South Carolina has an additional $1.8B in its coffers. Who does it belong to?

In recent weeks, Senate budget writers investigating a large accounting mistake that led to the resignation of the state’s top accountant, are now looking into how the state accumulated nearly $2 billion in unspent money without lawmakers knowing.

A year ago, former Comptroller General Richard Eckstrom admitted his office had inflated the state’s cash resources by $3.5 billion.

The error might have been larger if not for an additional $1.8 billion of unspent money sitting in a clearing account set up by the treasurer’s office.

How did the $1.8 billion get there?

When budget writers allocate money through the annual spending plan, cash is credited to each state agency, but the funds aren’t necessarily sitting in an account waiting for the agency to spend the money. Instead the Treasurer’s office, like a bank, will invest the money to generate interest and additional revenue for the state.

When an agency needs to formally carry out an expense, such as when the Department of Natural Resources buys equipment, the treasurer’s office will make sure enough money is in an agency’s account to cover the cost.

The $1.8 billion has sat in a “flow-through” account, but the money really belongs to other accounts. But this clearing account started in 2017 when the state transitioned to a new accounting system and ran two separate books for two years to make sure accounts balanced properly.

“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 Sen. Larry Grooms, R-Berkeley, who oversees a Senate Finance subcommittee investigating the accounting error.

The account initially started with $18 billion during the accounting system conversion and state officials knew which state agencies all but $1.5 billion belonged to, said state Treasurer Curtis Loftis.

“It could possibly just be owned by the General Fund, and that’s just the state itself and the state can just reclaim that money and spend it,” Loftis said Wednesday.

An additional $324 million was moved into the account at a later date at the request of the comptroller general’s office, Loftis said.

How was the money discovered?

Comptroller General Brian Gaines, who was appointed to finish former Comptroller General Richard Eckstrom’s term, discovered the $1.8 billion when his office put together the state’s annual comprehensive financial report.

Gaines ran into “issues with some accounts that didn’t seem right,” Grooms said.

The governor’s office was notified last year about the account.

Loftis said outside auditing firms, the state auditor’s office and treasurers’ were aware of the existence of the cash.

“Because I’m the bank, I’m happy where the money is,” Loftis said. “It’s in exactly the right place. I’m not going to move it until somebody tells me to move it. And that would be the comptroller general or the general assembly.”

What will lawmakers do with the $1.8 billion?

The $1.8 billion may not exactly be a windfall to the state or, more precisely, legislative budget writers who may want to use the money.

State Sen. Sean Bennett, R-Dorchester, suggested lawmakers set aside the money for tax relief.

“I consider this to be an opportunity,” Bennett said on the Senate floor last week. “I think there’s an account established that would be a great place for that $1.8 billion. That would be in the tax relief trust fund.”

Grooms argued setting the money aside for that use may not be possible.

“These monies have been obligated by the general assembly. It is my belief they rightfully belong to thousands of other accounts,” Grooms said. “That’s why we need to identify the origin of the accounts, need to identify how much money belongs to each of the accounts, and then the general assembly can make a decision as to whether we re-obligate those monies or not.”

What’s happening now?

Senators proposed the $1.8 billion be transferred into a “hold” account and remain there, accumulate interest, and not be touched by the general assembly until the origins of the money are identified.

“We need to lock it up, we need to continue to identify where these monies rightfully belong,” Grooms said.

A formal audit has yet to be requested, but the state auditor’s office has brought the issue to the attention of lawmakers. However, House budget writers have proposed spending $3 million for an independent outside audit of the money.

But an investigation into the money will lead to questions of Loftis, Grooms said.

Loftis in an interview said he needs assistance from the comptroller general’s office and potentially an outside consultant to determine who has ownership over the cash.

“My job is clear: it’s to protect the money of the state and I’m going to protect the money the state,” Loftis said. “This money is safe. It’s where it needs to be until the owners are established.”

Last year after Eckstrom disclosed the $3.5 billion error, an investigation began and he eventually resigned from the job.

“This is the people’s money. Every dime of it. We ought to know where it is, where it’s going, why it’s going there,” Gov. Henry McMaster told reporters last week. “We want to know when it gets if it’s used for what it’s supposed to be used for. So it is clear we need to be more careful and perhaps there our some new procedures that need to be invoked or perhaps there’s some that are existing that have not been fully exercised, but have have this kind of accounting, call it an accounting error. So far as we know, it’s not a misspending. So far, it’s just an accounting error, is not acceptable.”