Financially troubled South Carolina State University in Orangeburg diverted nearly $2.3 million in rebates from contract vendors to two school foundations between 2010 and 2013, a report from the state's Office of Inspector General finds.

According to the report, Review of Suspicious Indicators at South Carolina State University Foundations (13 pages, PDF), SCSU sent 21 percent of the $11.1 million in rebates it collected from five vendors to the SC State University Foundation, which was found to have paid for travel, consultants, flowers, entertainment, and country club memberships, and the S.C. State University Advancement Foundation, which was created to "serve as the repository for proceeds generated from outsourced enterprises, fund development initiatives, and other special institutional campaigns." 

"This practice of diverting state funds, generally termed rebates, to foundations is inappropriate and needs to cease," the report states, noting that the foundations operated with no public or legislative oversight. "The diversion of these funds removes transparency in the expenditure of these funds, as well as allows the use to be determined without competing in the normal university budgetary framework with other university business needs." The inspector general's office found that such arrangements supported conditions for "fraud, waste, and abuse," creating the potential for conflicts of interest, as when one contract included a $200,000 unrestricted "partnership gift"; generated hidden costs to students, who paid an extra $343 a year for their meal plans to support the food service vendor's contributions back to SCSU and its foundations; and funded "pre-selected" projects.

"Any university business activity generating revenue needs to stay within the institution to benefit its operations consistent with university priorities and state procurement code," the report states. The only historically black public college in South Carolina has a $13.6 million deficit and is on probation with accreditors after a report released last April found that it borrowed $6.5 million from a community program to cover deficits in previous years. This year the state loaned the school $6 million, which it used to pay vendors ($3.5 million), cover payroll ($1.2 million) and utilities ($519,000 ), make debt payments ($246,000), and hire a financial consultant ($500,000).

While insisting  it had only done what other public universities in the state do, SCSU officials promised to make changes, The State reports. "We concur with the [Inspector General] that such practices at statewide institutions of higher learning may create a perception that total transparency is lacking,"  said a statement issued by the school. "Moving forward, the university will apply best practices to enhance transparency and accountability."