HomeMy WebLinkAboutCOM 0423.003 2002-2004 +flOSy
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~ CONSTANCE R. KIRIU
AL KONISHI ~~k.
Counls Clerk 1~; - ; hegislo(Ive .4udilor
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JAYMENDE h'`o°"'+ 2ppy flPR 7 fl~ 11 29
Depul}° Connly Clerk
County of Hawai `i ~ _ ;i
Office of the County Clerk COUi,1T' ~ '~'~~~-''`.''"~'I
25.1 upuni Slreel
llf[n. Flnwai'i 96720
Telephone: B08) 9h1-838( hdcsimfle: (SOR1 96/-8572
April 6, 2004
TO: Aaron S. Y. Chung, Chair
and Members of the Committee on Finance
FROM: Constance R. KiriuC,(,~
Legislative Auditor
RE: Shipper's Wharf Committee Trust Fund
Bill No. 189 Establishing the Shipper's Wharf Committee Trust Fund
On December 16, 2003, the Committee on Finance deferred Bill No. 189, relating to the establishment of
the Shipper's Wharf Committee Trust Fund, and requested further research be conducted by the
Legislative Auditor's Office.
The subject matter was approached from three angles: (1) intent of the Hawai i County Charter,
(2) accounting and auditing, and (3) liabilities and risk management. To aid the reader, this report is
organized to provide a chronology of the Shipper's Wharf Committee, applicable statutory information on
trusts, an analysis of the issues, and findings and recommendations.
Should you have any questions or wish to review documents listed in the footnotes, please feel free to
contact me.
Att.
Comm. No. 42 3.3
Ref. To: ~L
Ref. faro A _
A REPORT ON THE SHIPPER'S WHARF COMMITTEE TRUST
CHRONOLOGY
In 1904, a group of businessmen in the City of Hilo decided that a voluntary tax contribution of 10~ per
ton should be collected on incoming merchandise to the port of Hilo to be used principally for sanitary
purposes. Historical evidence showed that creation of a committee was prompted by severe epidemics of
bubonic plague and cholera suffered by the Territory. Approximately 18 contributors were represented on
the Committee. From 1904 to 1939, the Committee had spent $127,022 on various projects, including
the trapping, poisoning and control of rats, the immunization of children for diphtheria, and supporting
Puumaile Home (a tuberculosis sanitarium). As of June 30, 1940, accumulations amounting to $161,415
had been set aside by the Committee.l
In 1941 in response to a complaint filed by six individuals, the Court found that all expenditures were
within the discretion of the Committee and were proper. The Court declared that the funds were
impressed with a trust for the benefit of the public to be used on the Island of Hawaii "in accordance with
the declared purposes of said trust, namely, public health and safety;" the trust is in the nature of a
charitable trust in which the attorney general has an interest; and the administrators of the trust were its
trustees. The Court ordered that the corpus and the income from the trust may be used within the
discretion of the trustees (1) to safeguard public health and improve public sanitation; (2) to prevent the
spread of and remove the possible causes of epidemics and diseases dangerous to public welfare, such as
bubonic plague, cholera, diptheria, small pox and other communicable diseases; (3) to relieve distress
which may be occasioned by great public disaster or destruction on a wide scale, such as lava flows, tidal
waves and earthquakes; and (4) to promote public safety.2
Shipper's Wharf Committee, an eleemosynary corporation, was incorporated and became the qualified
successor in trust.3
In 1953, the Shipper's Wharf Committee was legally dissolved, and the Court ordered the transfer of all
Shipper's Wharf Committee Trust Fund assets to the Territory of Hawaii, to be administered by the
Governor of the Territory of Hawaii or the Governor of the State of Hawai i. The Court also found that
the attorney general of the Territory of Hawaii was the proper party to represent the Territory and the
public at large in their interest in the assets.9
The original principal or corpus of the fund received by the Governor on December 30, 1953 was
$173,861.49: $104,861.49 (certified check) and $69,000 (Hilo Electric Light Co., Ltd. bonds).5
The funds were not placed in a 'special fund' nor appropriated by the legislature. Notably, Section 37-62,
HRS, (State Financial Administration) defines "'special funds' as funds which are dedicated or set aside by
~ Fourth Circuit Court DECISION dated January 9, 1941; Fourth Circuit Court DECREE dated January 9, 1941; Fourth Circuit
Court AMENDED DECISION dated January 11, 1941; Fourth Circuit Court AMENDED DECREE dated February 27, 1941;
STIPULATION dated February 26, 1941.
