Kyle council sets scope of forensic audit to review potential fraud

On June 2, the Kyle City Council approved a request for an independent third-party forensic audit to evaluate potential financial misconduct that has occurred in recent years, according to previous Community Impact reporting.

The council determined the scope of the forensic audit during a July 22 meeting, including which specific allegations of misconduct will be evaluated and the sequence in which the allegations are reviewed.

The gist

In a forensic audit, one or more third-party firms will examine financial records in an effort to find evidence of fraud, embezzlement, theft, corruption or other serious financial misconduct, said Interim City Manager Perwez Moheet.

The city currently undergoes a yearly independent financial audit to review financial records, internal controls and compliance with regulatory standards, according to the city’s website.

“Unlike an annual independent financial audit, a forensic audit looks for intentional wrongdoing, reconstructs financial events and transactions, gathers legally admissible evidence [and] often supports litigation or criminal prosecution,” Moheet said.

The overview

The city’s forensic audit will be completed with a phased approach to better manage the solicitation and contract process with independent auditors, Moheet said. The council voted on seven unique issues, determining whether each would be reviewed.

Five of the seven allegations will be the subjects of forensic audits. The council tabled two of the proposed issues. Each allegation will be audited individually.

The first audit will investigate allegations of mismanagement to determine the causes, timeline and decision-making that led to a decline in the city’s general fund reserves. The fund balance dropped from $34.2 million in fiscal year 2022-23 to a projected $10.3 million in FY 2025-26.

The second will review alleged overpayments for real estate purchases of specific properties made by the city and the award of related real estate brokerage contracts. The specific properties include:

• Five properties located in the downtown area
• Three properties located on Veterans Drive
• Two properties located on Republic Drive
• Two properties located on Dacy Lane

The fourth will examine allegations of misconduct in connection with the City’s public transportation program, including the procurement and award of a contract to third-party service providers.

The fifth and final audit will examine alleged impropriety, corruption, misconduct and abuse of official authority by a City official to influence and extort a business owner. This allegation includes a reported offer of $1 million and other city resources in exchange for favorable action.

Next steps

In August, city staff will develop a request for proposals for the first forensic audit, according to agenda documents. The council will then adopt the city’s FY 2026-27 budget in September, securing funding for the audit.

The solicitation process for the first audit will be completed in October and the council will select and award a contract in November. The audit will begin in the same month and the findings will be reported to the City Council in March or April 2027, according to agenda documents.