BILL REQ. #:  H-3756.2 

Read first time 01/22/2004.   Referred to Committee on Commerce & Labor.

     AN ACT Relating to industrial insurance fund audits; and adding a new section to chapter 51.44 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   A new section is added to chapter 51.44 RCW to read as follows:
     (1) 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.
     (2) Beginning in 2005, the state auditor shall conduct annual audits of the state fund. As part of these audits, the auditor shall contract with firms qualified to perform a financial audit and a separate independent actuarial audit.
     (a) 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, and shall employ a staff that includes no fewer than three people who have attained fellowship in the casualty actuarial society and shall maintain limits of errors and omission insurance as prescribed by the auditor.
     (b) The 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.
     (c) The 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;
     (vii) An assessment of the financial impact of the proposed 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.
     (d) 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.
     (e) The cost of the audit shall be paid by the state fund.
     (3) The auditor shall issue an annual report to the governor, the leaders of the majority and minority caucuses in the senate and the house of representatives, the director of the office of financial management, and the director of the department of labor and industries on the results of the financial audit and review, within six months of the end of the fiscal year. The report may include recommendations.
     (4) The auditor shall issue an annual report to the governor, the leaders of the majority and minority caucuses in the senate and the house of representatives, the director of the office of financial management, and the director of the department of labor and industries on the results of the actuarial audit and review, within four weeks of the initial filing of annual changes to the rates, but no later than two months before the effective date of the rates.
     (5) The audit and the report of the review performed by the independent accounting and actuarial firms shall be available for public inspection.
     (6) Not later than ninety days after the auditor completes and delivers to the appropriate authority an audit under subsection (2) of this section, the director of the department of labor and industries shall notify the auditor in writing of the measures taken and proposed to be taken, if any, to respond to the recommendations of the audit report. The auditor may extend the ninety-day period for good cause.