S.C. Treasurer Curtis Loftis asks for help from his staff 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 — 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.
Senator says SC treasurer ‘breached the public trust’ by not flagging $1.8B in mystery funds
During hearings, state officials said the $1.8 billion entry 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 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.
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“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 million, 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.
SC Senate report says $1.8B blunder is Treasurer Loftis’ fault
“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. South Carolina law requires only that a candidate for treasurer be at least 18 years old, live in the state, and not be a 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.”