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E o CJ CJ ~ 4) 4) ~ This is trial version www.adultpdf.com EXHIBIT B STATE OF HAWJ~II, HAWAII PUBLIC EMPLOYEES HEAL TH FUND COMBINED STATEMIENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND EQUITY -GENERAL AND EXPENDABLE TRUST FUNDS YEAR ENDED JUNE :~O, 1998 Total (Memorandum Only) Expendable Trust General REVENUES: State allotted appropriations Interest income Other $ 662,767 $ 662,767 196,014 173,508 $ 196,014 173,508 196,014 Total revenues 836,275 1,032,289 EXPENDITURES : Administrative expenst:s: Personal services Other 684,151 108,715 684,151 236,297127,582 Total expenditures 920,448 EXCESS OF REVENUES OVER EXPENDITURES 68,43243,409 11,841 OTHER FINANCING SOURCES (USES): Net increase in premium reserve funds Operating transfers out 16,132,197 (27, 150,269) 16,132,197 (27,150,269) Total other finarlcing sources (uses) (11,018,072) (11,018,072) EXCESS (DEFICIENCY) OF REVENUES AND OTHER FINANCING SOURCES OVER EXPENDlTURJ~S AND OTHER FINANCING USES (10,949,640) (10,906,231) 43,409 OTHER CHANGES IN FUND EQUITY - Lapsed appropriations (65,027) (65,027) FUND EQUITY , BEGINJ~G OF YEAR 3,078 54,271,885 54,274,963 FUND EQUITY, END OJ~ YEAR $ (18,540) $ 43,322,245 $ 43,303,705 See accompanying notes to combined financial statements. 39 This is trial version www.adultpdf.com EXHIBIT C STATE OF HAWJ~II, HAWAII PUBLIC EMPLOYEES HEALTH FUND COMBINED STATEMI:NT OF REVENUES AND EXPENDITURES -BUDGET AND ACTUAL (BUDGETAFtY BASIS) -GENERAL FUND YEAR ENDED JUNE ~iO, 1998 Actual (Budgetary Basis) Variance Favorable (Unfavorable) Budget REVENUES: State allotted appropriations $ 607,827 $607,827 $ EXPENDITURES : Administrative expens~:s: Personal services Other 490,485 107,624 495,744 112,083 5,259 4,459 Total expenditures 598,109 607,827 9,718 EXCESS OF REVENUES OVER EXPENDITURES $ 9,718 $ $9,718 See accompanying notes to combined financial statements. 40 This is trial version www.adultpdf.com EXHIBIT D STATE OF HAWJ~II, HAWAII PUBLIC EMPLOYEES HEAL TH FUND STATEMENT OF CHP~NGES IN ASSETS AND LIABILITIES -AGENCY FUND YEAR ENDED JUNE :~O, 1998 Balance July 1, 1997 Balance June 30, 1998 ASSETS Additions Deductions $1,580,020 $581,706,402 $581,852,116 $ 1,434,306 59,909 7 13,722 352 60,388 7,943 Cash and short-terrn investments Receivables: Employee contributions Insurance carriers Medicare reimbursements Due from other fund 13,722,451 1,300,580 2,967,095 1,666,515 TOTAL $4,607,024 $ 595,437,627 $ 596,875,499 $3,169,152 LIABILITIES $ 260,891 2,188,731 1,944,030 $ 32,311,965 203,190,636 78,750,955 $ 32,329,767 204,219,192 79,108,648 $ 243,089 1,160,175 1,586,337 186,098 6,547 179,551 Refunds payable: Employees State ofHawaii Counties Contributions collected in advance Premiums payable to insurance carriers 27,274 281,184,071 281,211,345 TOTAL $4,607,024 $ 595,437,627 $ 596,875,499 $3,169,152 See accompanying notes to combined financial statements. 41 831 ,943 ,451 This is trial version www.adultpdf.com 42 Chapter 3: Financial Audit This page intentionally left blank. This is trial version www.adultpdf.com We transmitted a draft of this report to the Department of Budget and Finance and the Hawaii Public Employees Health Fund on Apri116, 1999. A copy of the transmitta11etter to the Health Fund is included as Attachment 1. The responses of the Department of Budget and Finance and Hawaii Public Employees Health Fund are included as Attachments 2 and 3, respectively. Comments on Agency Responses The Department of Budget and Finance did not comment on our recommendation but provided rationale as to as to why prior funding requests to implement a long-term care insurance benefit plan were denied. In addition, it provided information on a current legislative request that proposes to implement this insurance benefit plan. The Health Fund indicates that due to time restraints the board of trustees is unable to fu1ly respond to all of the findings. It notes that the board will continue to evaluate the findings and respond in the future at a public hearing . With regard to our finding that the Health Fund's financial reporting violates state law and fails to comply with accounting standards, the board believes that although the accounting standards "may be technically correct," reporting of its financial transactions in expendable trust and agency funds presents a better picture of its operations than reporting in an enterprise fund. We disagree. The current financial reporting of the Health Fund does not comply with the accounting standards. These standards enable everyone employers, employees, other beneficiaries, the public-to compare the performance of such entities as health funds and be able to rely on their financial statements. The Health Fund concurred with other findings. The fund's management and board indicated that they will continue to evaluate our findings and take corrective action as appropriate. 