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The $1.8 Billion we were figuring out ways to spend - It's Not Real

“The checks and balances system that we have now did not work. I’m not saying that there was theft, but if there had been, nobody would know.”

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SC under federal investigation as auditors determine mystery $1.8B didn’t actually exist

COLUMBIA — Most of the mysterious $1.8 billion discovered on South Carolina’s books last year was never real. The seeming windfall was just more bad accounting, according to a report by outside auditors released Wednesday.

But the state has spent actual taxpayer dollars — at least $7 million so far — on investigative and legal fees in the wake of a series of major accounting blunders that have cast a shadow over the state’s financial agencies for the past two years.

The $1.8 billion came to light a year ago as part of a larger Statehouse investigation into a $3.5 billion accounting error by the state’s former top accountant.

Forensic audit findings by a Washington, D.C., firm contracted by the state found that all but $200 million of the $1.8 billion, like the earlier snafu, was only on paper — not actual cash. And the $200 million that was real isn’t excess that can be spent.

But the discrepancies in the ledger have drawn the scrutiny of federal securities and financial regulators, which have been conducting their own, unpublicized investigation for at least a year, state legislators revealed this week.

“Today we know, beyond a shadow of a doubt, the money does not exist. It never existed. It was double counted,” said Sen. Larry Grooms, R-Bonneau, who has led the Senate panel investigating the debacle.

Even the $200 million that was in state coffers at some point should’ve been cleared from the books years ago, he said.

During hearings, state officials said the $1.8 billion worth of entries was overlooked in the wake of a chaotic, decade-long transition from the state’s old accounting system to a new one.

“The question now: Was that an error? Was it negligence? Was it malfeasance? Misfeasance? Was it fraud or whether there was a cover up, all these things matter,” Grooms said.

Depending on the severity of what investigators from the U.S. Securities and Exchange Commission find, the state could face penalties ranging from a hit to its sterling credit rating to hefty fines, he said.

“If we have a downgrade in our bond rating, it’s going to cost the taxpayers millions, tens of millions — possibly even hundreds of millions of dollars — over a period of years,” Grooms said.

That’s because any time a government entity sells bonds to raise money, it relies on that credit rating to determine interest payments.

“So, it’s important that we get our financial house in order,” Grooms said.

According to the state Attorney General’s Office, it has already spent $4 million defending the state in the federal investigation and has requested another $5 million for continued defense. The state treasurer, comptroller general and auditor’s offices also are spending money on legal defense. This is in addition to the $3 million the state paid for the forensic audit.

“You start adding it up, that’s real money,” Grooms said.

The state’s woes began with an accounting error discovered in 2022 that came from a computer coding glitch that mistakenly double-counted public colleges’ revenue for more than a decade in the state’s annual financial report provided to Wall Street investors.

That ultimately led to the 2023 resignation of Richard Eckstrom, who had been the comptroller general since 2003.

Last year, the focus of the Senate investigation shifted to the office of state Treasurer Curtis Loftis.

Grooms has laid the blame for the latest snafu, which brings the state’s total accounting miscalculations to date up above $5 billion, at Loftis’ feet. He even went as far as to suggest the treasurer may have lied while under oath when he claimed the state had earned upwards of $190 million in interest on the funds since 2017.

“Clearly, you can’t earn interest on money that doesn’t exist. So, I’ll be curious to hear how he explains that,” Grooms said.

Grooms then renewed calls for the treasurer’s resignation.

“In the private sector, if anybody had made a blunder of $1.8 billion, whether it was an error, negligence, misfeasance, malfeasance, fraud or cover up, they would lose their job,” he said.

Loftis, for his part, continues to assert he’s done nothing wrong, pleading his case both to legislators and on social media.

“Every dollar, every dime the state Treasurer’s Office has is in our books and you can find it at any time,” Loftis told members of the Legislative Black Caucus on Tuesday, a day before the report’s publication.

“We think the people of this state should feel safe and confident their money is safe,” he said.

