A forensic audit of Nueces County's operations has uncovered an elevated fraud risk and $3.75 million in unauthorized transfers that were never brought before the Commissioners Court, according to preliminary findings presented to the Nueces County Commissioners Court on Wednesday.
The audit, conducted by CRI Advisors LLC, examined the county's health insurance fund and auditor's office operations from fiscal years 2020 through 2024. The investigation was commissioned after concerns arose about budget errors and financial management under the former county auditor.
Commissioner Brent Chesney stressed throughout the presentation that these findings relate to the former county auditor, not the current auditor who recently took office. "This is not reflective of the current county auditor, and, and I, I think that's really important to know for the public who's watching and the media who's watching that the, the board of judges took great steps in moving a different direction," he said.
"We determined that the county has had an elevated fraud risk during our review period, again underneath the former county auditor's tenure," said Ben Kincaid, a partner with CRI Advisors, during the presentation to commissioners.
The audit found $3.75 million in loans and transfers that were not brought before the commissioner's court. The unauthorized transfers included $750,000 that occurred in fiscal year 2020 and another $3 million that occurred in totality in fiscal year ending 2021.
Kincaid said that thousands of documents had been reviewed and despite the previous auditor stating these transfers had been brought before the court, there was no evidence to validate the auditor's statements.
Commissioner Chesney called the findings "beyond disturbing" and suggested the district attorney should review the matter. "If this truly cannot be found that there was any authorization, maybe the DA ought to be listening to this report because this is I, I'm not a criminal lawyer, but for someone to be able to authorize $3.7 million without going to commissioner's court... that's staggering to me," Chesney said.
"That's serious stuff, that's taxpayer dollars, and nobody on this court is going to let that stand. I'm not speaking for everybody else, but I know everybody on this court and the level of integrity they have, they're not, nobody's going to want that to stand," Chesney added.
The audit also revealed that the county's health insurance fund has been operating at a deficit for years. When comparing adjusted revenues of $74 million during the review period to expenditures of $84 million during the same period, there has been a deficit of just shy of $10.1 million in the health insurance fund.
Key findings from the audit include:
Health Insurance Fund Issues:
- Lack of transparency of the financial status and the fund performance by the auditor's office to the commissioner's court
- Employee and employer contributions increased only once in five years despite rising medical costs
- In fiscal year 2024, revenues did substantially increase by 33%, largely due to stop-gap coverage for high medical claims
Auditor's Office Findings:
- The auditor's office was operating as a silo within the county
- Bank reconciliations were not being performed or adjusted on a timely basis throughout the review period
- There was an overall lack of procurement card oversight during the entirety of our review period
- There was a lack of wholesale oversight in relation to fuel card expenditures
- There has been leave accruals for PTO that were allowed in excess of the annual caps, resulting in approximately $150,000 in over-accruals
Gift Card Concerns
Commissioner Mike Pusley expressed confusion about taxpayer funds being used for gift cards. "I don't know why we would be expending taxpayer money on gift cards. I, I don't understand that at all," he said.
The auditor had noted insufficient supporting documentation for certain gift card purchases during the review period, primarily used for social assistance and employee recognition events.
Call for Enhanced Oversight
County Judge Connie Scott emphasized that while new policies may be needed, existing policies weren't being followed.
"There are policies in place that our employees were not following," Scott said. "So while we move forward and we create policies, we also have to remember that we have policies that employees or departments are not following."
Scott added that the issues extend beyond a single department: "This is not just one department or, or one previous employer. There are a lot of things that have been just going and their departments, they do things the old way."
Among the recommendations presented in the audit findings:
- Implementation of a fraud hotline, noting "the county currently does not have any type of, process or methodology to report any type of fraud or concerns related to non-compliance"
- Regular fraud awareness training, with the auditor stating "we'd also recommend, to go hand in hand with that the county implement a regular reoccurring fraud awareness training"
- Resume random procurement card reviews and audits, which haven't occurred since fiscal year 2019
- Better utilization of the county's new ERP system, which is currently underutilized
- Transitioning away from manual bank reconciliation processes, which the auditor called "inefficient" and "prone to error, prone to manipulation"
Commissioner Pusley, drawing from his experience on the city council, noted that "the city does have a hotline and while I was a councilman, there were two instances where significant problems were brought to light by, as you said a while ago, an employee, not an auditor."
The full forensic report is expected to include a 30-page report on the health insurance fund and a 60-page report on the auditor's office, with detailed findings and recommendations. Management responses to the findings will be included in the final reports, expected in the first week of August.
