The State Law Enforcement Division is investigating how $395,000 disappeared from an account at the S.C. Department of Probation, Parole and Pardon Services.
The loss of the money was discovered during a June 2009 state audit. Copies of the audit were sent to SLED and State Treasurer Converse Chellis.
SLED Chief Reggie Lloyd said Monday the audit is part of the investigation. But, he added, "It was not the sole factor that initiated our investigation."
Peter O'Boyle, a spokesman for the probation department, acknowledged the investigation, saying his agency was the victim.
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"The fraud was committed by persons outside the agency," O'Boyle said in a written statement.
However, Lloyd would not confirm that, saying he did not want to talk about his investigation's targets or other details.
The missing money came from an account for a former restitution center operated by the department.
The audit scolded the probation department for not regularly balancing some of its accounts. The agency failed to notice that one of them had been accessed by an unauthorized person through electronic transfers. The individual who accessed the account is not employed by the state, the audit report said.
The $395,000 is less than 1 percent of the probation department's $46 million-a-year operating budget.
As a result of the audit, Chellis ordered the closing of five probation department bank accounts on Dec. 31.
Chellis notified Samuel Glover, the probation department's director, of the move in a letter. In the letter, Chellis noted the audit was the third of the agency to find accounts were not balanced with bank statements.
The accounts - called "composite reservoir bank accounts" - were not operated under the regular state accounting system. There are about 200 such accounts at various state agencies, said Scott Malyerck, deputy state treasurer.
The accounts often are used to hold money that does not come through a state appropriation and to give agencies quick access to cash, Malyerck said. Still, they are subject to regular state audits, he said.
At the probation department, five reservoir accounts were used for restitution centers, the legal division, an escrow account and a community treatment center in Charleston, probation spokesman O'Boyle said. The accounts were with Wachovia and Bank of America.
"Only one account was accessed," O'Boyle said. "The others were closed for a precautionary measure."
At the restitution centers, inmates lived in barracks-style housing on campuses but left to go to regular jobs. The money they earned at those jobs was used to pay back crime victims, O'Boyle said.
All of the restitution centers have been closed because of state budget cuts, he said. As a result, their reservoir accounts were no longer needed, he said.
No payments to crime victims were missed because of the missing money, O'Boyle said. Checks to victims are issued from a separate account, he said.
The probation department has appropriate accounting policies and procedures, but they were not followed in the case, O'Boyle said.
"We are in the process of taking appropriate internal personnel action," he said in a written statement.
The probation department reports directly to Gov. Mark Sanford. But spokesman Ben Fox said Monday the governor was not aware of the audit or the investigation. He referred questions to SLED.