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s 353.69 L72MSFA 2005 Legislative Audit Division State ofMontana Report to the Legislature Financial Audit October 2005 For the Fiscal Year Ended June 30, 2005 Montana Fund State A Component Unit ofthe State ofMontana This is our financial audit report on the Montana State Fund for the fiscal year endingJune 30, 2005. The objectives ofour financial audit include determining ifthe Montana State Fund's financial statements present fairly its financial position and results ofoperations at and for the period ending June 30, 2005, with comparative totals at and forthe period ending June 30, 2004. This report contains no recommendations. Direct comments/inquiries to: Legislative Audit Division Room 160, State Capitol PO Box 201705 MT 05-05 Helena 59620-1705 Help eliminatefraud, waste, and abuse in stategovernment. Call the Fraud Hotline at 1-800-222-4446 statewide or444-4446 in Helena. MontanaStateLibrary III III! ill III ihiilli 3 0864 1003 5642 FINANCIAL AUDITS Financial audits are conducted by the Legislative Audit Divisionto determine ifthe financial statements included in this report arepresented fairly and the agency has complied with laws and regulations having a direct and material effect onthe financial statements. In performing the audit work, the audit staffuses standards set forth bythe American Institute ofCertified Public Accountants and the United States Government Accountability Office. Financial audit staffmembers hold degrees with an emphasis in accounting. Most staffmembers hold Certified Public Accountant (CPA) certificates. Government Auditing Standards, the Single Audit Act Amendments of 1996 and OMB CircularA-133 requirethe auditorto issuecertain fmancial, internal control, and compliancereports. This individual agency audit report is not intended to comply with these requirements and is therefore not intended for distributionto federal grantor agencies. The Legislative Audit Division issues a statewide biennial Single Audit Report which complies with the above reportingrequirements. The SingleAudit Report forthe two fiscal years ended June 30, 2005, will be issued byMarch 31, 2006. The Single Audit Report forthe two fiscal years ended June 30, 2003, was issued onMarch23, 2004. Copies ofthe Single Audit Report can be obtained by contacting: Single Audit Coordinator Legislative Audit Division Office ofBudget and Program Planning Room 160, State Capitol State Capitol PO Box 201705 Helena MT 59620 Helena MT 59620-1705 Phone (406) 444-3616 MEMBERS OF THE LEGISLATIVE AUDFT COMMITTEE LEGISLATIVE AUDIT DIVISION Scott A. Seacat, Legislative Auditor Deputy Legislative Auditors: John W. Northey, Legal Counsel JimPellegrini, Performance Audit & Tori Hunthausen, IS Audit Operations James Gillett, Financial-Compliance Audit October2005 The Legislative Audit Committee ofthe Montana State Legislature: This is ourreport on the Financial audit ofthe Montana State Fund, a component unit ofthe State ofMontana, forthe fiscal yearended June 30, 2005. Theobjectives ofthis audit include determining ifthe financial statements forfiscal year2004-05, with comparative financial amounts for fiscal year2003-04, present fairly the Montana State Fund's financial position at June 30 for each fiscal yearand the results ofits operations for We the fiscal years then ended. also tested compliance with laws that have a direct and material effect on the financial statements. We made no recommendations to Montana State Fund in the current orprioraudit report. Onpage A-1 you , will fmd the kidependent Auditor's Report followed by the Management's Discussion and Analysis, the financial statements and accompanying notes. The Management's Discussion and Analysis is supplementary information required by the Governmental Accounting Standards Board. As disclosed in the Independent Auditor's Report, we did not audit the information and express no opinion on it. We issued an unqualified opinion onthe fmancial statements, whichmeans thereadercan relyon the informationpresented. Montana State Fund is a workers' compensation insurance company establishedbythe state ofMontana. It is a nonprofit, quasi-public entitythat provides Montana employers with an option forworkers' compensation