43 This is trial version www.adultpdf.com ATTACHMENT 1 STATE OF HAWAII OFFICE OF THE AUDITOR 465 S. King Street, Room 500 Honolulu, Hawaii 96813-2917 MARION M. HIGA State Auditor (808) 587-0800 FAX: (808) 587-0830 Apri116, 1999 copy Mr. Cenric S.K. Ho, Administrator Hawaii Public Employees Health Fund City Financial Tower 201 Merchant Street, Suite 1520 Honolulu, Hawaii 96813 DearMr. Ho: Enclosed for your information are three copies, numbered 6 to 8 of our draft report, Financial Audit of the Hawaii Public Employees Health Fund of the State of Hawaii. We ask that you telephone us by Monday, April 19, 1999, on whether or not you intend to comment on our recommendations. If you wish your comments to be included in the report, please submit them no later than Wednesday, Apri121, 1999. The Board of Trustees of the Hawaii Public Employees Health Fund, Department of Budget and Finance, Governor, and presiding officers of the two houses of the Legislature have also been provided copies of this draft report. Since this report is not in final form and changes may be made to it, access to the report should be restricted to those assisting you in preparing your response. Public release of the report will be made solely by our office and only after the report is published in its final form. Sincerely, I. ~~7 Marion M. Riga State Auditor Enclosures 44 This is trial version www.adultpdf.com ATTACHMENT 2 STATE OF HAWAII DEPARTMENT OF BUDGET AND FINANCE HAWAII PUBliC EMPLOYEES HEALTH FUND P.O BOX 2121 HONOLULU, HAWAII 96805 April 23,1999 R CEIVEO APR Z3 45 AH '99 Ms. Marion M. Higa State Auditor Office of the Auditor 465 South King Street, Room 500 Honolulu, Hawaii 96813-2917 o r,\ , ,. ". - STA ' ll O ~ OR.:; .,II F HAWAII Dear Ms. Higa: Health Fund Draft Financial Audit Re Due to time constraints, our Board of Trustees is unable to fully respond to all of the Auditor's findings at this time. The Board will continue to evaluate their findings and will respond in more detail at a public forum or hearing on Health Fund issues. Because of the severity of the allegations relating to the improper financial reporting of the Health Fund operations, it is necessary to respond to that issue at this time. The Health Fund undergoes an annual financial audit by independent auditors of the State Comptroller . None of the audits since 1984 contained an adverse opinion, included significant material deficiencies or indicated the Health Fund's financial reports were required to follow GASB standards on public entity risk pools. Although GASB 10 may be technically applicable, the Health Fund believes the reporting of our financial transactions in expendable trust and agency funds presents a better picture of our operations than an enterprise fund. The Health Fund management concurs with several of the findings contained in the Draft Financial Audit, especially the Auditor's independent validation of our Board's multi-year efforts in soliciting State Administration and Legislature approval to: 2 Implement a long-term care insurance benefit plan for public employees and retirees; Provide educational opportunities for our Board members and staff on employee benefit plan administration topics; Acquire investment authority and advisors like the Employees' Retirement System; and Return $17.9 million of excess reserves to our employee members. 3, 4, The Health Fund management and Board will continue to evaluate the Auditor's findings and will take corrective action as appropriate. Sincerely J .(1/C~ ~ CENRIC S.K. HO Administrator 45 This is trial version www.adultpdf.com ATTACHMENT 3 BENJAMIN J. CAYETANO GOVERNOR EARL I. ANZAI DIRECTDR WAYNE H. K'MURA DEPUTY DIRECTDR STATE OF HAWAII DEPARTMENT OF BUDGET AND FINANCE P. O BOX 150 HONOLULU, HAWAII 96810-0150 EMPLOYEES' RETIREMENT SYSTEM HAWAII PUBLIC EMPLOYEES HEALTH FUND BUDGET, PROGRAM PLANNING AND MANAGEMENT DIVISION FINANCIAL ADMINISTRATION DIVISION OFFICE OF THE PUBLIC DEFENDER PUBLIC UTILITIES COMMISSION Apri121, 1999 RECEIVED APR 21 OFC. i:F -'1l ,",JDijOR STATE OF HAWAII Mse Marion Me Higa State Auditor Office of the Auditor 465 Se King Street, Room 500 Honolulu, Hawaii 96813-2917 Dear Ms The Department of Budget and Finance (DB&F) has reviewed the draft report of the Financial Audit of the Hawaii Public Employees Health Fund of the State of Hawaii. The Hawaii Public Employees Health Fund (HF) is an administratively attached agency which is governed by a Board of Trustees. They will provide comments directly to your office. Our comments are directed at the recommendation that the HF work more closely with the Legislature and the Department of Budget and Finance in adoption of a long-term care insurance benefit plan (LTC) .Prior requests for funds to implement the LTC were disapproved due to: 1) limited availability of general funds; 2) the provisions of Section 87-3, Hawaii Revised Statutes, which require the employee-beneficiary contributions to fund the cost of the LTC; and 3) other statewide efforts on LTC that were being considered at the time (i.e., Family Hope Program; Joint Legislative Committee on Long-Term Care) .The Fiscal Biennium 2000-2001 Executive Budget request currently includes trust funds of $103,000 in FY 00 and $3,000 in FY 01 to implement the LTC. Both the House and Senate versions of the appropriation bill currently appear to include the requested funding. Thank you for the opportunity to comment on the report. Aloha, - ~.1~ Director of Finance AROADMIN 46 No.1 Capitol District Building, 250 S. Hotel Street, Honolulu, Hawaii 96813 This is trial version www.adultpdf.com . 596,875,499 $3,169,152 See accompanying notes to combined financial statements. 41 831 ,943 ,451 This is trial version www.adultpdf.com 42 Chapter 3: Financial Audit This page intentionally left blank. This. improper financial reporting of the Health Fund operations, it is necessary to respond to that issue at this time. The Health Fund undergoes an annual financial audit by independent auditors. Auditor Office of the Auditor 465 Se King Street, Room 500 Honolulu, Hawaii 96813-2917 Dear Ms The Department of Budget and Finance (DB&F) has reviewed the draft report of the Financial Audit