Last month, the state of South Carolina’s comptroller discovered an unaccounted-for $1.8 billion in one of their many financial accounts. As findings have begun to develop, it’s evident that poor financial controls, a major communication breakdown between the state’s treasurer and comptroller, and sloppy bookkeeping have resulted in a mess for a state with both recent and historically substantial accounting errors.
How it Happened
According to reports, Brian Gaines, appointed to his position of state general comptroller in May of 2023, discovered the $1.8 billion in a “flow-through” account. These accounts are used to allocate spending money to individual state agencies.
Rather than have unspent funds sitting in these agencies’ accounts, this money is invested to create additional state revenue and made subsequently available through flow accounts when the money is to be spent. This likely means the unaccounted-for cash isn’t just a lump sum of $1.8 billion, but rather a collection of funds that were either allocated and never spent, or money that belongs to other accounts.
In 2017, when the state implemented a new accounting system, they ran two sets of books for two years to ensure the systems produced the same outcomes. It was during this process that the account in question was created.
“This one account was like the catch-all account where that unaccounted cash went in but was never credited back to the proper accounts,” said state Senator Larry Grooms, R-Berkeley, in a statement, who is overseeing a Senate Finance subcommittee investigating the accounting error.
According to Gaines, the lack of information about the money is the issue — not the cash or account itself.
“The existence of the fund is not the issue,” said Gaines to local media. “The fund is designated as a non-reportable “pass-through” fund that should always maintain a $0 balance.”
Financial Communication Breakdown
State Treasurer Curtis Loftis, who has held his position since 2011, made evident in a recent statement that there was a significant communication breakdown with Gaines at some point over the past year.
“I ask [Gaines] to respond to my many requests for coordination to make our finance system stronger, not weaker,” Loftis said in a statement on March 28. “It is time to put the rocky past of the Comptroller General’s office behind us and work together to serve the interests of the people of South Carolina. We should be working to maintain the State’s excellent credit rating and avoid putting it at risk.”
Loftis also told The State that he is “happy where the money is” because “it’s exactly in the right place.”
Even the governor’s office has known about the account since last year, unlike Gaines, who came onto the job to finish the term of the recently resigned predecessor. Outside auditing firms, the state auditor’s office, and treasurer’s office were aware of the account's existence as well. Only the state comptroller’s office — those tasked with doing the accounting for the state — were left out of the loop.
“The money in question, a $1.8 billion fund arising from a statewide computer conversion, has always been accounted for by ‘the bank.’ The funds have been managed and invested in accordance with State law, and the Legislature has spent the investment earnings of approximately $250 million.”
It appears that Gaines has done most of his public communication on this matter through Grooms, who said the money was originally discovered through “issues with some accounts that [Gaines felt] didn’t seem right.”
What Happens Next
As of now, the money hasn’t been moved from the account it's been sitting in. Senators have proposed moving it to a holding account where it can continue to accumulate interest. While no formal audit has been requested, house budget writers have proposed spending $3 million to bring in an independent firm to do an audit of the origins of the $1.8 billion.
Grooms has publicly said an audit into the state funds will likely lead to questions of Loftis. However, Loftis said in an interview with The State that he needs assistance from the general’s office and possibly outside help to determine where all this cash is supposed to go.
The investigation’s subcommittee is expected to question Loftis sometime over the next few weeks. An outside auditor’s report about the practices of both Gaines and Loftis is expected to be released by the end of this month.