Gov. Henry McMaster, speaking to reporters Wednesday, stopped short of criticizing Loftis directly, instead saying the report showed “unintended accounting mistakes made by different parties involved in state government’s transition from an old accounting system to the new accounting system.”

“I have confidence in the intentions of people involved. I have confidence in all the constitutional officers, and I think everybody wants to do the right thing,” McMaster continued. “And again, in fact, there’s no evidence, no allegation by anyone, that anyone in these offices had ulterior motives or was intending to hurt anyone or steal anything. It’s just an accounting error.”

The issue, Grooms said, is that the Treasurer’s Office knew about the problem since 2016 and did not take action to help fix it. He said the former comptroller general and state auditor also are culpable.

“I’m not saying there was a crime. I’m not saying there was a cover up,” Grooms said. “But we knew that errors occurred and that the folks responsible for those errors chose not to try to correct them. They continued with the errors until they were exposed and then there was finger pointing.”

Legislation reworking the state’s accounting landscape could follow.

Some legislators have questioned whether the treasurer’s office should be part of the governor’s Cabinet, with the treasurer picked by the governor, rather than directly elected by voters.

Others have suggested requiring qualifications for running for the job, such as being a certified public accountant. State law sets no criteria. The state constitution requires only that a candidate for treasurer be at least 18 years old, live in the state, and not be a convicted criminal.

Loftis, a business owner, held an associate degree in retail management when he was first elected in 2010.

While being grilled by senators last year, Loftis said he will not seek a fifth term in 2026.

And Grooms said he’ll continue calls for an independent office of the state auditor, rather than housing it in an agency that answers to a five-member board that includes the treasurer and comptroller general.

“The checks and balances system that we have now did not work,” Grooms said. “I’m not saying that there was theft, but if there had been, nobody would know.”

“The taxpayers of the state, they work hard,” he continued. “They pay their taxes, and it’s up to us to spend those monies wisely for the benefit of our state, not to have reckless accounting and not to have reckless actions with the taxpayer dollars.”

House Democrat calls for SC treasurer’s impeachment over $1.8B accounting debacle

BY: JESSICA HOLDMAN - JANUARY 16, 2025 8:45 PM

COLUMBIA — In the wake of a report that South Carolina’s financial leaders allowed a $1.8 accounting blunder to linger on the state’s ledger for nearly a decade, one House Democrat is calling for the impeachment of state Treasurer Curtis Loftis.

Columbia Rep. Heather Bauer filed legislation Thursday asking the House to start impeachment proceedings for “dereliction of duty and the breach of the public trust.”

She said she hopes it prompts action from House GOP leaders.

“When it seemed like things weren’t happening, I thought, I’ll just throw a grenade at it and get the conversation started,” Bauer told the SC Daily Gazette.

The mysterious $1.8 billion – $1.6 of which auditors ultimately determined never really existed – came to light a year ago as part of a larger Statehouse investigation into $3.5 billion worth of accounting errors by the state’s former top accountant.

The unravelling began when a Senate panel started looking into errors discovered in 2022 by a deputy in the comptroller general’s office that involved the double-counting of public colleges’ revenue on annual reports given to Wall Street investors.

That ultimately led to the 2023 resignation of Republican Richard Eckstrom, who had been the comptroller general for 20 years.

The investigation, led by Sen. Larry Grooms, then shifted to the office of state Treasurer Curtis Loftis, a Republican first elected to the post in 2010.

With heads of the state’s fiscal agencies unable to account for the origins of $1.8 billion worth of ledger entries, the state spent $3 million on an outside consulting firm to figure out what happened.

After its findings were released Wednesday, Grooms again laid blame for the snafu on Loftis.

Grooms renewed calls for the treasurer to resign and said he’d like to see House leadership do the same.

“I hope the House will engage in this and will look into it, instead of just pushing it aside,” the Bonneau Beach Republican said. “Because anyone that takes a hard look at this can clearly understand that there are problems within our state’s finances and that the problems originated in the treasurer’s office.”

As an elected constitutional officer, Loftis’ boss is ultimately South Carolina voters. And he’s already said he won’t seek a fifth term in 2026. He can’t be simply fired. He could be forced out through an impeachment process.

