October 1, 2014
Final Reports
San Mateo Courts - Civil Grand Jury 1998 Final Report: Self-Insured Internal Service Funds
Background | Findings | Recommendations
Background:

The San Mateo County 1997 Grand Jury recommended that the San Mateo County 1998 Grand Jury monitor the 1998-1999 budget process to ensure that the Self-Insurance Internal Service funds establish appropriate interfund charges in order to avoid year-end deficits.

San Mateo County is self-insured for most of its insurable risks and purchases excess insurance to protect itself from catastrophic losses. The County reports self-insured exposures in the General-Purpose Financial Statement account titled Proprietary Fund Types, Internal Service funds (IS funds). IS funds account for the financing of goods and services on a cost reimbursement basis, provided by one department, agency or other governmental unit to another. The following are IS funds:

  • Fleet Maintenance
  • Workers’ Compensation Trust
  • Long-term Disability Trust
  • Employee Benefits Trust
  • Personal Injury and Property Damage

As of June 30, 1997, the IS funds collectively had a cash balance comfortably in excess of estimated claims. However, the Workers’ Compensation Trust alone had an indicated deficit balance as follows (rounded to the nearest thousand):

  • Cash and Investments $ 9,843,000
  • Accounts Payable $ 62,000
  • Estimated Claims $11,749,000
  • Indicated Deficit $ 1,968,000

Future claims on IS funds, and associated administrative costs, are estimated annually by an independent actuary. The independent actuary estimates both the timing and amounts of future claims payments and the lesser present values of those claims payments. The lesser present value amounts, assuming they earn interest at a rate selected by the independent actuary, will grow over time to the dates and amounts of the claims payments.

Findings:

The primary reason for the Workers’ Compensation Trust indicated deficit balance, as of June 30, 1997, is that its calculation is based upon the undiscounted, full amount of future claims payments. Had the calculation been based upon the lesser present value of future claims payments, there would have been a negligible indicated deficit balance.

The Employee and Public Services Department accounts for future claims payments in the lesser amounts of their present values. The County Controller and the General-Purpose Financial Statement independent auditor currently account for future claims payments in the greater, full amounts of the payments.

Recommendations:
Recommendation 27: The San Mateo County Board of Supervisors should instruct the Employee and Public Services Department, acting in collaboration with the San Mateo County Controller and the General-Purpose Financial Statement independent auditor, to agree to a common calculation of the adequacy and balances of Internal Service funds. The San Mateo County Controller, acting in collaboration with the Employee and Public Services Department and the General-Purpose Financial Statement Independent auditor, should agree to a common calculation of the adequacy and balances of Internal Service funds. The San Mateo County 1998 Grand Jury instructs the General-Purpose Financial Statement independent auditor, acting in collaboration with the Employee and Public Services Department and the San Mateo County Controller, to agree to a common calculation of the adequacy and balances of Internal Service funds.
Recommendation 28: The San Mateo County Board of Supervisors should direct the Employee and Public Services Department to instruct the independent actuary to determine that its annually selected interest rate for all Internal Service Funds is consistent with the interest earnings expectations of the San Mateo County Treasurer.

 

© 2014 Superior Court of San Mateo County