Is the SC Comptroller General in trouble for 3.5 billion accounting error? What we know.

South Carolina's financial books had a $3.5 billion accounting error in 2022, and it's a problem that's been around for the last 10 years.

Last week, lawmakers grilled state auditors and agency heads about how an error of that magnitude could happen ?and go unnoticed for so many years.

At the center of the storm is Comptroller General Richard Eckstrom, whose office is responsible for the state's financial accounting.

During a Senate Finance Committee meeting on Feb. 21, Berkeley lawmaker Larry Grooms, who has been leading the investigation, said Eckstrom's testimony explaining the $3.5 billion accounting error was "incoherent", "inconsistent" and "bizarre".

Constitutional carry: South Carolina House OKs permitless carry of handguns

These are some of the questions lawmakers had: Why wasn't the state notified before? Math errors are fine, but $3.5 billion? Why did Eckstrom tell lawmakers about it after the elections?

It became crystal clear that Eckstrom, who has held office for the last 20 years and was recently re-elected in the Nov. 2022 elections, was in hot water on Feb. 23.

State Auditor George Kennedy and Remi Omisore from Clifton Larson Allen, a national public accounting firm, said that auditors had pointed out deficiencies in the financial reporting system for years.

Kennedy said that internal reports by his team told Eckstrom that the controls and functions surrounding financial reporting were not strong and could not detect errors in a timely fashion. Berkeley lawmaker Grooms wondered how long this "material weakness" persisted, and Kennedy said it had been a concern for the past 10 years.

Upon questioning, Omisore said that $3.5 billion was not a normal accounting error and it was possibly exacerbated due to staffing shortages in the comptroller general's office, which aligned with testimony Kennedy gave.

Lethal injections: South Carolina Senate OKs 'shield law'

How did we get here?

Two weeks ago, Eckstrom told the Senate Finance Committee that the state's Annual Comprehensive Financial Reports (ACFR) for the past 10 years have overstated how much cash the state had in its coffers. The ACFRs are not used by lawmakers for budgeting, but the reports are submitted to credit rating agencies to determine the state's borrowing abilities.

Eckstrom said this was due to a "mapping error" that occurred when the state was transitioning from an older accounting system.

SC state agencies used to file their accounts in an old system called STARS. Eckstrom said that the system was as old as Neil Armstrong's landing on the moon.

Then in 2007, financial agencies like the Treasurer's office and the Comptroller General's office started switching to a new system called SCEIS. The state has spent nearly $100 million to set up the system.

But since every agency wasn't on that system, both STARS and SCEIS were being run simultaneously, almost like rowing two canoes in two parallel streams, one of Eckstrom's analogies.

Now, here's where the problem starts. In 2017, auditors had to revise a $1.3 billion error from when the state started transitioning to a new system. But while they fixed it in the system, the final books still had that error. Due to a lack of oversight, that amount grew to $3.5 billion by 2022. So while the numbers in the system are correct, the numbers in the ACFR are not.

Where exactly were these transactions overstated?

According to Eckstrom, funds that are given to colleges and universities were recorded twice in the financial report because the accounting system did not accurately report the transfer of funds.

We still need more of an explanation, right? Let's turn to associate Katherine Kip, who was the first to find the error.

She explained it this way: Say you're a parent with $2 and want to give that cash to your child. The total amount in the house should be $2. But if the transfer of allowance is not accurately reported, it would appear that both the parent and child have $2, meaning it would look like the house now has twice the amount of money it actually has.

Newcomer driving fees:South Carolina weighs $500 'Yankee tax'

Kip used to work in the Treasurer's office. The Treasurer's office oversees how much money and investments the state has in its bank account. The Comptroller General, where Kip is now, tracks the money that comes in and out of the bank and sent to other agencies.

After Kip noticed that the transactions and the account totals weren't adding up, she fixed it. She went through almost every transaction and made sure that each was reflected in the bank totals in the accounting system.

Even though the error is fixed, it appears that lawmakers are mulling structural changes and an independent review into the Comptroller's office.

Devyani Chhetri covers the South Carolina State House and is a watchdog SC government reporter. You can reach her at [email protected] or @ChhetriDevyani. 

This article originally appeared on Greenville News: Is the SC Comptroller General in trouble for 3.5 billion accounting error? What we know.