1053-S.E3 AMS HONE S5140.1

3ESHB 1053 - S AMD TO WM COMM AMD (S-4928.1/04) 773

By Senator Honeyford

WITHDRAWN 03/04/2004

On page 4, after line 23 of the amendment, insert the following:

"(4)(a) Beginning in 2005, the state auditor shall conduct a performance audit of the department of labor and industries. The performance audit shall include a financial audit and actuarial review of the state fund, under RCW 51.08.175. The joint legislative audit and review committee shall assist in overseeing the audit of the state fund which shall be conducted by a firm recognized as qualified to perform financial audits and a separate independent actuarial audit. The financial audit and the independent actuarial audit may be performed by separate firms.

(b) To assist in the performance audit and state fund audit, the department of labor and industries shall prepare financial statements on the state fund in accordance with generally accepted accounting principles, including but not limited to the accident fund, the medical aid fund, the pension reserve fund, the supplemental pension fund, and the second injury fund. Statements shall be presented desegregated and in aggregate.

(c) The firm or firms conducting the reviews shall be familiar with the accounting standards applicable to the accounts under review, shall have experience in workers' compensation reserving and rate making in Washington state, and shall employ staff who have attained fellowship in the casualty actuarial society and shall maintain professionally recognized standards of limits for errors and omission insurance.

(d) The state auditor shall determine the scope of the financial audit which shall include, but is not limited to, an opinion on whether the financial statements were prepared in accordance with generally accepted accounting principles.

(e) The state auditor shall determine the scope of the actuarial audit, which shall include, but is not limited to:

(i) An independent estimate of the claim reserves;

(ii) An evaluation of the effect of discounting using various investment yields on reported reserve levels;

(iii) A retrospective test of the accuracy of labor and industries reserve estimates over at least a fifteen-year period;

(iv) An assessment of the actuarial calculations underlying the break-even indicated rate level;

(v) A retrospective test of the accuracy of past rate level indications over at least a ten-year period;

(vi) An assessment of the actuarial reserving calculations; and

(vii) An assessment of the financial impact of the rate level on the actuarial soundness of the industrial insurance fund, taking into consideration the risks inherent with insurance and the fact that competition does not mitigate rate setting.

(f) The department of labor and industries shall cooperate with the firms in all respects and shall permit the firms full access to all information the firms deem necessary for a true and complete review.

(g) The costs of the audits shall be paid by the state fund under separate interagency agreements with the joint legislative audit and review committee and the state auditor.

(h) The final performance audit reports, including the state fund audit, shall be submitted to the board by the state auditor. The board shall release final reports to the citizens of Washington, the governor, and the appropriate legislative committees. The final performance audit reports shall be posted on the internet. The report may include recommendations, and within six months after the final performance audit reports are submitted to the board, the director of the department of labor and industries shall notify the legislative auditor in writing of the measures taken and proposed to be taken, if any, to respond to the recommendations of the audit report."

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