37
Chapter 3: Financial Audit
service under the noncontributory plan and age 55 with at least 5 years of
service under the contributory plan. Retirees credited with at least 10
years of service excluding sick leave credit qualify for free medical
insurance premiums; however, retirees with less than 10 years must
assume a portion of the monthly premiums. All service-connected
disability retirees who retired after June 30, 1984, with less than 10 years
of service also qualify for free medical insurance premiums. Free life
insurance coverage for retirees and free dental coverage for dependents
under age 19 are also available. Retirees covered by the medical portion
of Medicare are eligible to receive a reimbursement of a portion of the
basic medical coverage premiums.
For employees hired after July 1, 1996 and who retire with fewer than 25
years of service, the State shall pay to a fund a monthly contribution
equal to one-half of the retired employee’s monthly Medicare or non-
Medicare premium for certain medical benefits for retired employees
with 10 or more years of service; and 75 percent of the retired
employee’s monthly Medicare or non-Medicare premium for retired
employees with at least 15 but fewer than 25 years of service.
For active employees, the employer’s contributions are based upon
negotiated collective bargaining agreements, and are funded by the State
as accrued.
Cost of Retirement Benefits
The department’s general fund share of the expense for pension and
post-retirement benefits for the year ended June 30, 2003, are paid from
the state general fund and approximate $7,334,000 (see Note 1(n)). The
department’s special revenue fund and proprietary fund share of the
pension and post-retirement benefits expense for the year ended June 30,
2003, was approximately $3,138,000 and $212,000, respectively, and are
included in the department’s basic financial statements.

The department leases various office facilities and equipment on a long-
term basis as provided for in the lease agreements. The following is a
schedule of minimum future rentals on noncancelable operating leases at
June 30, 2003:
Year ending June 30:
2004 $ 930,870
2005 852,080
2006 949,790
2007 444,680
2008 418,340
$ 3,595,760
Note 6 – Lease
Obligations
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Chapter 3: Financial Audit
Total governmental activities rent expense for the year ended June 30,
2003 was $1,897,390.
Deferred Compensation
The State offers its employees a deferred compensation plan created in
accordance with Internal Revenue Code Section 457. The plan, available
to all state employees, permits employees to defer a portion of their
salary until future years. The deferred compensation is not available to
employees until termination, retirement, death, or unforeseeable
emergency.
All plan assets are held in a trust fund to protect them from claims of
general creditors. The State has no responsibility for loss due to the
investment or failure of investment of funds and assets in the plan, but
does have the duty of due care that would be required of an ordinary

prudent investor. Accordingly, the assets and liabilities of the State’s
deferred compensation plan are not reported in the accompanying basic
financial statements.
Litigation
The department is a party to various legal proceedings, most of which
normally occur in governmental operations. Although the department
and its counsel are unable to express opinions as to the outcome of the
litigation, it is their opinion that any potential liability arising there from,
will not have a material adverse effect on the financial position of the
department, because any judgments against the department are
judgments against the State, and would have to be paid by legislative
appropriation of the state general fund and not by the department.
Ceded Land
The Office of Hawaiian Affairs (OHA) and the State are presently in
litigation involving the State’s alleged failure to properly account for and
pay to OHA moneys due to OHA under the provisions of the Hawaii
State Constitution and Chapter 10, HRS, for use by the State of certain
ceded lands. As of June 30, 2003, the outcome of the lawsuit had not
been decided.
Note 7 – Commitments
and Contingencies
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39
Chapter 3: Financial Audit
Note 8 – Transfers
For the year ended June 30, 2003, transfers by fund were as follows:
Transfers In Transfers Out
Governmental funds:
Tobacco settlement fund $ — $ 18,722,949

Nonmajor Funds 6,682,711 9,799,541
$ 6,682,711 $ 28,522,490
Proprietary funds:
Water pollution control
revolving fund $ 2,094,000 $ —
Drinking water treatment
revolving loan fund 1,551,000 —
$ 3,645,000 $ —
The tobacco settlement fund transferred $18,722,949 to the state general
fund and the Department of Budget and Finance pursuant to
Chapter 328L, HRS. Transfers out of nonmajor funds included
$3,645,000 transferred to the proprietary funds relating to the State’s
matching of federal funds received from the U.S. Environmental
Protection Agency. The remaining transfers in/out of nonmajor funds
were made to/from other State agencies to fund various programs and
services.
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Chapter 3: Financial Audit
Exhibit 3.1
Governmental Business-t
y
pe
A
c
ti
v
iti
es

