South Carolina recently discovered that $1.8 billion of state money has been sitting in a bank account for more than five years, and no one seems to know its origin or what it was intended for. Now lawmakers are looking for answers, but the more they dig, the murkier it seems to get.
Agencies and legislators are pointing fingers. And after state hearings and investigations, it is not completely clear if the money is really there at all.
At a combative State Senate hearing on Tuesday, the state treasurer, Curtis M. Loftis Jr., vigorously defended himself and his office.
“You cannot conceive of the work we’ve done; it got dumped on us because of the failure of another office,” he said, referring to the comptroller general’s office. “We are reconstructing the books as best we can over the last seven years, and nobody will give us information.”
State Senator Lawrence K. Grooms, the chairman of the subcommittee holding the hearing, wasn’t buying it. “Mr. Loftis has abrogated his responsibility as a state treasurer,” he said. “He has breached the public trust.”
In an interview on Wednesday, Mr. Grooms, who like Mr. Loftis is a Republican, said: “It just confirmed that the treasurer believes his own P.R., which flies in the face of evidence. Every treasurer for 80 years or more has been able to reconcile cash, including Treasurer Loftis until 2016.”
Brian J. Gaines, the comptroller general and a Democrat, told News19 that it was the treasurer’s responsibility to determine where the money was in the state’s many accounts. His office declined to comment further on Wednesday.
Even the most existential questions are not easily answered. Senator Tom Young Jr. asked Mr. Loftis of the $1.8 billion, “Is your office sure it exists?”
“We believe that to be the case,” Mr. Loftis replied.
Mr. Grooms said, “We believe that it is real cash, but we have not been able to prove that it is real cash.”
The $1.8 billion was discovered in 2022 by the comptroller general in an account used to shift funds from one agency to another, in which money normally does not linger for long. The funds are about 13 percent of the typical annual state budget of $13.8 billion.
“There’s something wrong somewhere,” Gov. Henry McMaster, a Republican, said at a news conference last week. “We don’t know why it’s there, what it’s supposed to be used for, how long its been there — that’s a problem.”
A point of contention has been the extent to which the comptroller or the treasurer is to blame. Essentially, the treasurer is like the state’s banker, and the comptroller is like its accountant.
Mr. Loftis, the treasurer, said at the hearing that his office had reported the $1.8 billion to the appropriate channels, and said that it had been earning interest.
Mr. Grooms said: “The treasurer was asserting he can’t assign this money anywhere. But he created this account and assigned the money to it.” He said he believed that the treasurer intended to send the money to the right place, but that “he lost the institutional knowledge of some senior employees and basically did nothing with the funds.”
Part of the issue seems to be a change in accounting system. Mr. Grooms said that Mr. Loftis “was warned it wasn’t ready, yet he forced the conversion anyway.”
Mr. Loftis said that money in the account was supposed to be coded to show where it would go, but that the $1.8 billion was not coded, so it was never sent anywhere.
The unexpected money could be related to a 2023 scandal, lawmakers say. The former comptroller general, Richard Eckstrom, a Republican, resigned under pressure that year after a software error double counted some funds, leading to the eventual realization that the state had $3.5 billion less than it thought it had.
“We had to restate our cash position; we had $3.5 billion less in cash,” Mr. Grooms said. “If this $1.8 billion is not real, then the restatement will have to be larger.”
“That’s a real problem if your banker can’t certify if you have $1.8 billion or not. It’s a problem if the banker can’t tell you whose money it is,” he said.
The state auditor, George L. Kennedy III, told the State Senate last month that he knew the money was there in 2017, but considered it not “relevant” because he believed it was there temporarily.
The issue could bring out another problem, officials say. Mr. Loftis said on Tuesday he was “terribly concerned” that the state’s AAA credit rating might be in jeopardy.
So where to spend this windfall, if there is one? That will not be decided until it is determined if it was earmarked to go somewhere already.
“Everyone wants a piece,” Mr. Grooms said. “You’ll have the House and Senate fighting over how to appropriate it: taxpayer rebates, highway construction, new school construction.”
Governor McMaster said in his news conference: “That’s a lot of money, and there’s no need to hurry up and try to spend money. We don’t know where it was supposed to go or what the purpose was supposed to be or anything else at this point. I think we need to find that out.”
While there is disagreement over his role, few would dispute Mr. Loftis’s remark at the hearing on Tuesday: “Unless I’m misjudging this, this is not over by a long way.”
