SC State University diverted $6.5 million from program to cover deficits, report finds (updated) | The State

S.C. State University used $6.5 million in state money from a program meant to aid poorer families to cover cash flow problems since 2007, an S.C. Inspector General report released on Tuesday.

No fraud was found in the money diverted from the school's 1890 Research & Extension Program, the report said.

"Rather, the (Inspector General) identified a pattern of mismanagement allowing this inappropriate subsidizing practice to escalate out of control masking SCSU's financial difficulties for a number of years," the report said. "This practice has only worsened SCSU’s financial situation by allowing deficits to grow while delaying action to address structural business issues causing these deficits."

S.C. State has agreed to repay the $6.5 million to the 1890 program from its accounts this month, which has worsened the school's financial crisis, the report said. (See the full report below.)

S.C. State has said it needs $13.6 million to make up a cash shortfall this year. School leaders fear the interruption of some services on campus without state aid that has yet to come.

The diversion of 1890 money "was only a contributor and a symptom of a broader financial problem," the report said. "SCSU’s current fiscal crisis has been in the making for a number of years."

The 1890 program uses federal and state money to conduct research projects and provide services in agriculture, youth and family development small farm aid, technology management and nutrition. The program is run separately from the university, though the school provides administrative help.

The 1890 program spends about $6 million a year.

The school took unused portions of state money from the program to pay for general school operations - starting with $456,000 in 2006-07 to $2.7 million in 2013-14, the Inspector General report said.

"As this balance increased each year, it appeared the 1890 Program Management was not tracking nor developing tangible plans on spending this increasing balance, while the SCSU Controller’s Office increasingly considered these funds as a mechanism to solve recurring cash flow and deficit problems," the report said. "Over time, this became an accepted recurring practice within the SCSU Controller’s Office."

Even though the school's attorney issued an opinion on Jan. 23 that the 1890 money could not be used by the school, S.C. State took more of the unused money on Jan. 31 for payroll.

"What may have started out as a harmless, but still inappropriate, short-term borrowing for cash flow turned into substantively a permanent loan not formally recognized," the report said.

S.C. State said in a statement that it appreciated "the Inspector General’s work to bring transparency to a lingering financial issue that has plagued this University for more than eight years."

"The University has proactively taken steps to ensure that moving forward federal funds from the 1890 Program are kept in a separate account and that this practice will not be repeated," the statement said.

In addition to the Inspector General's investigation, the school is undergoing a review by state budget officials after reporting a deficit earlier this year.

University president Thomas Elzey said last month that he was negotiating with vendors to extend payments. The school has unpaid bills dating back to October, he told the Budget and Control Board last month.

The school needed the money by this month to avoid disruption of services, including those who provide food to students, washing machine maintenance in dorms and the school bookstore, Elzey said last month.

Neither the state budget board not the legislature has given the state's only historically black public college any money. The budget for next year approved by the S.C. House includes a deficit-reduction panel for the school.

S.C. State has struggled financially for years.

Elzey, who joined the school last summer, blamed years of over-enthusiastic enrollment projections for budget gaps that were covered with stop-gap accounting moves in a letter to state budget leaders.

A shrinking student body has slammed the school. S.C. State’s enrollment was nearly 4,900 in the fall of 2007 but shrank to 3,100 this spring. Each student lost costs the school $14,000, Elzey said. That translates into $25 million of lost revenue.

State funding cuts and trimming of federal financial aid also hurt S.C. State.

The school remains under warning from the Southern Association of Colleges and Schools that its accreditation is in jeopardy. That group is concerned about the school’s financial health and governance — issues that date back before Elzey’s arrival. All but a few of S.C. State’s trustees also are new, many elected last year by legislators upset with the school’s direction.

S.C. State has worked to fix its money problems, including cutting staff, Elzey said. More cuts, including eliminating $1 million in spending on low-performing academic and athletic programs, are planned. The school also has raised its tuition.

Some efforts are working. S.C. State has attracted more applications to attend and increased its fundraising. Elzey said he and his wife have attended college fairs, where he reassures students about the school’s future.

"It is clear SCSU has a short-term cash infusion need to address the short-term deficit crisis, which if not, the situation could evolve into a crisis of confidence creating unintended consequences further undermining future student enrollment," the Inspector General report said.

S.C Inspector General's Review of South Carolina State University 1890 Program