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POLITICSState House

South Carolina’s Missing $1.8 Billion… Doesn’t Exist?

An “amalgamation…”

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Accounting errors which led to a reported surplus of $1.8 billion actually didn’t create a surplus for South Carolina state government, according to a new report issued by the administration of governor Henry McMaster.

As a result, McMaster says there’s no surplus money to give back to taxpayers…

According to the report (.pdf), the $1.8 billion “represents the net cash balance of thousands of journal entries” made for the purpose of allowing S.C. treasurer Curtis Loftis to “balance the bank general ledger accounts” with separate balances held “in the individual bank accounts.”

It’s a data entry error, in other words…

“This comprehensive forensic accounting report confirms that there is no $1.8 billion surplus,” McMaster said in a statement accompanying the release of the report. “There is no missing or stolen money. The funds do not exist.”

Translation? “Move along… nothing to see here.”

Last March, our media outlet first reported that $1.8 billion had been discovered by a state auditor sitting untouched in a pass-through account – for five years. The discovery of this money sparked a furious debate at the S.C. State House – with some lawmakers wanting to return it to taxpayers and others wanting to spend it.

Per the report, “approximately $1.6 billion of the $1.8 billion is the result of incorrect journal entries… and the remaining approximately $200 million is already included in the reported bank balances of the (treasurer’s office).”

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“In other words, the $1.6 billion is not actual cash (i.e. cannot be spent nor appropriated),” the report noted.

Prepared by Alix Partners, the report was released on Wednesday (January 15, 2025) after several delays.

Loftis’ office was criticized in the report for its alleged failure to “investigate the underlying causes of the differences between the state’s accounting system and the bank” – even though the treasurer is not the state’s accountant. In fact, the state’s accountant at the time was later forced from office for making a much bigger accounting error.

In February 2023, former S.C. comptroller general Richard Eckstrom announced that his office had uncovered a $3.5 billion “anomaly” in the state’s general fund budget. Later revelations pushed the imbalance to a whopping $5.8 billion. According to Eckstrom, the anomaly was attributable to “differences in the way the state was accounting for cash that was transferred over to colleges and universities” during the Covid-19 pandemic.

Eckstrom’s disclosure prompted a legislative investigation – and within two months, the Republican official resigned under pressure. Lawmakers were supposed to elect a replacement, but couldn’t agree on whom to appoint – and wound up punting the matter to McMaster’s office.

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BLAME GAME…

While Loftis is bearing the brunt of the blame for the fiasco – including calls for his resignation – the recommendations contained in the report highlighted the extent to which the onus should fall on the shoulders of the comptroller general.

Of the dozens of recommendations put forward, only one is exclusively tied to the treasurer – a call for new “policies and procedures” related to the reporting of cash and investments in its custody. Conversely, numerous recommendations target failures on the part of the comptroller general.

Specifically, the report recommended the state’s accountant be required to “reconcile cash and investments,” provide “sufficient” documentation regarding cash balances to the treasurer, create a checklist for the “quality and accuracy” of the reports it does provide, establish a “formalized process” for recording and reconciling appropriations while also implementing a “standardized procedure” for tracking and documenting errors.

The report also recommended the comptroller “hire additional staff” and establish new requirements for “quality review.”

“They believed they did the best they could with the limited resources they had,” the report found.

They were wrong…

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RELATED | SEC PROBING SOUTH CAROLINA’S FINANCES

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Shockingly, the report also revealed political pressure had been exerted on the understaffed comptroller general’s office. According to the document, Eckstrom once “insisted” an annual report be released in time for his office to be considered for a national accounting award. This revelation prompted reviewers to note the comptroller’s office “would benefit from establishing requirements that would mitigate any undue pressure going forward.”

Numerous other entries highlighted flaws in the comptroller general’s accounting procedures which must be rectified moving forward.

While the report would seem to put to the matter of the missing $1.8 billion to bed, glaring limitations in the review panel’s scope of work were referenced in a series of disclaimers published at the tail end of the findings. For example, the authors of the report acknowledged multiple “known limitations” which hindered their efforts.

Among them:

  • While we received read-only access to the State’s audit workpapers for fiscal years 2017 through 2023, we did not perform a detailed review of those documents as they were not directly within our Scope of Work. We therefore have limited observations thereon. In accordance with its document retention policies, the State did not retain its audit workpapers prior to 2017. 
  • Generally, due to limits in record retention, we received limited banking data prior to 2016, and received single-page bank statements for 2015. 
  • We could not directly reconcile banking data to SCEIS prior to fiscal year 2016, as that was the first year the STO reconciled SCEIS by bank account. 
  • Due to employee turnover, we did not have complete access to all employees with relevant firsthand knowledge of all relevant events. 
  • We could not determine the bases of certain transactions (e.g., entries recorded within and outside of SCEIS) due to the lack of available, contemporaneous documentation. 
  • We were not provided with comprehensive documentation for certain key processes, often because such documentation did not exist. 
  • We did not have subpoena power, nor did we place individuals under oath. Many of our interviews were conducted in group format (i.e., in the presence of management). Certain interviews were conducted in the presence of counsel engaged to represent the agencies in related matters. 
  • Due to scheduling and access, we interviewed certain key witnesses in the last month prior to submission. 

Furthermore, a separate disclaimer noted the report was performed “under the direction” of McMaster’s administration – hardly an independent inquiry.

Perhaps most significantly, the firm which compiled the report “has not subjected the information (it was) provided to an audit or examination in accordance with generally accepted auditing standards or attestation standards.”

