State Inspector General Patrick J. Maley says his investigation into South Carolina State University revealed no indication of fraud, but identified a pattern of mismanaging unused 1890 program funds to cover up the university’s operating shortfalls.
The university released a statement Tuesday saying that it appreciates the inspector general’s work bringing, “transparency to a lingering financial issue that has plagued this university for more than eight years.”
In a summary letter, Maley said S.C. State essentially used the 1890 funds, “as an interest-free loan, drawn upon and repaid many times each year, which was also confirmed by SCSU’s external auditor several days prior to issuance of this letter.”
The university started out with a loan of $456,553 during the 2006-07 fiscal year, but by February of this year the sum had reached a total of $6.5 million, Maley said.
The 1890 program is a land-grant program established by the federal government and supported by matching state and federal public service activity funds.
The state’s PSA funds were pulled down each year and co-mingled with the university’s education and general fund and could be used for anything related to the 1890 program.
Maley said the university would have to immediately repay the $6 million.
S.C. State President Thomas Elzey reported to university trustees last week that the bill has already been paid and is included in the $13.6 million the university has asked from the state legislature.
Elzey noted that the university borrowed money from the 1890 program as recently as last year to meet payroll. About $2.5 million was taken last June and about $2.3 million to $2.4 million in December, he said.
However, the practice has been stopped on the advice of counsel, he said.
“We stopped that and so the PSA account, the 1890 money, has been made whole,” he reported to trustees.
Tuesday’s statement from university spokesperson Sonja Bennett-Bellamy also indicated that the public service activity funds will be separated from university funds in the future.
“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,” she said.
Maley said S.C. State has been harming the 1890 program, which provides agricultural, extension and community services, and the university itself.
“This practice deprived the 1890 access to these unused state PSA funds that could have been directed toward accomplishing its mission of helping limited-resourced clients,” he wrote.
The practice also worsened the university’s financial situation by allowing deficits to increase and by delaying action to address the business issues that caused the deficits, he said.
“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,” Maley said. The university became so dependent on the funds it became unable to let the 1890 program use its own carry forward funds.
Though it’s not the main cause of the university’s financial problems, it’s a force in S.C. State’s immediate cash flow deficit, he said.
Maley noted that the university has faced many fiscal difficulties it could not help, such as cuts in federal and state funding as well as changes in requirements for federal grants and loans that made it more difficult for students to get the money they need for school. However, the university did not take steps soon enough to address its financial issues.
He reported that the university needs both short-term and long-term help from the state to get back on stable financial ground.
“The solution to this complex business problem with a variety of both short- and long-terms factors is to build a seamless partnership between SCSU and state government,” he said.
Additionally, the university needs a mechanism that will assure taxpayers that the business structures that caused its underlying financial problems are addressed, he said.
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