Nueces County Investigates Fraud Risks from Former Auditor's Office

Audit Reveals Serious Issues in Nueces County Operations

A recent audit of Nueces County’s auditor's office has uncovered significant concerns regarding poor documentation and noncompliance with established policies and procedures. The findings have raised alarms among county officials, who are now taking steps to address the issues identified.

The Nueces County Commissioners Court received a preliminary report on forensic audits of the county auditor’s office and a health insurance fund during a meeting on July 23. One of the key findings was that commissioners were not informed about millions of dollars in transfers and loans to the county’s health insurance fund. These revelations have sparked discussions about transparency and accountability within the county government.

The audit covered a five-year period from fiscal years 2020 through 2024. It is important to note that the current county auditor, Grayson Meyer, was not in his position at the time of these events. In January, the Commissioners Court contracted accounting firm Carr, Riggs & Ingram (CRI) to conduct a forensic audit of both the health insurance fund and the auditor’s office. The final reports from this audit are expected to be presented at the next Commissioners Court meeting, including detailed findings and recommendations.

Ben Kincaid, a partner at CRI, presented the preliminary findings during the July 23 meeting. While he provided a high-level overview of the main issues, the final reports will include more comprehensive details. The county auditor’s office plays a critical role in preparing accounting records for all county funds, auditing various departments, verifying disbursements, forecasting financial data, and serving as the budget officer for the county.

Commissioner Brent Chesney highlighted that the commission had concerns about the previous auditor, which led to the decision to pursue a forensic audit. Forensic audits are typically used to identify fraud or irregularities. The cost of the audit was $315,000, a significant investment that reflects the gravity of the issues being examined.

Meyer, who was appointed as county auditor in May, previously served as a business manager for development services in the city of Corpus Christi and as a budget manager for the Nueces County auditor’s office. The forensic auditors analyzed internal financial statements, budgets, financial records, payroll expenditures, invoices, contracts, procurements, and purchasing activities. Their goal was to identify any irregularities and areas of noncompliance.

Kincaid noted that there were errors in budgets and a lack of documentation, which raised concerns among the commissioners. Additionally, a software transition created significant challenges for the county. The auditors found that operations were siloed within the county, leading to an elevated fraud risk. There was also insufficient planning for the software transition, a lack of standard procedures, and inadequate reviews of existing policies for compliance.

Bank reconciliations were not performed on a timely basis, and there was a lack of oversight for procurement cards. Kincaid emphasized that the siloing of operations within the auditor’s office affected its ability to serve as an auditor for the county as a whole. This issue is not limited to the auditor’s office but extends to other county departments as well.

Nueces County Judge Connie Scott stressed the importance of getting buy-in from everyone involved. “We want to move forward with new policies that take care of this and correct the problems,” she said. Other findings included minimal oversight over fuel card purchases, insufficient details for purchase orders, and a lack of documentation for gift card purchases. The county uses gift cards for social services and staff recognition, but there is currently no fraud hotline for reporting fraud or noncompliance.

The auditors also recommended implementing fraud awareness training, as employees often play a crucial role in identifying fraud. The audit revealed that the county has not been using internal audit functions sufficiently.

For the health insurance fund, the auditors reviewed financial records, identified sources and uses of funds transferred to offset losses, and analyzed changes in pay schedules for employee and county contributions. They also examined the procurement of agreements with health insurance fund contractors and assessed whether internal controls were overridden.

Kincaid pointed out that there have been deficits within the health insurance fund over the past several years, raising concerns about the financial stability of the fund. There were also issues related to loans provided from the general fund to the health insurance fund and various transfers between funds. However, the Commissioners Court was not fully informed about the fund’s financial performance during this time.

If only employer and employee contributions to the fund are considered, the fund lost more than $10 million between fiscal years 2019-20 and 2023-24. To cover these losses, the county contributed additional funds, which appeared as revenues. This practice obscures the true reality of the fund’s performance, according to Kincaid.

Kincaid also noted that $3.75 million in loans and transfers to the account were never brought before the Commissioners Court. Commissioner Chesney described this as "beyond disturbing" and emphasized the need for accountability. He suggested that the county should budget for forensic audits every few years.

Commissioner John Marez called the findings "staggering," while Commissioner Mike Pusley expressed long-standing concerns about purchasing card and fuel card transactions and gift cards. Pusley, a former Corpus Christi City Council member, mentioned that the city’s fraud hotline has helped bring problems to light. He suggested that the county might consider similar measures.

Scott emphasized that the county already has policies in place, but they are not being followed by employees. “Let’s make sure we don’t create more if there’s something (already in place) that we need to enforce,” she said.