For nearly 25 years, hundreds of thousands of dollars in public money has streamed into the coffers of Happy Days and Special Times with virtually no outside verification of the group's financial health.

That's because South Carolina, unlike many other states, does not require nonprofit organizations to back up their financial statements with outside audits.

As a result, neither donors nor taxpayers have any guarantee that their money is properly spent.

But in the wake of allegations this week that the Charleston-based cancer charity has been mismanaged, the state is conducting an informal inquiry into the group's finances. The charity's signature annual event, a weeklong camping retreat for children with cancer and their families, begins this weekend near Summerton.

Secretary of State Mark Hammond confirmed Friday that his office is looking into the allegations.

He said the controversy highlights the need for more stringent accountability guidelines for groups that solicit donations from the public. He plans to push next year for state rules requiring outside audits of nonprofits with incomes above a certain level.

On Monday, Happy Days' board stripped founder and Executive Director Deborah Stephenson of most of her authority over the group's operation and finances.

She was accused by board members of misusing the group's money and resisting efforts to implement accounting safeguards.

Stephenson concedes that Happy Days suffered from sloppy bookkeeping, but she denied any wrongdoing and said some board members exaggerated the problems in order to force her out.

Financial supporters are wary of the turmoil. Charleston County is withholding future funding for Happy Days until the current questions have been resolved, county Administrator Roland Windham said Friday. Charleston County gave Happy Days about $15,000 last year in the form of a grant and had planned to give the group an additional $10,500 next year before the allegations surfaced.

It's unclear what impact the group's woes will have on any future funding from the state. Happy Days receives so-called "pass-through" funding from the state Department of Social Services.

That money has been approved by the General Assembly every year for nearly two decades, growing from about $20,000 in 1985 to $70,000 annually in recent years.

"DSS has no control over that," agency spokesman Marilyn Matheus said. "It's a legislative issue."

State Rep. Daniel Cooper, newly elected House Ways and Means chairman, said the money has probably received little or no scrutiny over the years because it's been in place for so long. That likely won't be the case next year.

"If there is some wrongdoing there, we can go in and suspend that in next year's budget," he said.

The money from the state and county account for more than 10 percent of the roughly $700,000 Happy Days receives each year in donations and grants. The remainder comes from donations and other charitable grants.

Happy Days officials had different reactions to the potential loss of public funding.

Stephenson said the organization would be forced to cut some of its programs if supporters pull away.

"That would be dire," she said. "We'd struggle. There might not be a Halloween party, there might not be a Christmas party."

Board Vice Chairman Robert Marchant, one pushing for better accountability, said any cuts would be felt, but not drastically.

"We would need to make adjustments," he said. "I don't think the two grants you're talking about would affect the administration of the programs."

If donated goods and services are included, Happy Days takes in about $1 million annually. Yet the group has had only one outside audit since its inception. That review was criticized because it was conducted by an accounting firm whose principal, Robert Moise, served as Happy Days treasurer at one time and signed off on Happy Days' federal tax filings.

Moise had left the firm by the time the audit was done. This week, Moise said that he did not see anything wrong in having his former colleagues audit an organization on whose board he sat.

Nonprofit organizations in South Carolina are required to submit copies of their federal tax filings and financial statements to the secretary of state. But those tax forms, known as 990s, are vulnerable to inaccuracies without independent proof of a group's actual earnings and spending.

The state uses those forms to calculate the percentage of an organization's spending that goes toward its stated mission. Happy Days' most recent filings with the state say that almost 76 percent of its spending goes to programs for children. However, some present and former board members challenge that number as inflated. Based on Happy Days' federal financial filing, the amount of money spent directly on "children's events" is much lower, about 36 percent, if salaries and other expenses are not lumped in.

Hammond said an outside audit requirement would probably be part of a larger reform package his office has been working on. Many of the new requirements could mirror proposed new federal rules for charities.

He said his only hesitation is where to draw the line on a group's annual income. "I wouldn't want to place an undue burden on smaller organizations."

Richard Hendry, vice president of programs for the Coastal Community Foundation, said Happy Days' books should be independently verified. "For a group with their income, it's definitely time to have an audit."