and occupational disease insurance. Montana State Fund is governed by a seven-memberboard ofdirectors appointed by the governor. State law separates funding sources for claims incurred before July 1, 1990 (Old Fund) andthose incurred on orafterJuly 1, 1990 (New Fund). Montana StateFund management must set premium rates at amounts sufficient, when invested, to carrythe estimated cost ofall claims to maturity, to meet the reasonable expenses ofconducting thebusiness ofthe New Fund, and to maintain an excess ofsurplus overthe amount produced by theNational Association of Insurance Commissioners' risk-based capital requirements fora casualty insurer. The Old Fund costs are currently funded by investment earnings. The investments ofthe Montana State Fund are managed by the Montana Board ofInvestments and invested accordingto policies established in law. Montana State Fund's responseto ouraudit is on page B-1. We thankthe Montana State Fund stafffortheircooperation and assistance during the audit. Respectftilly submitted. Scott A. Seacat Legislative Auditor Room 160, StateCapitol BuildingPOBox201705 Helena, MT 59620-1705 Phone(406)444-3122 FAX(406)444-9784 [email protected] Digitized by the Internet Archive in 2010 with funding from IVIontana State Library http://www.archive.org/details/montanastatefund2005mont Appointed and Administrative Officials Montana State Fund Laurence Hubbard President/CEO Mark Barry Vice President, Corporate Support TonyJohnson Vice President, Human Resources Layne Kertamus Vice President, Insurance Operations Peter Strauss Vice President, Insurance Operations Support Nancy Butler General Counsel Al Parisian ChiefInformation Officer State Fund Board of Term Expires Directors Ed Henrich 2007 Mardi Madsen 2007 Jane DeBruycker 2009 Ken Johnson 2009 Jim Swanson 2009 Lance Zanto 2009 Foradditional information concerning the Montana State Fund, contact: Laurence Hubbard, President/CEO 5 South Last Chance Gulch MT Helena 59601 (406)444-6501 Members ofthe audit staffinvolved in this audit were Laurie Barrett, Chris G. Darragh, John Fine, Geri Hoffman, Jim Manning, Delsi Plummer, and Vickie Rauser. Pagei LEGISLATIVE AUDIT DIVISION Scott A. Seacat, Legislative Auditor Deputy Legislative Auditors: John W. Northey, Legal Counsel JimPellegrini, Performance Audit & Tori Hunthausen, IS Audit Operations James Gillett, Financial-Compliance Audit INDEPENDENT AUDITOR'S REPORT The Legislative Audit Committee ofthe Montana State Legislature: We have audited the accompanying Statements ofNet Assets, New Fund and Old Fund, ofthe Montana State Fund, a component unit ofthe state ofMontana, as ofJune 30, 2005 and 2004, and the related Statements ofRevenues, Expenses, and Changes in Fimd Net Assets, New Fund and Old Fund, and the Statements ofCash Flows, New Fund and Old Fund, forthe fiscal years then ended. The information contained inthese financial statements is the responsibility ofthe Montana State Fund's management. Our responsibility is to express an opinion on these financial statements based on ouraudit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free ofmaterial misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as We evaluating the overall financial statement presentation. believe that ouraudit provides a reasonable basis forour opinion. In our opinion, the financial statements referred to abovepresent fairly, in all material respects, the financial position ofthe Montana State Fund as ofJune 30, 2005 and 2004, and the resuhs ofits operations and its cash flows forthe fiscal years then ended in conformity with accounting principles generally accepted in the United States ofAmerica. The accompanying Management's Discussionand Analysis is not a required part ofthe financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally ofinquiries ofmanagement regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, wedid not audit the information and express no opinion on it. RespectfiiUy submitted, James Gillett, CPA October 5, 2005 Deputy Legislative Auditor Room 160, StateCapitol BuildingPO Box 201705 Helena, MT 59620-1705 Page A-1 Phone(406)444-3122 FAX(406)444-9784 E-Mail ladamt.gov Page A-2 Montana State Fund's Management Discussion and Analysis, Financial Statements and Notes