A
c
ti
v
iti
es
T
o
t
a
l
Current assets:
Cas
h
an
d
cas
h
equ
i
va
l
ents on
d
epos
i
t w
i
t
h

t
h
e
State of Hawa
ii

$
120,590,696
$
100,202,725
$
220,793,421
Receivables:
47,590 2,261,687 2,309,277
2,561,952 851,517 3,413,469
(
395,000
)
395,000 —
— 11,233,023 11,233,023
Total receivables 2,214,542 14,741,227 16,955,769
Total current assets 122,805,238 114,943,952 237,749,190
— 162,446,453 162,446,453
72,889,696 351,549 73,241,245
Total assets 195,694,934 277,741,954 473,436,888
11,650,441 — 11,650,441
6,449,596 49,082 6,498,678
Accrue
d
vacat

i
on, current port
i
on
(
Note 1
)
6,661,303 — 6,661,303
634,373 — 634,373
330,814 — 330,814
46,805 — 46,805
25,773,332 49,082 25,822,414
Accrued vacation, net of current portion (Note 1) 11,842,316 — 11,842,316
Total liabilities 37,615,648 49,082 37,664,730
72,889,696 351,549 73,241,245
Loans — 277,341,323 277,341,323
To
b
acco prevent
i
on an
d
contro
l
27,277,052 — 27,277,052
Cap
i
ta
l
pro

j
ects 1,406,017 — 1,406,017
Ot
h
er purposes 32,449,955 — 32,449,955
Unrestr
i
cte
d
24,056,566 — 24,056,566
Total net assets
$
158,079,286 $ 277,692,872 $ 435,772,158
See accompanying notes to basic financial statements.
Primary Government
DEPARTMENT OF HEALTH
STATE OF HAWAII
Statement of Net Assets
June 30, 2003
Assets
Accrued interest and loan fees (Note 3)
Due from federal government
Internal balances
Capital assets, net (Note 4)
Current maturities of loans receivables (Note 3)
Total current liabilities
Invested in capital assets
Loans receivable, net of current maturities (Note 3)
Accrued wages and employee benefits payable
Liabilities and Net Assets

Current liabilities:
Workers’ compensation liability (Note 1)
Restricted for:
Vouchers and contracts payable
Net assets:
Commitments and contingencies (Notes 5, 6, and 7)
Deferred income
Due to State General Fund
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Chapter 3: Financial Audit
Exhibit 3.2
O
p
eratin
g

Char
g
es for
Grants and Governmental Business-t
yp
e
Ex
p
enses Services Contributions Activities Activities Total
Primary government:
Governmental activities:
General administration

$
24,935,698
$
325,164
$
8,638,481
$
(15,972,053)
$
—

$
(15,972,053)
Environmental health administration 36,287,269 5,893,051 8,388,703 (22,005,515)
—
(22,005,515)
Behavioral health services administration 192,769,198 1,973,307 13,136,150 (177,659,741)
—
(177,659,741)
Health resources administration 249,905,904 1,275,123 56,895,824 (191,734,957)
—
(191,734,957)
Total governmental activities 503,898,069 9,466,645 87,059,158 (407,372,266) — (407,372,266)
Business-type activities:
Environmental health loan programs 2,028,675 5,938,729 10,310,356
—
14,220,410 14,220,410
Total primary government $ 505,926,744 $ 15,405,374 $ 97,369,514 (407,372,266) 14,220,410 (393,151,856)
General revenues:
State general fund allotments 317,485,335

—
317,485,335
Nonimposed employee fringe benefits (Note 1) 30,535,685
—
30,535,685
Environmental response tax 1,562,115
—
1,562,115
Deposit beverage container fee 2,091,733
—
2,091,733
Advance glass disposal fee 3,066,777
—
3,066,777
Tobacco settlement funds 43,523,519
—
43,523,519
Other 94,837
—
94,837
Transfers (Note 8) (21,839,779) 3,645,000 (18,194,779)
Total general revenues and transfers 376,520,222 3,645,000 380,165,222
Change in net assets (30,852,044) 17,865,410 (12,986,634)
Net assets at July 1, 2002 188,931,330 259,827,462 448,758,792
Net assets at June 30, 2003 $ 158,079,286 $ 277,692,872 $ 435,772,158
See accompanying notes to basic financial statements.
Functions/Pro
g
rams
Pro

g
ram Revenues Primar
y
Government
Net (Expense) Revenue and Changes in Net Assets
DEPARTMENT OF HEALTH
STATE OF HAWAII
Statement of Activities
Year Ended June 30, 2003
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Chapter 3: Financial Audit
Exh
i
b
i
t
3
.
3
Other Total
Tobacco
G
overnmental
G
overnmental
G
eneral
S

ettlement Funds Funds
Cash and cash equivalents $ 48,206,306 $ 28,033,175 $ 44,351,215 $ 120,590,696
Accrue
d

i
nterest rece
i
va
bl
e — — 47,590 47,590
Due
f
rom
f
e
d
era
l
government — — 2,561,952 2,561,952
Total assets $ 48,206,306 $ 28,033,175 $ 46,960,757 $ 123,200,238
Liabilities:
Vouchers and contracts payable
$
7,867,732
$
708,048
$
3,074,661
$

