Before $3.5B mistake, SC auditors say they warned comptroller general for a decade
Auditors working for the state say they repeatedly told the comptroller general about potential issues with internal controls that could have caught a cash balance error before it inflated to $3.5 billion by 2022.
State Auditor George Kennedy III and outside independent auditor Remi Omisore, a principal at CliftonLarsonAllen, wrote in annual reports to the state about internal practices in the comptroller’s office, they told Senate Finance Committee members investigating the error.As early as 2012, the state auditor and outside auditor CliftonLarsenAllen warned the comptrollers office of inadequate internal controls it had in place when preparing the annual financial report. The auditors even said fund levels did not match accounting records.
The “ineffective internal controls” may prevent the office “from identifying material misstatements, due to error or fraud,” the auditors wrote.
The comptroller general’s office has said issues arose during the switch to a new accounting system, which took place over several years. The office also has said it has a small staff, and in 2019 lost two accountants when compiling the annual financial report. In 2021, the office said it struggled to find additional accountants amid the COVID-19 pandemic.
The $3.5 billion error occurred after the comptroller general’s office double counted money allocated to colleges and universities when determining the state’s cash balances for the annual comprehensive financial report.
In reports by the auditor’s office, the reporting of balances did not match the underlying accounting records and could not be substantiated. The auditors noted misstatements and classification issues when compiling the statewide annual financial report.
“It’s troubling to hear that a decade’s long problem has existed. There’s been internal controls that could possibly lead to an error like this,” state Sen. Larry Grooms, R-Berkeley, said. “We hear that it’s one of the largest accounting errors in the history of accounting errors.”
The comptroller general’s office received ”warning after warning, get your house in order, and it wasn’t an order.”
During testimony Thursday, Treasurer Curtis Loftis said the responsibility of the annual financial report falls squarely on the comptroller general’s office. Department of Administration Executive Director Marcia Adams also said a human error in coding of accounts by the comptroller general’s office was difficult to discover and led to the misstatement of cash balances.
Budget writers already are taking aim at the comptroller as they put together their one-year spending plan.
The House Ways and Means Committee approved a proviso, or a one-year law, that requires Comptroller General Richard Eckstrom to show how he prepares annual financial reports. The committee also approved giving the Department of Administration $40 million to upgrade the state’s accounting system and $10 million to train employees, to help ensure the mistake doesn’t happen again. The current system is reaching the end of its useful life.
“This new version will close the information and knowledge gap between agencies for vital processes such as compiling accounting reports,” said state Rep. Chris Murphy, R-Dorchester.
But lawmakers could be calling for changes in how accounting is done and who compiles financial reports after the end of the senate investigation.
“The people of the state need to have confidence that the accounting is accurate,” Grooms said. “The General Assembly needs to have confidence that our accounting is accurate. We haven’t had accurate accounting in more than a decade and so there’s probably going to be some changes. I just don’t know the entire scope of those changes.”
This story was originally published February 24, 2023 at 11:12 AM.
