Orange County officials are acknowledging oversight issues with a controversial fund that provides medical insurance for current and retired sheriff’s deputies.
The fund -- which is managed by the Association of Orange County Deputy Sheriffs (AOCDS) and receives about $25 million per year in payments from the county government, as well as payments from deputies -- has for years been the subject of audits demanding specific reforms. Yet, according to a recent grand jury report, those reforms have not been implemented.
Called the "AOCDS Medical Trust," it dates back to 1990, when the county shifted responsibility for managing medical benefits to the AOCDS. Under the current labor contract, the county pays into the fund, and the union ensures that deputes receive benefits that are similar to what other county employees receive.
But that has not been the case, according to grand jurors. AOCDS members have been allowed to pay much less – nothing in some cases – for health care than other county employees, according to the grand jury report, titled “Orange County Sheriff Medical Insurance: County Failures in Negotiation, Documentation, Oversight, and Transparency.”
At least twice in recent years, the panel wrote, the fund has been used to subsidize the insurance payments that retired deputies are supposed to cover, something that’s not done for the county’s other employees.
“Allowing this accommodation to continue for the active Sheriffs will certainly result in the County and its non-Sheriff employees having to make up the future, increasingly large, shortfall in retiree medical coverage,” stated the report, which was released in June.
Union officials, meanwhile, highlighted that they're providing "cost-effective and comprehensive medical benefits" to members.
“As we expected, the grand jury found no mismanagement, malfeasance or fraud connected to the AOCDS Medical Trust,” union spokeswoman Kimberly Edds said in a statement.
But the panel's findings regarding the questionable payments are latest in a string of warnings that date back to 2008. That year, an auditor, who was chosen by the union and county, found that a lack of an anti-fraud program was a “significant deficiency” in preventing misstatements in financial reports.
Four years after that audit – with the recommendations not implemented – the trust underreported the amount of money in one of its funds by $1 million, auditors later discovered. County officials recently acknowledged that they didn’t insist that the recommendations be put in place.
In its June report, the grand jury asserted that after the county pays its monthly share into the trust, it "effectively loses visibility and traceability of those funds.” Currently, the county pays an average of $1,174 per month for each deputy, which adds up to about $25 million in annual payments, according to the report.
(Click here to read the grand jury report.)
In their formal response, approved at the county supervisors' Aug. 25 meeting, supervisors and CEO Frank Kim agreed that, “contrary to the terms” of the labor contract, non-county employees of the union were receiving health coverage from the trust.
And when it comes to subsidizing retirees’ share of the insurance costs, county officials acknowledge they don't know whether county money was used.
“The Trust is comprised of contributions from both the County, and eligible employees. Whether or not the retiree health benefits are subsidized with County contributions or AOCDS member contributions to the Trust is unclear,” the county response states.
They also agreed that auditors have found “a number of internal control deficiencies” with the fund.
(Click here to read the county’s response to the report.)
Edds, the AOCDS spokeswoman, said the union repeatedly offered to “provide input and insight into the Trust,” but “neither the county nor the grand jury was interested.”
Edds also disputed the notion that retired deputies’ share of insurance costs were being improperly paid with county funds.
“County medical contributions have never been used to subsidize retiree premiums,” Edds said in her statement. When subsidies were provided, she added, it came out of reserves “comprised of members’ money – not County money.”
And, she added, the coverage for AOCDS employees was never subsidized by county contributions.
As for the accounting safeguards, Edds said an anti-fraud program was in fact implemented in 2009, contrary to the grand jury's findings.
(Click here to read the union’s statement.)
County officials also agreed with the grand jury's finding that the contract with deputies doesn’t limit how the fund’s roughly $15 million in reserves should be used.
Grand jurors attributed many of the problems to “ambiguous language” in the county’s contract with sheriff’s deputies, a “lack of initiative” by county officials to enforce the agreement, a “lack of transparency,” weak negotiating, and “county politics.”
Grand jurors issued a series of recommendations, including that the county take back its responsibility for managing insurance programs and seek refunds from the union for funds that were spent “inappropriately.”
The county CEO’s office says they plan to analyze how feasible it would be to take back control over the insurance programs, and report their findings to the CEO by December. As for refunds, county staff say they will also take some time to study the issue.
The union, meanwhile, says it has saved county taxpayers more than $38 million since 2003 by managing the insurance, as opposed to having the county was running it.
Editor's note: This story has been updated from its original version to include additional comments from the deputies' union.