SC Senate report says $1.8B blunder is Treasurer Loftis’ fault

COLUMBIA — South Carolina’s treasurer was planning to publish the state government’s bank account numbers online, inducing a Statehouse panic and fears of a cyber attack. It took legal threats and calls from the governor and the state’s top cop to stop him, the chairman of a Senate investigative panel reported Tuesday.

During a tense hearing in which lawmakers grilled state Treasurer Curtis Loftis over his office’s failure to flag $1.8 billion money that sat untouched in a bank account for more than five years, the state’s investment banker said he would publish an 80-page report listing sensitive financial information about South Carolina’s treasury.

Legislators did not think he was serious, said Sen. Larry Grooms.

Then, two days later on April 4, a letter came setting off a flurry of activity, the Bonneau Beach Republican said on the Senate floor Tuesday during a report of his investigative committee’s findings.

Loftis, in writing, again announced his plans and blamed the Senate investigators for what he was about to do. The lawmakers scrambled to stop him.

S.C. Law Enforcement Division Chief Mark Keel, at the request of the governor’s office, called Loftis, informing him that publishing the list containing bank account numbers could result in him being charged with numerous crimes.

Attorney General Alan Wilson drafted an emergency injunction, ready to put it before the state Supreme Court.

It was a call from Gov. Henry McMaster, who had just gotten out of knee surgery that same day, that convinced Loftis to stand down, Grooms said.

“The treasurer was willing to put our state’s entire financial system at risk to make a political point,” Grooms said Tuesday.

Staying in office

Despite the alarm Loftis’ actions caused, the governor asked senators not to proceed with removing Loftis from office.

“In deference to the governor, I want to give (Loftis) a chance to actually work to correct his mistakes,” Grooms said.

Loftis will keep his post for now, though Grooms said he thinks Loftis should offer his resignation. As for whether senators might eventually call for Loftis to go, Grooms said that will depend on Loftis.

“Is he going to be willing to help others come in and correct deficiencies within the treasury? I’m doubtful that he will, but he’s going to have an opportunity to do so,” Grooms said. “We’ll all know in the next few weeks whether the treasurer will act responsibly or not.”

Loftis, first elected in 2010, has said he will not seek re-election in 2026. After the report came out, the Republican treasurer faulted the GOP-led committee.

“It is unfortunate to see a handful of state senators more interested in character assassination than solving problems that affect our state,” Loftis said in a statement. “It should be obvious to everyone that the subcommittee would like to overturn the election of an executive branch official and install a puppet to control the funds of the state.”

Grooms and other members of the panel said Loftis has refused to cooperate while shifting blame at every step. While Loftis has pointed fingers at other officeholders past and present, Grooms and the Senate investigators said, the $1.8 billion in question is entirely the fault of the treasurer’s office, the state’s banking agency.

“No one can tell us where that money was originally obligated to go,” said Sen Mike Fanning, D-Great Falls. “The taxpayers of South Carolina deserve better.”

What led to Loftis’ order to publish

As part of the April 2 questioning on the mystery money, Sen. Thomas McElveen asked Loftis about reports he’s required by state law to publish quarterly, which are supposed to show the amount of state money available and “the respective funds to which it belongs.”

Loftis claimed his office had been posting a version of the report he believed was safe. However, those postings only go back to June 2023, a month after McMaster appointed a new comptroller general to be the state’s chief accountant — who started asking questions.

Loftis suggested to truly be in compliance would mean opening up the state to risk.

“If you would like this published, senator, we will publish it tonight,” Loftis said. “This is an invitation for anybody that wants our money to come get our money. It is the architecture of the State Treasurer’s Office.”

“I’m not giving instructions,” McElveen, D-Sumter, countered. “My question is, really, how do you interpret your statutory responsibility?”

“I did not think it was wise … but if my oversight committee says do it, I’m more than happy to do it,” said Loftis, who ordered his staff to put the report online that night.

McElveen asked Loftis whether there were other state laws he used discretion in not following and where he drew the line between transparency and security.

“That (extended) report will do nobody any good except give every internet scammer in Caracas, Kiev and Moscow a target,” Loftis said. “But we will be more than happy to say my discretion has been wrong and I’m in violation of the law because I did not put that on the internet. I’m guilty.”

Senators noted the state laws they asked about don’t mention bank account numbers, and they never suggested those should be published.

Other allegations of mismanagement involved a draft of an annual audit that suggested the state’s accounts temporarily fell into the negative last June by $474 million as the fiscal year closed.

Senators questioned whether Loftis pressured state Auditor George Kennedy to pull incriminating information from the final report.

Loftis pounded the lectern and shouted that his office had done nothing wrong.

He said the negative balance was the result of a new accounting method, and the state’s finances were never at risk.

Exasperated and turning to a lawyer from his office saying he needed legal help defending against the allegations he felt blindsided by, Loftis left the room. Comparing the hours-long questioning to a courtroom interrogation, he threw down his pen and declared it over: “I’m done.”

Loftis is the second state elected official accused of mismanagement from what started as an investigation into a $3.5 billion accounting error by the state’s former top accountant.

That blunder came from a computer coding glitch in which public colleges’ revenue was mistakenly double-counted year after year in the state’s annual financial report provided to Wall Street investors. The miscalculation accumulated over a decade before a junior staffer in the office of then-Comptroller General Richard Eckstrom discovered it in 2022.

Real money?

That was a paperwork issue. But the $1.8 billion that Gaines first alerted lawmakers to last fall is actual money — or so, they think. That’s something senators say needs to be verified.

Had Eckstrom, a Republican first elected in 2002, not resigned last year, lawmakers likely would have stripped him from office. In Eckstrom’s place, McMaster appointed Gaines, the governor’s then-budget director and a 16-year veteran of state budgeting and compliance roles.

Loftis and other state financial officials have said the origin of the $1.8 billion in overlooked funds was a chaotic, decade-long transition from the state’s old accounting system to a new one.

During the hearing, Loftis told lawmakers that when funds come into his office, it’s supposed to come with a special code attached that indicates to which agency it belongs.

In 2016, when Loftis’ office was going through the accounting system swap, someone started putting $17.3 billion in a “pass-through” fund that was opened at the request of a staff member in his office. That account was meant to temporarily funnel money between agencies as part of the changeover.

By 2018, all but $1.8 billion of that was transferred back out and into the agency accounts to which it belonged.

What remained did not have those special ownership tags attached, Loftis said.

While the “movement” of money was really only on paper, it’s still a problem because without an accurate record, officials do not know for which agencies or entities the money was meant.

Meanwhile, the state’s financial officials — former Comptroller General Eckstrom, Loftis, and Auditor Kennedy — knew the money was sitting in the account with no owner. Gaines sent a letter on Halloween to Loftis seeking answers, which was forwarded to Grooms and other GOP legislative leaders, alerting them to the problem.

With no idea where the money belongs, legislators have pledged not to touch the $1.8 billion.

Senators noted hearing from South Carolinians who say the money should be returned to taxpayers. But that would be irresponsible, especially without answers, Grooms said.

“We need to know if it’s real,” and if it’s real, where it belongs, he said.

The House budget proposal doesn’t spend any of the $1.8 billion. Instead, it allocates $3 million to hire an outside firm to find the answers.

The Senate upped that to $4.2 million. Both the House plan and Grooms’ committee recommends tasking the state Department of Administration to oversee that contract.

The committee also wants voters to decide whether or not the treasurer should remain an elected position, much like the Senate suggested for the comptroller general. Putting the questions on the ballot this November will require supermajority approval of both chambers.