11,650,441
Accrue
d
wages an
d
emp
l
oyee
b
ene
fi
ts 4,874,110 48,075 1,527,411 6,449,596
De
f
erre
d

i
ncome — — 330,814 330,814
Due to ot
h
er
f
un
d
s — — 395,000 395,000
Due to State Genera
l
Fun
d

46,805 — — 46,805
Total liabilities 12,788,647 756,123 5,327,886 18,872,656
Fund balances:
Reserve
d

f
or encum
b
rances 39,492,554 10,455,938 28,255,839 78,204,331
Unreserve
d
, reporte
d

i
n:
Ma
j
or
f
un
d
s:
Genera
l

(
4,074,895
)

— —
(
4,074,895
)

To
b
acco sett
l
ement — 16,821,114 — 16,821,114
N
onmajor special revenue funds — — 13,377,032 13,377,032
Total fund balances 35,417,659 27,277,052 41,632,871 104,327,582
Total liabilities and fund balances $ 48,206,306 $ 28,033,175 $ 46,960,757 $ 123,200,238
See accompanying notes to basic financial statements.
Liabilities and Fund Balances
Assets
DEPARTMENT OF HEALTH
Balance Sheet - Governmental Funds
June 30, 2003
STATE OF HAWAII
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Chapter 3: Financial Audit
Exhibit 3.4
Total fund balances – governmental funds $ 104,327,582
Amounts reported for governmental activities in the statement of net assets are
diff
erent

b
ecause:
Capital assets used in governmental activities are not financial resources and
therefore not reported in the governmental funds. 72,889,696
Accrued vacation reported in the statement of net assets do not require
the use of current financial resources and therefore are not reported
as
li
a
bili
t
i
es
i
n t
h
e governmenta
l

f
un
d
s.
(
18,503,619
)

Workers’ compensation liability reported in the statement of net assets does not
requ
i

re t
h
e use o
f
current
fi
nanc
i
a
l
resources an
d
t
h
ere
f
ore
i
s not reporte
d

as a
li
a
bili
t
i
es
i
n t

h
e governmenta
l

f
un
d
s
(
634,373
)

Net assets of governmental activities $ 158,079,286
See accompanying notes to basic financial statements.
June 30, 2003
DEPARTMENT OF HEALTH
STATE OF HAWAII
Reconciliation of the Governmental Fund Balances to the
Statement of Net Assets
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Chapter 3: Financial Audit
Exhibit 3.5
Other Total
Tobacco Governmental Governmental
General Settlement Funds Funds
Revenues:
S
tate genera

l

f
un
d
a
ll
otments, net
$
311
,7
43
,5
98

$
—
$
5,7
41
,7
3
7
$
31
7,
48
5,
33
5

Intergovernmenta
l
— — 84,623,804 84,623,804
To
b
acco sett
l
ement — 43,523,519 — 43,523,519
Non
i
mpose
d
emp
l
oyee
f
r
i
nge
b
ene
fi
ts
(
Note 1
)
30,535,685 — — 30,535,685
Taxes,
f
ees,

fi
nes, an
d
ot
h
er — — 16,886,968 16,886,968
Interest
i
ncome — 869,904 949,333 1,819,237
Total revenues 342,279,283 44,393,423 108,201,842 494,874,548
Expenditures:
Genera
l
a
d
m
i
n
i
strat
i
on 17,649,885 — 6,971,885 24,621,770
Env
i
ronmenta
l

h
ea
l

t
h
20,035,354 — 14,398,930 34,434,284
Be
h
av
i
ora
l

h
ea
l
t
h
serv
i
ces 172,815,777 — 17,792,185 190,607,962
Hea
l
t
h
resources 154,713,111 32,207,043 62,323,666 249,243,820
Total expenditures 365,214,127 32,207,043 101,486,666 498,907,836
Excess (deficiency) of revenues
over expen
di
tures
(
22,934,844

)
12,186,380 6,715,176
(
4,033,288
)

Other financing sources (uses):
Trans
f
ers
i
n
(
Note 8
)
— — 6,682,711 6,682,711
Trans
f
ers out
(
Note 8
)
—
(
18,722,949
)

(
9,799,541
)


(
28,522,490
)

