The Honor System

South Carolina pays companies to create jobs, then takes their word the jobs exist. The records that would check sit unused since the mid-1990s.

When South Carolina pays a company to create jobs and later wants to know whether the jobs exist, it asks the company. That is not a simplification. The state’s auditors wrote it as a finding in 2020: the only evidence the Department of Commerce uses to verify a company’s job creation is documentation provided by the company itself. They printed an example in the back of the report, a list one company sent in, with last names, first initials, the last four digits of Social Security numbers, and hire dates, and they called that page insufficient evidence of jobs created. That page was the proof the state accepted.

And that is not a portrait of the old days. The Coordinating Council’s own annual report, published this March, describes the process the same way today: when a company’s deadline arrives, the company certifies its own jobs and investment and sends in documentation to support its performance. Six years after the audit, the evidence still starts at the company.

Last week’s piece counted the $5.2 million the state billed for and gave up on. This week is the other half of that story: why the money went out so easily in the first place. It went out on numbers the companies wrote down themselves. The audit’s case files show where that leads: one CEO got a $1.2 million grant with a faked financial report. He was sentenced to fifteen years for fraud; the courts did their job. The paperwork did not.

Here is the part to sit with. South Carolina already owns the answer key. Every employer in the state files quarterly wage reports with the Department of Employment and Workforce, listing every worker’s name, Social Security number, wages, and hours. Checking a company’s job claims against those reports is a matter of one state agency sharing a file with another. A Commerce staff member told the auditors the Coordinating Council used to receive those reports, and stopped in the mid-1990s. Reagan’s old rule was trust but verify. For thirty years, the state has done the trusting and skipped the verifying.

Now, some things do get checked. Capital investment gets verified against a company’s property tax return, or against invoices and proofs of payment, which are harder to fake than a spreadsheet. Site visits exist for projects that renovate buildings, to confirm grant money was spent as the company represented. And on the tax-credit side, where companies keep a slice of their employees’ withholding taxes, Commerce told the auditors the program carries no risk, because the Department of Revenue is required by law to audit every company claiming more than $10,000 at least once every three years.

Then the auditors counted the times anyone checked. The site visits stopped in September 2018 and did not resume until the auditors showed up in August 2019; twenty-one of the fifty-three visits ever made happened after the audit began. At the Department of Revenue, two auditors covered the whole tax-credit program, completing 15 to 29 audits a year while 138 to 184 companies claimed the credit, so the every-three-years rule was going unmet, and some companies had never been audited at all. And the audits that did happen produced the most important number in this piece: DOR staff told the auditors that discrepancies turn up in as many as 95 percent of them. Companies claiming past the per-employee cap. Companies claiming credits for workers no longer there. In the one corner of the program where somebody looked, almost every file had something wrong in it.

A Commerce official gave the auditors the honest name for the tax-credit side, and it is on page 54 of the report: the state relies on the “honor system” for the jobs and investment a company claims on its quarterly reports. Their word, in the record.

Which brings us back to the good news from last week, the Council’s own scorecard showing companies delivered 115 percent of the jobs they promised. Where does a number like that come from? From the end of the process described above: the company certifies, the company supplies the backup, and the staff reviews what the company sent. The auditors also asked how job numbers get entered into Commerce’s database and from what source documents, and the answer was that no written procedures existed. So the scorecard is true in exactly one sense: it is truly what the companies certified. Every teacher who ever let a class grade its own quiz knows what those scores come back looking like.

None of this says the jobs are fake. Most of them are probably real, and that is what makes the arrangement unfair to everyone, including every honest company whose real jobs are now vouched for by the same system that vouched for a faked financial report. The reason nobody checks is the usual one. Checking is work, and the money at stake belongs to nobody in the room. You checked your own bank statement against your checkbook every month of your working life, because the money was yours. The state lent yours out and took the borrower’s word for what came back, and it has taken that word, on the record, since the mid-1990s.

Next week: The Second Inspection

Last week:

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Sources: Legislative Audit Council, Review of Incentive Programs Administered by the S.C. Department of Commerce, June 2020: verification of job claims and DEW wage reports pp. 41-42; job data entry procedures p. 18; capital investment and site-visit verification p. 42; fraud case file p. 49; site visits p. 42; DOR audit staffing and frequency pp. 51-52; discrepancy rate p. 52; “honor system” p. 54. Coordinating Council for Economic Development, 2025 Annual Report of Fund Activity, March 2026: certification and closeout process pp. 22-24; performance history (115%) p. 25.