.
“It is obviously relevant because there’s $1.8 billion in an account that shouldn’t be there,” Sen. Stephen Goldfinch said.
While the money is a fraction of the state’s total budget, it’s still a significant amount of dollars, The Murrells Inlet Republican added.
More to come
The cash remains, with lawmakers reluctant to spend it until they’re certain they hadn’t allocated it to go elsewhere in years past.
“It’s there,” Grooms said. “It belongs somewhere else.”
His guess — it was meant to be spread among the thousands of different accounts used by agencies to conduct state business. Instead, it was placed there for unknown reasons by the state Treasurer’s Office and never removed. Years of delays mean the agencies will now need to look harder for the funds’ intended destinations.
In the wake of the comptroller general scandal, the state hired an outside group to review the state’s system for tracking spending. The group’s report is due near the end of this month and Grooms expects more information to come.
“This is just the opening volley,” he said.
Jessica Holdman writes about the economy, workforce and higher education. Before joining the SC Daily Gazette, she was a business reporter for The Post and Courier.
