Sen. Larry Grooms listens to state Treasurer Curtis Loftis on Tuesday, April 2, 2024, during a Senate Finance subcommittee meeting concerning $1.8 billion that has been discovered in an account. (Travis Bell/Statehouse Carolina/Special to the SC Daily Gazette)
COLUMBIA — The bills continue to pile up as South Carolina legislators consider spending more money on a series of accounting snafus that have the state staring down the barrel of a federal securities investigation.
A Senate budget committee wants to repurpose $1.2 million from the current state budget to hire an outside financial supervisor in an effort to stave off sanctions from the Securities Exchange Commission, which for the past year has been investigating the state’s financial agencies.
The proposal comes out of a forensic accounting report released last week finding the state’s financial leaders allowed a $1.8 billion accounting blunder to linger unreported on the state’s ledger for nearly a decade.
Legislators hired the forensics accounting firm, AlixPartners, last year after a Senate panel was alerted to what appeared to be $1.8 billion of taxpayer dollars sitting untouched on the state’s books with no record of where it was supposed to go.
SC under federal investigation as auditors determine mystery $1.8B didn’t actually exist
Last week’s report revealed that all but about $200 million of the $1.8 billion never actually existed. And the $200 million that was real isn’t excess that can be spent.
It’s just more bad accounting related to an earlier $3.5 billion error that went unchecked for a decade.
That earlier mistake stemmed from a computer coding issue in the office of former Comptroller General Richard Eckstrom, which resulted in public colleges’ revenue being doubled counted. It looked like the state had $3.5 billion more on hand than it actually did.
That ultimately led to the 2023 resignation of Eckstrom, who had been the state’s top accountant since 2003.
Sen. Larry Grooms, who has led the Senate inquiry, has blamed the latest mess on Treasurer Curtis Loftis — a claim the treasurer has vehemently denied.
“The assertion that my office failed to disclose critical information for years is categorically false,” Loftis wrote in a letter sent to the SC Daily Gazette. “Transparency has been, and continues to be, a cornerstone of my administration.”
Grooms renewed calls last week for Loftis to resign.
More money
Now, as the state tries to stay out of federal investigators’ crosshairs, Grooms’ subcommittee wants the Legislature to recycle $1.2 million. It’s money the budget provided the Treasurer’s Office to help resolve questions about the $1.8 billion. But Loftis’ office hasn’t used it.
Grooms suggests using it to hire an outside firm to monitor the comptroller, treasurer and auditor’s offices to ensure they’re following recommendations for preventing another blunder.
“In other words, we need to hire a babysitter to take a look at what happens within the state’s Treasurer’s Office, within the Comptroller General’s Office and with our internal auditor,” said Grooms, R-Bonneau Beach.
The $1.2 million available for redirecting could cover oversight for the next six months, according to estimates from legislative staff. But the forensic accountants estimate it could be two years before issues are fully resolved. That means legislators could need to designate more money for the next two state budgets.
Meanwhile, the state Attorney General’s Office has already spent $4 million defending South Carolina 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, the Bonneau Beach Republican said.
This is in addition to the $3 million the state paid for the forensic audit.
Sen. Wes Climer, R-Rock Hill, asked about the need to bring on yet another outside firm, rather than relying on legislative oversight.
One of the forensic accountants, Susan Markel, previously worked for the Securities and Exchange Commission. She said federal regulators could ultimately choose to impose its own monitor on the state “if it’s not satisfied that the house has been put back in order.”
Markel said being proactive would show that South Carolina lawmakers are “taking this seriously” and would aid the state’s lawyers in negotiations.
The eight-member Senate subcommittee unanimously approved the proposal Tuesday, sending it on for further consideration.
Treasurer’s response
None of the accounting errors put the state’s coffers in the red because state budget writers rely on a separate agency for revenue projections. But the erroneous reports may have misled Wall Street credit agencies that rate the financial health of state and local governments.
The origin of the issue, financial 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.
David Bligh, one of the forensic accountants, told legislators it’s not uncommon for organizations to encounter issues when making a major accounting system shift. The difference, he said, is in how the state’s financial leaders, who knew about the issue as early as 2016, responded: They didn’t alert lawmakers or conduct their own investigation into the discrepancies.
“We don’t particularly see issues like this going on for as long as they have without resolution,” Bligh said.
Loftis, who has said he won’t seek a fifth term in 2026, brushed off calls for his resignation, as well as a House Democrat’s call for impeachment. He says he’s not at fault.
House Democrat calls for SC treasurer’s impeachment over $1.8B accounting debacle
“The $1.8 billion conversion entry was a shared responsibility among several agencies, not an isolated failure of the State Treasurer’s Office,” he wrote in the letter.
“From the moment concerns arose, my team acted swiftly and within legal parameters to address them,” Loftis continued. “To suggest otherwise ignores the collaborative nature of state financial oversight and unfairly assigns blame for systemic issues.”
Constitutional changes
Voters could ultimately decide whether they want to keep electing a state comptroller general.
A resolution approved by a Senate panel Tuesday would ask voters in November 2026 whether the state’s top accounting post should cease being publicly elected. If voters say “yes,” the governor would fill the position, with Senate approval, said Sen. Chip Campsen, the referendum’s chief sponsor.
Most voters don’t know what the comptroller general does, making it difficult to make changes when problems arise, said Sen. Josh Kimbrell, R-Boiling Springs.
If the person is no longer a constitutional officer, “there’s greater accountability that when this person does something like we just experienced, we can kick them out,” Kimbrell said.
Last March, the Senate unanimously approved putting the question on the next general election ballot, which would’ve been last November. But the House never took up the measure. A constitutional referendum requires two-thirds approval by both chambers.