With SC’s finances under SEC investigation, lawmakers seek financial ‘babysitter’
Facing an investigation by the federal Securities and Exchange Commission over the accuracy of the state’s financial books, state budget writers want to hire an independent compliance officer to oversee the state’s financial system.
Hiring the compliance officer would oversee the work done by the state treasurer, comptroller general and auditor offices and could show federal investigators the state is trying to address concerns over the state’s books.
“In other words, we need to hire a babysitter to take a look at what happens within the state’s treasurer’s office, within the comptroller general’s office and with our internal auditor function,” said state Sen. Larry Grooms, R-Berkeley, who has led a state Senate Finance Committee investigation into the state’s financial reporting for more than two years.
Making this move sooner rather than later is a way of staying ahead of the SEC, which may order an independent compliance consultant anyways, outside forensic auditors said.
Hiring a third-party compliance officer was the first recommendation by AlixPartners, a D.C.-based consulting firm hired for up to $3 million to determine whether a mysterious $1.8 billion listing represented real money. The report found most of that money did not actually exist.
“My understanding is, by doing it ourselves, we retain some control over our own destiny,” said state Sen. Stephen Goldfinch. “But you know, the minute that the SEC orders it as the outcome of an investigation, all of a sudden, we’ve totally lost control of our state’s finances and our books.”
Susan Markel, a partner and managing director with AlixPartners, who previously worked for the SEC, told the state Senate Finance Committee on Tuesday, an independent third-party compliance office could be ordered for the state.
“It’s certainly a remedy that the commission can impose on people. It depends upon the facts and circumstances of the case, but if they are involved in a case, and if they’re not satisfied, perhaps that the house has been put back in order, that’s something that they can impose onto an entity to engage an independent compliance consultant,” Markel said.
The AlixPartners report found that $1.6 billion of the mysterious $1.8 billion listed a “flow-through” fund did not exist, and the yearslong error occurred during the conversion to a new state accounting system. The report also looked at the circumstances over how under previous comptroller general Richard Eckstrom inflated the state’s cash balances by $3.5 billion over the course of a decade.
The report also notes the comptroller general, state auditor and treasurer’s offices were aware of the $1.8 billion listing for years well before the listing became public, but no one reported it.
Markel points to a report last year by outside accounting firm Mauldin and Jenkins hired in 2023 to examine issues surrounding the $1.8 billion included recommendations that could be enforced by a third party.
“There were recommendations there. So that would be something else that, again, having a third party there as a reviewer and an oversight body can help to ensure that those changes are being made,” Markel said.
Because of the SEC investigation, the state’s attorney general’s office has spent $4 million defending the state on the matter and has asked for an additional $5 million.
“At some point, the Securities and Exchange Commission will conclude their inquiry into South Carolina’s finances, and at some point will there will probably be some sort of sanctions,” Grooms said.
As the SEC investigation goes on, members of both the House and Senate budget writing committees are looking for answers.
Some lawmakers have focused on whether state Treasurer Curtis Loftis made false statements under oath when testifying about the $1.8 billion.
As budget writers review the AlixPartners report, Loftis continues to defend himself.
In a video uploaded to his social media page Tuesday, Loftis says he believed the $1.8 billion was real, even pointing to confirmations from the state auditor and comptroller general’s offices.
“At the time, I answered this question in April of 2024 all of the state’s financial officers agree that the $1.8 billion existed and was cash,” Loftis said in the video. “How do I know? Because I have many letters and documents stating that fact.”
Specifically Loftis said last year he believed the $1.8 billion earned about $200 million in interest for the state. But AlixPartners said it was impossible for cash that didn’t exist to earn money on investments.
In a letter shared with reporters, Loftis said he estimated the earnings based on how much $1.8 billion would have earned based on “the available daily rate.”
Loftis, in the video, even pointed to the state’s annual comprehensive financial reports and records and a report from state Senate in 2023 saying the money existed.
“Let me be very clear about this matter. I answered a question in a manner that agreed with all of the state’s financial officials, books and records. My answer was accurate and truthful,” Loftis said.
