Joint report rips
state employees
health fund

By Harold Morse
Star-Bulletin

The state auditor and a certified public accounting firm have found serious deficiencies in financial reporting by the Hawaii Public Employees Health Fund.

The health fund's failure to follow proper accounting and financial reporting standards resulted in about $294 million in revenues and $203 million in expenses not recorded and reported by the fund for the fiscal year ending June 1998, according to state auditor Marion Higa.

Also, the health fund incorrectly recorded $17.4 million in underwriting gains as well as $2.1 million of related interest income as assets, according to the report.

Deloitte and Touche's review of the health fund's financial statement said the fund did not provide a fair picture of its financial standing, the auditor's report said.

"One deficiency was serious enough that the auditors expressed an adverse opinion on the health fund's financial statements," the report said, adding that an adverse opinion is the worst possible opinion issued by CPA firms.

The health fund did not account for its financial activities in an enterprise account, the audit said. It also questioned gain contingencies being recorded in the financial statements.

Additionally, the health fund didn't provide auditors with a written representation letter required in accepted auditing standards, according to the audit.

This raises serious questions about its responsibility for and accuracy of financial information provided about the health fund, the report said.

It added several deficiencies were found in financial accounting and internal control practices of the health fund.

A lack of clarity between the fund and its insurance carriers resulted in substantial excess reserves, the report said.

The critical audit claimed fund financial reporting is not in compliance with standard accounting rules.