' Ibid.
s Third Circuit Court ORDER dated December 22, 1953.
Ibid.
` Ibid.
1
law for a specified object of purpose, but excludes trust fundsb and revolving funds. In fact, when the
legislature attempted to use the Shipper's Wharf Committee Trust Funds, the Attorney General opined
that transferring the Trust Funds to the general fund would be in violation of the court order.' The Trust
Funds were presented in the State's Comprehensive Annual Financial Report (CAFR) as a fiduciary fund
because the governor was its trustee.8 The Shipper's Wharf Committee Trust Fund has also been
reviewed by the State Auditor who has found that the accounts continue to serve its original purpose and
the Trust Fund does not require general fund appropriations.9
In October 2000, Trustee Benjamin J. Cayetano, Governor, petitioned the Court for instructions to
(1) delegate trust administration to state director of finance; (2) give notice to potential beneficiaries of
the solicitation of requests for Trust disbursements; (3) authorize the director of finance to designate a
committee to review disbursement proposals; and (4) authorize the director of finance to file an annual
accounting of receipts, disbursements, and requests with the attorney general.10 In April 2001, the Court
approved Trustee Cayetano's petition to produce a fairer and more accessible selection and disbursement
process. The assets of the Trust at that time had an estimated value exceeding $2.5 million."
A letter dated March 20, 2003, from State Budget and Finance Director Georgina Kawamura to Mayor
Harry Kim suggested that the County would be in the best position to administer the Hilo Shippers' Wharf
Trust. A letter dated April 1, 2003, from Mayor Harry Kim concurs with Governor Lingle's transfer.
On June 30, 2003, Trustee Linda Lingle, Governor, requested the Court approve the Trustee's resignation;
appoint the Mayor of the County of Hawai i as successor trustee; vest legal title in and to all properties of
the Trust; transfer properties of the Trust to the successor trustee; and confirm that the charitable
purposes of the Trust remain unchanged."
On September 11, 2003, the Court accepted Trustee Lingle's resignation; appointed Mayor Harry Kim and
successors in interest at Trustee of the Hito Shipper's Wharf Committee Trust; ordered the continued filing
of an annual financial accounting with the Attorney General; and ordered the charitable purposes remain
unchanged and unaffected.13
On October 3, 2003, the Court vested legal title in and to all property of the trust in Harry Kim, Mayor of
the County of Hawaii, and his successors in interest.14
A subsequent Petition by Trustee Kim allowing the County Director of Finance to administer the Fund was
approved by the Court.
b Chapter 37-64, HRS, "Trust fund" means a fund in which designated persons or classes of persons have a vested beneficial
interest or equitable ownership, or which was created or established by a gift, grant, contribution, devise or bequest that limits
the use of the fund to designated objects or purposes." "Trust fund" in Chapter 37 is used in the context of the State Budget.
' Sam Callejo, Chief of Staff, Governor's Offce, letter dated April 3, 2001.
s Telecon with State Department of Accounting and General Services-Accounting Division Head Wayne Horie.
" Chapter 23-12, HRS, requires that trust funds administered by the state be reviewed by the state auditor beginning in 1994 and
every five years thereafter.
10 PETITION OF THE TRUSTEE FOR INSTRUCTIONS dated October 17, 2000.
" Third Circuit Court ORDER dated April 5, 2001.
`Z TRUSTEE'S PETITION FOR ORDER APPROVING RESIGNATION OF TRUSTEE, APPOINTING A SUCCESSOR TRUSTEE, AND FOR
OTHER RELATED RELIEF dated June 30, 2003.
"Third Circuit Court ORDER dated September 11, 2003.
'"Third Circuit Court VESTING ORDER dated October 3, 2003.
2
In a letter to the Council dated November 19, 2003, Finance Director William Takaba transmitted Bill
No. 189, which established the Shipper's Wharf Committee Trust Fund pursuant to section 10-12, Hawai i
County Charter. Bill No. 189 also set forth the purpose of the trust, the terms for use of the funds,
conditioned the expenditures, and required annual reporting to the attorney general.
As of June 30, 2003, the total value of trust property was $2,591,934.20:
Cash Balance $1,564,312.65
Stocks $1,027,621.55
TOTAL VALUE $2,591,934.20
To date, the cash is accounted for in a suspense account and the stock certificates are held by the County
Treasurer. However, the County has paid out $19,556 to complete the terms of all but one contract
awarded by the State prior to the transfer.
