State lawmakers alarmed in probe of $3.5B accounting error
Throughout several hours of sworn testimony before lawmakers tasked with investigating a $3.5 billion accounting error, South Carolina's chief fiscal watchdog struggled to delineate a clear timeline about an admittedly complex mapping problem that plagued the office for at least a decade.
The chair of the Senate Finance subcommittee probing the issue said he lost confidence Thursday in South Carolina Comptroller General Richard Eckstrom's ability to accurately answer questions about the state's overstated cash balance, first publicly shared Feb. 9.
"I noted many contradictions throughout today's testimony," Republican Sen. Larry Grooms said. "A $3.5 billion error is no small error. And to treat it as such does a disservice to the people of our state who have to have confidence in their elected officials."
Grooms expressed concern that the office failed its primary duty of producing an accurate annual financial report from at least 2017 to 2022 under Eckstrom, who was reelected this fall to the position he has now held for two decades.
A $12 million coding error in 2007 got compounded by a shift beginning in 2011 from one accounting system to another, Eckstrom said. The reporting confusion then led to a double counting of state cash transferred to colleges and universities. By 2017, the sum of overstated funds had grown to $1.3 billion. That number has nearly tripled in the following years as South Carolina sent more and more money to higher education.
Eckstrom emphasized that the state's financial position remains strong. He said the reporting omissions did not impact South Carolina's actual available cash or the General Assembly's budgeting process.
While budget writers do not rely on the comptroller general's Annual Comprehensive Financial Report, bond rating agencies do consult it. Eckstrom said the state's "tremendously high" cash balances and diverse economy "reflect an ability to weather terrible downturns" that should instill confidence in bond rating agencies.
Subcommittee members weren't convinced. Democratic Sen. Thomas McElveen expressed concern that the error may impact the state's credit score going forward.
"Our cash position has been misrepresented," McElveen said. "Creditors, bond holders don't like things like that."
Lawmakers seeking to pin down when the office knew of the reporting error and its scope left Thursday's meeting with many questions. While an outside auditor had informed the office of reporting issues in 2017, according to Eckstrom, he thought the matter had been resolved; its full sweep did not become clear until last year.
That's when Katherine Kip — an accountant who joined the comptroller general's office three years ago after five years with the state treasurer's office — solved the problem. Eckstrom testified Thursday that he first learned the problem had persisted in the "early summer" of 2022 but did not know the error amounted to $3.5 billion until "very late" into the year. By the end of October, he said at one point, the comptroller general's office had finished its initial review.
Kip testified Thursday that she finished unearthing the blunder in the first week of November. Later that month, she said, another round of outside auditors had finished reviewing her account. On Dec. 7, 2022, Eckstrom said he shared the details with two members of the governor's staff.
Lawmakers questioned why Eckstrom waited to inform any outside officials of the error. Eckstrom said his office did not want to share details until the very thorough Kip had finished confirming the extent of the omission.
McElveen said the General Assembly should have known sooner. To him, nothing about the process had been transparent.
"It's just funny to me," McElveen said. "We had a primary election. We had a general election. They had this knowledge and didn't tell anybody."
Sitting beside her boss, Kip emphasized that Eckstrom had been "very open to getting to the bottom of this." When Republican Sen. Stephen Goldfinch asked Kip who owned the blame, she faulted information silos arising from the natural structure of state agencies.
Goldfinch disagreed. Silos, he said, come from the top.
"Inefficient bureaucracies don't just come from the natural tendencies of agencies. They come from leadership failures," Goldfinch said. "That's the bottom line. They come from leadership failures. Now I'm not saying this is a leadership failure from the (comptroller general). But somewhere, somehow, the buck stops."
The panel will continue its investigation next Thursday at another meeting.
This story has been updated to correct the final quote. The word should be "natural," not "national."
James Pollard is a corps member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercovered issues.