Independent forensic review finds multi-year losses in county health insurance fund, flags unauthorized transfers

Ben Kincaid, a partner with forensic accounting firm Carr, Riggs & Ingram, told the Nueces County Commissioners Court on Tuesday that preliminary work shows the county's health insurance fund ran deficits over a five-year review and that some transfers into the fund were not presented to the court.

Kincaid said the review covered fiscal years 2020 through 2024. "For both, the health insurance fund as well as the overall county, we are looking at from fiscal year 2020 through fiscal year 2024," he said.

The firm presented high-level findings and said draft written reports will follow. "We now, anticipate on providing the draft reports to the county the first full week in August of this year," Kincaid said, adding the drafts will include management responses and detailed recommendations.

Why it matters: Commissioners said the findings raise questions about past financial oversight, budget forecasting and county accounting practices. The court directed the firm to finish reports and return with recommendations and management responses.

Key findings presented

- Adjusted revenues vs. expenditures: CRI presented an adjusted-revenue calculation that excludes one-time transfers into the health insurance fund; over the five-year review the adjusted revenues were about $74 million while expenditures were about $84.1 million, a shortfall of roughly $10.1 million.

- Unauthorized loans/transfers: Kincaid said the firm identified $3,750,000 in loans or transfers from the general fund into the health insurance fund that were not documented as having been brought before the commissioners court. "We identified $3,750,000 in loans and transfers that were not brought before the commissioner's court and were not made aware by the former county auditor," he said.

- Accounting basis and timing effects: CRI reported that the former county auditor had shifted payroll deduction timing and that the county historically recorded premiums in a way that did not reflect an accrual of one pay period in advance; the firm said correct accrual accounting would require an adjustment of about $300,000'$400,000 to the health insurance fund balance.

- Premium and contribution trends: The firm said employee premium increases were small or absent during much of the period while employer contributions rose; according to CRI, Nueces County employee premiums were low relative to comparable counties while employer contributions were comparatively high, and medical cost inflation outpaced premium changes.

Areas of county-wide concern

CRI also reported systemic weaknesses that extended beyond health benefits: siloed operations in the auditor's office, elevated fraud risk in specific areas, underutilization and inconsistent deployment of the county's enterprise resource planning (ERP) software, weak procurement-card controls, untimely bank reconciliations and insufficient procurement documentation.

Commissioners' responses and next steps

Commissioner Chesney, who had requested the forensic work, said the court asked for the review to bring transparency. "It would sure be nice to have some sort of, I'm sure, executive summary," Chesney said, asking the firm to supply an accessible summary for the public in addition to full drafts.

Judge Scott and other commissioners emphasized the findings describe issues during the tenure of the former county auditor, and the court repeatedly clarified the distinctions between past practices and the current auditor's office.

CRI said the health-insurance-specific report will be about 30 pages and the county-wide forensic report about 60 pages; both will include an executive summary, detailed findings and recommended corrective actions. The court directed CRI to deliver draft reports the first full week of August and return to present final reports and management responses.

Ending

The firm provided a preliminary review and the court set a schedule for finished draft reports and management responses. Commissioners said they will use the final reports to set priorities for procedural, accounting and policy changes and to identify any potential referrals for further legal review.