TRUSTS
Trusts in general are governed by state statutes. A trust is defined by Chapter 560:1-201(50), Hawaii
Revised Statutes, which reads, in part, as follows:
"Trust" includes any express trust, private or charitable, with additions thereto, wherever and
however created. It also includes a trust created or determined by judgment or decree under
which the trust is to be administered
This definition should not be muddled with the state budget definition of trust fund mentioned previously.
It is important to note that Chapter 560:7-306, HRS, relating to personal liability of trustee to third
parties, states:
(a) "Unless otherwise provided in the contract, a trustee is personally liable on contracts entered
into in the trustee's fiduciary capacity in the court of administration of the trust estate.
(b) A trustee is personally liable for obligations arising from ownership or control of property of
the trust and for torts committed in the court of administration of the trust estate.
(c) Claims based on contracts entered into by a trustee in the trustee's fiduciary capacity may be
asserted against the trust estate by proceeding against the trustee in the trustee's fiduciary
capacity, whether or not the trustee is personally liable therefor.
(d) The question of liability as between the trust estate and the trustee personally may be
determined in an appropriate proceeding."
Further, Chapter 554, HRS, authorizes the circuit court having jurisdiction over the subject matter of the
trust to vest the legal title to any trust and establishes a framework for the financial decisions of a trust
(leases, investments, annual accounting, creditors, charitable trust expenses and administration.) The
state attorney general is charged with trust oversight.
3
ISSUES AND ANALYSIS
1. SPECIAL FUND
Must the Council establish the Shipper's Wharf Committee Trust Fund pursuant to
Section 10-12, Hawaii County Charter, which states:
"Upon recommendation of the mayor, the council may by ordinance
abolish or establish such special funds as may be necessary for the
proper and efficient segregation of the fiscal operations of the
county." (emphasis added)
Whether a special fund should be established by the County Council is not a legal or accounting
question according to Deputy Corporation Counsel Craig Masuda and KPMG, respectively. It
seems to be one of policy. Unlike the State of Hawaii, which has defined 'special fund,' the county
has no definition of a special fund.
A review of the minutes of the 1963-1968 Charter Commissions does not shed light on the intent
of Section 10-12, Hawaii County Charter.
Bottom line: Are the assets of the Shipper's Wharf Committee Trust part of the Coun 's fiscal
operations?
We believe they are not. While the purpose of the Trust is a public purpose as opposed to a
private purpose, it is incorrect to conclude that the assets are public assets for use by the Coun
of Hawaii. The County of Hawaii has no authority to access the Trust Fund inasmuch as the Trust
was established by court order, not by county, state or federal law. Only the Mayor, acting as
Trustee, may access the Fund. Trust Funds do not support the operations of any Coun service,
program or activity. Monies from the Shipper's Wharf Committee Trust Fund may complement the
Coun 's activities, but are independent of the Coun 's obligations.
It has been argued that the County's accounting system and personnel are being used to
administer the Trust. Nevertheless, the act of administration does not mean the Trust or its
activities are a Coun operation. Is it legal to direct County resources to anon-government
activity? Mr. Masuda opines: "As the purpose of the trust is a public purpose, a municipal
corporation is allowed to expend resources, such as those of the Corporation Counsel and
Department of Finance, on the administration and maintenance of this trust. Should the purpose
of this trust had been a private one, such as the care and maintenance of an individual or a family,
then case law would not allow the expenditure of such resources by a municipal corporation.i15
2. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR)
Must the Shipper's Wharf Committee Trusi Fund be reported in the County of
Hawai`i's Comprehensive Annual Financial Report (CAFR)?
Craig Masuda, Deputy Corporation Counsel, memorandum dated March 1, 2004.
4
Yes. The Shipper's Wharf Committee Trust Fund should be reported in the CAFR according to the
County's independent auditor KPMG (see attached)16 and County Comptroller Deanna Sako.
For the reader's information, the County of Hawaii prepares an annual financial report known as
the Comprehensive Annual Financial Report (CAFR) containing three parts:
A. Government-Wide Financial Statements
Government-wide financial statements cover the entirety of the government, including both
its governmental activities and business-type activities, as well as the government's
component units (i.e. Department of Water Supply).