Total other financing uses — (18,722,949) (3,116,830) (21,839,779)
Net change in fund balances (22,934,844) (6,536,569) 3,598,346 (25,873,067)
Fund balances at July 1, 2002 58,352,503 33,813,621 38,034,525 130,200,649
Fund balances at June 30, 2003 $ 35,417,659 $ 27,277,052 $ 41,632,871 $ 104,327,582
See accompanying notes to basic financial statements.
DEPARTMENT OF HEALTH
STATE OF HAWAII
Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds
Year Ended June 30, 2003
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Chapter 3: Financial Audit
Exhibit 3.6
Net change in fund balances – total governmental funds $ (25,873,067)
Amounts reported for governmental activities in the statement of activities
are different because:
Governmental funds report capital outlays as expenditures. However, in the
statement of activities the cost of those assets is allocated over their
estimated useful lives and reported as depreciation expense. This is the amount
b
y which depreciation exceeded capital outlays for the year. (3,693,038)
Accrued vacation reported in the statement of activities do not require the use
of current financial resources and therefore are not reported as expenditures
i

n t
h
e governmenta
l

f
un
d
s unt
il

d
ue an
d
paya
bl
e.
(
651,566
)

Workers’ compensation liability reported in the statement of activities do not
require the use of current financial resources and therefore are not reported
as expenditures in the governmental funds until due and payable. (634,373)
Change in net assets of governmental activities $ (30,852,044)
See accompanying notes to basic financial statements.
to the Statement of Activities
Year Ended June 30, 2003
DEPARTMENT OF HEALTH
STATE OF HAWAII

Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balances of Governmental Funds
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Chapter 3: Financial Audit
Exh
i
b
i
t
3
.7
Water Pollution Drinking Water
C
ontrol Treatment
Revolvin
g
Revolvin
g
Fund Loan Fund Total
Current assets:
Cas
h
an
d
cas
h
equ
i

va
l
ents
i
n state treasury
$
89,528,990
$
10,673,735
$
100,202,725
Loan fees receivable 566,544 74,030 640,574
Accrued interest receivable (Note 3) 1,588,748 32,365 1,621,113
Due
f
rom ot
h
er
f
un
d
s — 395,000 395,000
Due
f
rom
f
e
d
era
l

government 400,076 451,441 851,517
Current portion of loans receivable (Note 3) 10,659,371 573,652 11,233,023
Total current assets 102,743,729 12,200,223 114,943,952
Loans receivable, net of current portion (Note 3) 151,795,915 10,650,538 162,446,453
Cap
i
ta
l
assets, net
(
Note 4
)
19,961 331,588 351,549
Total assets 254,559,605 23,182,349 277,741,954
Liabilities:
Current
li
a
bili
t
i
es:
Accrued payroll and other 41,343 7,739 49,082
Total liabilities 41,343 7,739 49,082
Net assets:
Investe
d

i
n cap

i
ta
l
assets 19,961 331,588 351,549
Restricted for loans 254,498,301 22,843,022 277,341,323
Total net assets $ 254,518,262 $ 23,174,610 $ 277,692,872
See accompanying notes to basic financial statements.
Assets (Restricted)
Liabilities and Net Assets
DEPARTMENT OF HEALTH
STATE OF HAWAII
Statement of Net Assets – Proprietary Funds
June 30, 2003
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Chapter 3: Financial Audit
Exhibit 3.8
Water Pollution Drinking Water
Control Treatment
Revolv
i
n
g
Revolv
i
n
g
Fund Loan Fund Total
Operating revenues:

Interest income from loans
$
3,956,751
$
158,727
$
4,115,478
Administration loan fees 1,451,773 371,478 1,823,251
Total operating revenues 5,408,524 530,205 5,938,729
Operating expenses:
Administrative 1,202,434 272,850 1,475,284
State program management — 208,956 208,956
Small systems — 1,858 1,858
Water protect
i
on — 342,577 342,577
Total operating expenses 1,202,434 826,241 2,028,675
Operating income (loss) 4,206,090 (296,036) 3,910,054
Nonoperating revenues:
Interest income from investments 2,535,929 239,321 2,775,250
Fe
d
era
l
contr
ib
ut
i
on 4,428,893 3,105,208 7,534,101
Othe

r
685 320 1,005
Total nonoperating revenues 6,965,507 3,344,849 10,310,356
Income before transfers in 11,171,597 3,048,813 14,220,410
Transfers in (Note 8) 2,094,000 1,551,000 3,645,000
Change in fund net assets 13,265,597 4,599,813 17,865,410
Net assets at July 1, 2002 241,252,665 18,574,797 259,827,462
Net assets at June 30, 2003 $ 254,518,262 $ 23,174,610 $ 277,692,872
See accompanying notes to basic financial statements.
DEPARTMENT OF HEALTH
STATE OF HAWAII
Statement of Revenues, Expenses, and Changes in Fund Net Assets –
Year Ended June 30, 2003
Proprietary Funds
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