Auditors give state qualified rating

Wednesday, May 5, 1999 | 3:33 a.m.

The problem, according to the report by Kafoury & Armstrong, is the state's inability to account for the losses in the state's employee benefits trust account.

That account dropped from a $25 million surplus just two years ago to a negative following the collapse of L&H Administrators, the third-party administrator hired to pay bills generated by the employee health benefits plan.

That company left about 100,000 unpaid claims in boxes and a jumbled mass of records state officials and the company's replacement are still trying to sort.

State Treasurer Brian Krolicki concedes that's a black mark on the state's financial audit but adds that he doubts the state bond rating will be hurt.

"It's a qualification not so much from a bad event as for an unknown amount," he said. "The problem is no one knows the exact amount lost."

The report points out that an employee of L&H was arrested on charges of embezzling funds from the benefits account and that the company was months behind in paying claims generated by state workers covered by the plan. In addition, auditors said there were so many errors in paying claims that the expenses from the fund cannot be accurately worked out to the satisfaction of accountants.

"Due to the unreliability of the information provided, the actuarial estimate could not be relied upon, resulting in a qualified opinion on the state's general purpose financial statements," the report says.

Krolicki said financial rating agencies have been notified and "at this time they are taking it under consideration."

"But at this time, it's not going to affect our ratings," he said.

He said those agencies are pleased with Gov. Kenny Guinn's aggressive handling of the problem including setting up a task force of his staff, agency and private experts as well as lawmakers to develop legislation fixing the problems with the benefits system.