B. Fund Financial Statements
The fund financial statements provide a more detailed look at the major individual parts, or
funds, of a government. There are three broad categories of funds:
(1) Governmental Fund Types are used to account for the acquisition, use and balances of
expendable financial resources and the related current liabilities-except those
accounted for in proprietary and fiduciary funds. In essence, these funds are
accounting segregations of financial resources "
jz) Proprietary Fund Types are sometimes referred to as income determination or
commercial-type funds, the classification used to account for a government's ongoing
organizations and activities that are similar to those often found in the private
sector ....16
(3) Fiduciary Fund Tvpes are the trust and agency funds used to account for assets held by
a government unit in a trustee capacity or as an agent for individuals, private
organizations, other government units and/or other funds.19
C. Notes to the Financial Statements
Notes to the Financial Statements present additional detailed information that supports and
explains the financial data in both the government-wide and fund statements.
The Shipper's Wharf Committee Trust Fund would be considered a fiduciary fund because the
County has custody of the Trust Fund's assets in a fiduciary capacity (e.g., the assets do not
belong to the County). However, the account balances and transactions of the Trust Fund should
be excluded from the County's government-wide statements.
The fiduciary fund types post their asset statements and balances in the CAFR as well as
explaining the fund in'Notes to the Financial Statements.' This will ensure the beneficiaries are
informed of the financial health of the trust..
16 Ralph Kanetoku, KPMG letter dated March 11, 2004.
"County of HawaPi, Accounting Manual, 06/07/99, Glossary.
`BIbid.
'Ibid.
5
If the Shipper's Wharf Committee Trust Fund is included in the CAFR, what is the
extent of the independent audit and will it affect the current audit contract?
Since the Shipper's Wharf Committee Trust Fund is reported in the CAFR, it will be subject to the
independent audit procedures. Audit procedures cover confirmation of the Trust Fund's year-end
cash and investment balances, as well as the performance of analytical review procedures over the
Trust Fund's interest earnings and cash disbursements.20
KPMG, the County's current independent auditor, does not anticipate having to amend the
County's independent audit contract given the limited activity and fund amount of the Trust Fund.
An amendment to the current audit contract would be warranted should the County request an
audit opinion on separate, stand-alone financial statements of the Trust Fund or additional
compliance work. The scope of the audit work would determine the increased cost of the
contract.Zl Trust funds should reimburse the County if the scope of work should increase.
3. COUNTY LIABILITY
What is the liability to the County and what measures might be taken to reduce
liability in view of the Trust relationship?
An important objective of the Council should be to minimize risk to the County. As noted in
Deputy Corporation Counsel Craig Masuda's attached memorandum, "extent of liability to the
County is minimal, but increases relative to the amount of control the County Council exerts over
the trust exercised as a governmental entity." The Legislative Auditor's Office has recommended
that the Council not create a 'special fund' by ordinance for an altogether different reason.
Greater liability, including potential personal liability, is another compelling reason.
The County may still be named in a complaint due to the Mayor's role as a trustee or the Director
of Finance as its administrator. The extent of liability to the Mayor or the Director of Finance
depends upon the nature of the case and isfact-specific. Deputy Corporation Counsel Craig
Masuda informs that the office would defend the Trust as the purpose of the Trust is a public
purpose and a municipality is allowed to expend resources on the administration of the trust.
Trust funds would be used to defend the actions of the trustee pursuant to
Section 554A-3(24), HRS.
Ultimately, dissolving the Shipper's Wharf Committee Trust Fund and transferring the funds to the
County would eliminate personal liability of the mayor (trustee) and the director of finance (trust
administrator) under trust statutes. These actions would require returning to the Court.
FINDINGS AND RECOMMENDATIONS
Although the underlying issues of the Shipper's Wharf Committee Trust deal with policy,
accounting and auditing, and exposure, they are complicated by the fad that the Trust is a
creature of the Court, it falls under trust statutes, its public' purpose must be distinguished from
20Ralph Kanetoku, KPMG, letter dated March 11, 2004.
21 Ibid.
6
the County's public' purpose, and its trustee, the mayor, wears a County government hat. Under
these circumstances:
1. The Council should file Bill No. 189. The Shipper's Wharf Committee Trust and Funds are
not part of the County's fiscal operations, thus, the establishment of a special fund is not
required.
2. The Shipper's Wharf Committee Trust Fund should be presented in the County's
Comprehensive Annual Financial Report (CAFR) as a fiduciary fund type. This presentation
will disclose the financial condition of the Trust.
3. The Shipper's Wharf Committee Trust Fund will be subject to independent audit procedures
because it will be presented in the CAFR.
