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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.
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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.
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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
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42
Chapter 3: Financial Audit
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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
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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
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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
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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
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