Hawaii Completes 2010 Financials 16 Months Later
Lack of staff, furloughs and an antiquated accounting system set back the state’s annual financial report for fiscal year 2010 more than 16 months after the end of the budget year.
It’s a critical lapse. State officials have said the delayed report — which details the state’s revenues, assets, liabilities and expenses — prevented it from selling new bonds earlier this year.
The was issued this month for the fiscal year ended June 30, 2010. Ideally, the report is supposed to be issued six months after the close of the fiscal year. Work on the 2010 report has pushed back work on the fiscal 2011 report.
Kalbert Young, the state’s budget chief, said the CAFR contains data intended to help the state make informed decisions, but the information becomes quickly outdated once the fiscal year ends.
“Administrators, investors, managers and taxpayers rely on this information for planning, decision making and general knowledge,” Young told Civil Beat in an email. “Financial reports serve the purpose of providing a transparent look into the fiscal and financial health of the state of Hawaii. The reports are most relevant when the information is as close to the completion of the fiscal year as possible.”
The state Department of Accounting and General Services, which prepares the report, says the delay was mostly due to lack of staff, furloughs, an antiquated accounting system, and stricter government accounting standards.
“Some common themes were that we lost people in critical positions … on top of that, we have a very old accounting system that captures things in a cash format, we had a change in reporting requirements, and in addition to vacancies, furloughs cut the work week down by a day,” Jan Gouveia, deputy comptroller for the state Department of Accounting and General Services, told Civil Beat.
One example of how antiquated the system is: Accounting staff had to manually adjust financial data from a cash-based format to an accrual-based format for all departments.
Working to Improve the Process
Gouveia said the department has learned from the experience and already has begun to improve the process.
“We’re reevaluating our current process and seeing where we can incorporate technology into automating a lot of the processes,” she said. “From an accounting standpoint, these are things that need to be maintained on a monthly basis, rather than having to do it all at year-end. We’re trying to change the work flow where we do things on a more regular basis.”
Gouveia said the long-term solution would be to upgrade the state’s accounting system to consolidate all departments’ financial data — a move that’s part of a plan by the state’s chief information officer. She put the price tag at “millions of dollars.”
“Having an updated financial management system that integrates across all departments — that’s the dream, and it’s part of the CIO’s strategic plan,” she said. “In the meantime, we have to be sure to make investments where prudent so that each year that goes by, we’re improving the process.”
She said the department is aiming to complete the fiscal 2011 CAFR by the end of March.
“We have made it a priority to put all of our resources toward that goal, and if we are unable to do that, it’s really not for lack of trying,” she said.
The CAFR relies on independent audits of departments’ financials, which are handled by the Office of the Auditor. Auditor Marion Higa said her office received the financial documents it needed six months behind schedule.
“The CAFR is the responsibility of the administration, which my auditors, they attest to the accuracy of it,” Higa told Civil Beat. “The administration was late in getting calculations that have to be in there to the external auditors. Ordinarily, those numbers are generated in the fall. This year, it happened in late spring, early summer.”
The delay wasn’t any improvement over last year, when the state issued the fiscal 2009 CAFR on Oct. 20, 2011. The delay that year was tied to the state’s investments in Student-Loan-Backed Auction-Rate Securities, which became frozen during the recession.
Report Highlights
Here are some highlights from the :
Revenues: Total revenues amounted to $8.9 billion for year ended June 30, 2010. Taxes made up approximately 48.5 percent of total revenues, while grants and contributions, including federal aid, made up 31.6 percent. Charges for goods and services provided 17.8 percent of total revenues.
Expenses: Expenses totaled $10.02 billion for year. Welfare expenses ($2.3 billion) and K-12 education ($2.6 billion) accounted for the highest costs.
Net Assets: Net assets exceeded liabilities by $5.4 billion at year’s end.
Long-term Liabilities: Long-term liabilities increased by $1.4 billion to $8.7 billion for the year. During the year, the state issued $532 million in general obligation bonds to finance the Hawaiian Home Lands Trust settlement and public improvement projects. It issued $515.3 million in general obligation refunding bonds. The state increased the liability for retiree health benefits to $1.4 billion, and increase of $641 million over the previous year.
“The state expects to continue to fund its (retiree health) costs on a pay-as-you-go basis for the near term while it analyzes alternative strategies that could be implemented to manage the high cost of providing retiree health benefits,” the report says.
The report states that it does not include the Employees’ Retirement System and the Office of Hawaiian Affairs “because those agencies, based on their fiscal independence and/or separate legal entity status, are not accountable to the state.”
The 2010 report’s tardiness was notable in parts of the report, where fiscal 2011 finances were summarized.
Along with the CAFR, Higa’s office this month released department-level audits covering fiscal 2010. While some of the audits were completed in March and July of this year, the office held off on releasing them piecemeal until the CAFR was completed.
