Senator says SC treasurer ‘breached the public trust’ by not flagging $1.8B in mystery funds

S.C. Treasurer Curtis Loftis on Tuesday, April 2, 2024 during a Senate Finance constitutional subcommittee meeting concerning $1.8 billion that has been discovered in an account. (Travis Bell/Statehouse Carolina/Special to the SC Daily Gazette)

COLUMBIA — After a more than six-hour hearing that devolved into paper waving, hurled accusations and combative outbursts between the state treasurer and Senate panel, South Carolina officials are still no closer to figuring out where $1.8 billion of overlooked taxpayer funding belongs.

Lawmakers peppered South Carolina Treasurer Curtis Loftis with questions Tuesday about the money that’s sat untouched in a bank account for more than five years and the role the treasurer’s office played in allowing it to happen. None of the state’s financial leaders know where it was supposed to go.

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)

The hearing culminated in a senator suggesting the treasurer had lost control of the state treasury.

“The General Assembly cannot rely on him to resolve the problems that occurred under his watch,” said Sen. Larry Grooms, who chairs the Senate committee investigating the financial blunder.

“His actions led to a misrepresentation of the financial condition of the state, thereby misleading the General Assembly, the people of South Carolina and others that rely on the state’s financial statements,” the Bonneau Beach Republican added. “Mr. Loftis has abrogated his responsibility as a state treasurer. He has breached the public trust.”

In response, Loftis called questions about how he has run his office, how he has interacted with other agencies and his office’s own financial reporting “grossly unfair,” “disingenuous,” “shocking,” and “highly irresponsible.”

He said lawmakers blindsided him and compared the hearing to a courtroom interrogation. And he railed against the panel for calling him to testify publicly under oath, saying senators’ questioning of some of his office’s practices put the state’s sterling AAA credit rating at risk.

Loftis and other state financial officials have said the origin of the mystery money was a chaotic, decade-long transition from the state’s old accounting system to a new one.

During the hearing, Loftis told lawmakers that when funds come into his office, which acts as the state “bank,” it’s supposed to come with a special code attached that indicates to which agency it belongs.

In 2016, when Loftis’ office was going through the accounting system swap, someone started putting $17.3 billion in a “pass-through” fund that was opened at the request of a staff member in his office. That account was meant to temporarily funnel money between agencies as part of the changeover.

SC senator wants misplaced $1.8B kept in ‘lockbox,’ earning interest until mystery solved

By 2018, all but $1.8 billion of that was transferred back out and into the agency accounts to which it belonged.

What remained did not have those special ownership tags attached, Loftis said.

While the “movement” of money was really only on paper, it’s still a problem because without an accurate record, officials do not know for which agencies or entities the money was meant.

Meanwhile, the state’s financial officials — former Comptroller General Richard Eckstrom, Loftis, and state Auditor George Kennedy — knew the funds were sitting in the account with no owner and did not alert lawmakers to them until this past Halloween, when the current Comptroller General Brian Gaines sent a letter.

Loftis’ explanation was simple: It was not his job to tell them.

“You sat on it since 2016,” Grooms said to the treasurer in one heated exchange.

“I didn’t sit on anything,” Loftis shot back. “We did what we were supposed to do.”

“That’s almost laughable,” Grooms responded, adding that the treasurer only started taking action after the Senate committee started making inquiries.

S.C. Treasurer Curtis Loftis on Tuesday, April 2, 2024, during a Senate Finance constitutional subcommittee meeting concerning $1.8 billion that has been discovered in an account. (Travis Bell/Statehouse Carolina/Special to the SC Daily Gazette)

Senators also punched back at the suggestion that the matter should have been dealt with outside a public hearing.

“I don’t agree with the earlier inference that we should do any kind of oversight in the dark,” said Sen. Thomas McElveen, D-Sumter.

The $1.8 billion is entangled with a $3.5 billion accounting error by the state’s former top accountant. That blunder came from a computer coding glitch in which public colleges’ revenue was mistakenly double-counted year after year in the state’s annual financial report it provides to Wall Street investors. The miscalculation accumulated over a decade before a junior staffer in the office of then-Comptroller General Eckstrom discovered it in 2022.

Had Eckstrom, a Republican first elected in 2002, not resigned last year, lawmakers likely would have stripped him from office. In Eckstrom’s place, Gov. Henry McMaster appointed Gaines, the governor’s budget director and a 16-year veteran of state budgeting and compliance roles.

In this case, the unaccounted funds are actual money, not a paperwork issue.

To figure out the money’s origins, Loftis suggested putting a group of state officials together and hiring an outside forensic accountant to comb through the system and books.

He testified 15 people in his office have worked overtime, nights and weekends to reconstruct the state’s old ledgers to the best of their ability. He again accused the comptroller general’s office of not being cooperative and dumping the problem on the treasurer’s desk.

“I’m being grilled here like I’m not trying,” Loftis said, adding this will be his last term in office since being elected in 2010.

Grooms said the committee has considered that recommendation and is looking into how it should be done and who should run it. Loftis will not be put in charge, Grooms added.

In the meantime, legislators pledged not to touch the $1.8 billion. The House budget proposal for the upcoming fiscal year doesn’t spend any of it. Instead, it allocates $3 million to contract the outside firm needed to find the answers.

The investigation remains ongoing, Grooms said.

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