Instead, it “relied on the assurance of the management and staff of the state that all information… was true and accurate in all material respects.”

In other words, instead of doing an actual audit it took as gospel the word of people who failed spectacularly at auditing.

“Either you reported cash as an asset that you didn’t have or you spent money and didn’t report appropriately that you spent it,” a source close to the investigation told FITSNews. “In other words, either you never had it in your wallet to begin with or you spent it and now you don’t know how you spent it.”

“How do you do that year after year – decade after decade?” the source continued, attributing the error to an “antiquated system pushed beyond its limits by a group of people not qualified at their jobs.”

However this money was “misplaced,” the answers unearthed by this report are not the answers South Carolina taxpayers need – or deserve. This situation requires an independent investigation by an entity with access to all relevant information – and full subpoena powers. As we reported last April, the U.S. Securities and Exchange Commission (SEC) is reporting probing the state’s finances – which will hopefully lead to a fuller explanation as to what happened to this “phantom” $1.8 billion.

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THE REPORT…

(S.C. Department of Administration)

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ABOUT THE AUTHOR …

Will Folks on phone
Will Folks (Brett Flashnick)

Will Folks is the founding editor of the news outlet you are currently reading. Prior to founding FITSNews, he served as press secretary to the governor of South Carolina. He lives in the Midlands region of the state with his wife and eight children.

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8 comments

Avatar photo
The Colonel Top fan January 16, 2025 at 6:33 pm

You had to have seen this coming.

Reply
Andre January 16, 2025 at 6:54 pm

I heard today from a lobbyist that the investment firm BackRock is behind Senator Grooms and his attacks on the state Treasurer. Payback can be hell.

Reply
Dan January 16, 2025 at 6:34 pm

Larry Grooms may be the dummest guy in the State House. Ever.

Reply
CPA1 January 16, 2025 at 6:39 pm

I spent 3o years as a CPA and this report does not pass the smell test. There are unanswered and unasked questions every where. The recommendations for the Comptroller General’s office are rudimentary. These consultants seem to be recommending that the Comptroller’s office engage in the basics of accounting. If they have to be told the basics, what the hell are they doing running the State’s books?

Reply
PRavenel Top fan January 18, 2025 at 11:22 am

Agree with your statement!

Reply
Crooked Politics January 16, 2025 at 7:36 pm

I see new elect cuNextTuesday Heather Bauer wants to impeach Treasurer Curtis Loftis. I doubt she is .001% as honest as Mr Loftis is.

Reply
Joe January 17, 2025 at 6:48 am

I bet Blackrock will be funding the Larry Grooms campaign for congress and the Steve Goldfinch campaign for Attorney General.

Reply
Be Kind Anyway Top fan January 18, 2025 at 12:00 am

It’s my understanding SC tax payers purchased this “independent” review for $3,000,000 and AG Wilson’s office has spent $4,000,000 to date “defending?” SC against a federal probe… Once again, corruption and intentional incompetence yields a windfall for SC attorneys and related professionals.

How about this?
A simple, yet elegant solution…

We’ve been told traditional polygraph testing is not 100% accurate. Well, how accurate is it?
We’ve come a long way since polygraphs were first administered. It’s unlikely ANY testing method using advanced technology could yield WORSE results than the ways we currently screen/hire/elect/fire members of the court and other government officials.

What if we required judicial candidates and state leadership (especially those tasked with managing billions of dollars) to submit to a few simple questions while utilizing advanced tech prior to taking office?

We could ask incumbent judges two simple few questions:
1) Have you ruled in accordance with the Rule of Law to best of your ability and interpretation?
2) Have you ever been influenced to intentionally rule against the Rule of Law?

We could ask sitting state officials one simple question:
1) In the course of performing your duties have you ever knowingly broken the law, or failed to report crime you witnessed?

If these people would not submit to a public, live stream video test, then they could not take office.

We could ditch the sham JMSC, sham audits, sham elections, sham investigations, sham litigations…

At the very least, a threshold test would weed out the truly heinous.

Plus, if we discovered individuals who could game these tests, then we’d be identifying sociopaths seeking office and could therefore attempt to isolate the threat. Maybe sociopaths would avoid seeking these offices? Win-win.

Of course, those currently in positions of power would never agree to such a practical solution, but one can dream.

While dreaming… What if we utilized the same technology based exams throughout the justice system? We would need fewer beat cops and more technicians. This is the future.

Society has technologically advanced. Why hasn’t the system of justice? Some may say this would be too expensive or impractical. I believe those would be the people who profit off the current dysfunctional system.

If defendants knew they could not manipulate the system to avoid accountability, maybe a large percentage would think twice before committing crimes?

We could also let this be the method to determine probation, parole…

One question…

1) Are you sorry for what you did, and if released, do you intend to or believe that you will commit this or other crimes again?

We could ask immigrants:
1) Why have you come to this country? Why do you want to be citizen? Have you committed crimes while on American soil? Do you intend to commit crimes if you are allowed to remain? This could not be more expensive than housing and deporting, and all the other failed protocols.

We could give all our sitting judges the choice: Take the test and retain your position, or decline and resign.

What would our judiciary look like a few years down the road if we weeded out career criminals and attracted honest, hard working individuals to wear the robe?

Side note: Who decided attorneys should write ethics laws? I’m guessing that was attorneys.

We need radical change. By employing new methods, we could restore the people’s confidence in our systems of government. We could restore integrity to positions of authority. We could cut out vexatious litigation. We could protect citizens. We could have fair elections. We would never again lose/gain/lose billions of dollars with the stroke of a pen.

One can dream.

Reply

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