But Grooms stopped short of calling for that.

“If he’d resign, it would be in the best interest of the state,” Grooms said.

Grooms said that’s because the state has been under investigation by federal securities regulators for the past year and he’s worried an impeachment trial could actually make things worse.

The billions in paper errors never affected the state budget, since legislators rely on a completely separate office that’s not headed by a politician for the numbers they use to craft the state’s spending plans.

But the state could face penalties ranging from a hit to its sterling credit rating to hefty fines, depending on how severely the U.S. Securities and Exchange Commission views the matter.

If the treasurer were to say or do something problematic during a trial, federal investigators could decide to pursue harsher sanctions.

“I don’t know what comes out in that,” Grooms said. “We’re already in rough seas.”

Loftis, for his part, continues to assert he’s done nothing wrong, pleading his case both to legislators and on social media.

“Every dollar, every dime the state Treasurer’s Office has is in our books and you can find it at any time,” Loftis told members of the Legislative Black Caucus on Tuesday.

A House hearing

House Republicans have said there are questions they’d still like to have answered before deciding whether to make their own calls for resignation.

“All of this bothers me on an incredibly deep level, but I’m not going to say 13 hours after getting this report that it’s time for people to lose their jobs,” West Columbia Rep. Micah Caskey told reporters.

For starters, he said, legislators have not heard from any of the officials involved to get their explanation on the audit’s findings.

“I think we would be doing a disservice to everyone to not give an opportunity for them to be heard,” Caskey said after auditors with the Washington, D.C., firm appeared before his subcommittee.

During the hearing, Caskey asked the auditors to compare their findings to Loftis’ previous statements to reporters and under oath before Grooms’ committee.

That included Loftis’ claims that the state earned more than $190 million in interest on the funds.

“From our view, we don’t see how the $1.6 billion could have been invested given the origins of where it came from,” auditor David Bligh responded.

The team speculated it could have been a calculation the treasurer made based on his office’s average pooled investment earnings, rather than an actual financial breakdown.

How it happened

Auditors then detailed what they discovered.

Like the $3.5 billion error in the comptroller general’s reports, problems with the treasurer’s records stemmed from a decade-long transition from the state’s old accounting system to a new one.

The old accounting system did not group entries the same, creating computing confusion.

Officials need state ledgers to line up with records held by the banks.

During the switch, the treasurer’s office used a “fake” account (that existed on paper only) to park dollar figures that couldn’t be matched to a specific investment bank, according to the auditors.

The fake money started accumulating in 2016.

The treasurer’s office assumed, incorrectly, that the proper filing for each entry would eventually be worked out, taking the account back to $0.

But by mid-2017, $1.56 billion worth of entries still remained.

At that time, officials in the comptroller general’s, treasurer’s, and state auditor’s offices, as well as external auditors contracted by the state, were all aware of the situation. But none attempted to get to the bottom of what caused the discrepancies.

Funds continued to be moved in and out of the account through the 2021 financial year, ultimately ending at $1.8 billion. At no point did any state financial officials alert legislators or regulators there were discrepancies in the books, auditors’ findings show.

“I feel a sense of frustration and anger about the position in which we find ourselves,” Caskey said. “In the last 24 hours, I’ve learned that apparently, these monies never existed. That stands in opposition to things that we’ve been told in the past — comments that I had taken to heart and shared with my neighbors and constituents about our situation over the last year or so.”

Caskey said the budget subcommittee plans to question the treasurer, auditor, as well as the new comptroller general, when they begin meeting again early next month.

But Bauer said she was not willing to wait around to see the issue “be swept under the rug.”

“I think the report was pretty clear (Loftis) knew about this for years and did not do anything about it,” she said. “It’s my judgement that he has to go immediately … If you can’t balance our books, you’re not fit for the job.”

“We have a chance to reset trust with the public,” Bauer continued. “Why let it linger?”

JESSICA HOLDMAN

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.

SC Daily Gazette is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.