4. The Council's independent audit contract with KPMG does not need to be amended as long
as the Fund's activity level remains unchanged. If the scope of audit review increases in
the future, the audit contract must be amended, and Trust Funds would be used to
reimburse the County for the additional work.
5. The Council should request a copy of the Trust's annual report when it reviews the
County's Financial Audit Report, which contains the CAFR. The Trust's annual report would
be made part of the Council records allowing for greater public dissemination and
disclosure.
6. The Trust Fund would reimburse the County for legal services performed by the Office of
the Corporation Counsel in response to a complaint filed against the Trust.
7. The administration should consider petitioning the Court to dissolve the Shipper's Wharf
Committee Trust and transfer assets to the County. This action eliminates the problematic
situation of acourt-ordered trust and the associated liability borne by its trustees and
administrators. By making the assets part of the County's fiscal operations, a special fund
could be structured to carry out the purpose and intent of the original trust. To that end,
public transparency and accountability to the people of the Island of Hawaii, the original
trust beneficiaries, could be elevated.
8. The Hawaii County Code should be amended to define financial terms and processes, such
as'special fund' and 'trust fund'. Placing financial definitions and processes in the law
formulates a framework for (A) greater public understanding of the County's finances and
budget processes, (B) consistency and continuity for future applications, and (C) improved
policy decisions.
ATTACHMENTS
Memorandum from Deputy Corporation Counsel Craig T. Masuda, March 1, 2004
Letter from Ralph T. Kanetoku, Partner, KPMG, March 11, 2004
7
Harry Kim ~iD~v Lincoln S.T. Ashide
Mayor • • C+ Corporation Cnuruel
Gerald Takase
~i'•. ~
art oi.h~p A.ccistanf Corporation Counce(
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(~uunf~r of ~ttfuttii ;
OFFICE OF THE CORPORATION COUNSEL 1
rv
101 Aupuni Street, Suite 325 • Hilo, Hawaii 96720.4262 • (808) 961-8251 • FAX (808) 961-8622 _ ,
~ -
_ ;ii
MEMORANDUM ~
To: Constance Kiriu, Legislative Auditor
FROM: Craig T. Masuda, Deputy Corporation Counssi
DATE: March 1, 2004
susJECT: Shippers' Wharf Committee Trust Fund
Since you have already been briefed on the overall aspects of the
Shippers' Wharf Committee Trust Fund, the following will respond specifically to
your questions as listed.
1. Question: Must monies from the Shippers' Wharf Committee Trust Fund
be appropriated by the County Council in order to be expended?
Answer: No. Since the funds are charitable trust funds and are not public
funds, they do not require an appropriation by the County Council to be
expended.
Note: When the funds were collected, an eleemosynary corporation and
not any government entity collected them, nor has the court determined
them to be public funds. Further, while the funds were under the
trusteeship of the Governor, disbursement of the funds were never done
by appropriation.
2. Question: Will the Office of the Corporation Counsel represent the Mayor
in his capacity as Trustee?
Answer: Yes. Since Mayor Harry Kim was appointed as the Trustee in
his capacity as the Mayor, the Office of the Corporation Counsel will
represent the Mayor given that the purpose of the trust is a public
purpose.
Memo to Constance Kiriu, Legislative Auditor
Page -3-
March 1, 2004
Note: As the purpose of the trust is a public purpose, a municipal
corporation is allowed to expend resources, such as those of the
Corporation Counsel and Department of Finance, on the administration
and maintenance of this trust. Should the purpose of this trust had been a
private one, such as the care and maintenance of an individual or a family,
then case law would not allow the expenditure of such resources by a
municipal corporation.
3. Question: Would County general fund monies be used to pay for the
defense? May Trust Fund monies be used for this purpose?
Answer: There should be no direct expenditures of general fund monies
required for any defense as Section 554A-3(24), Hawaii Revised Statutes,
specifically authorizes the use of trust funds to defend the actions of the
trustee in the performance of the trustee's duties.
4. Question: In the event a judgement is entered against the Mayor as
trustee of the trust fund, what is the extent of liability or debt attributable to
the mayor as trustee? What is the extent of liability attributable to the
County?
Answer: The extent of the Mayor's liability depends on the nature of the
case and is fact specific. Therefore, your question cannot be readily
answered. The extent of liability to the County is minimal, but increases
relative to the amount of control the County Council exerts over the trust
exercised as a governmental entity. Please note that every complaint
filed, whether valid or not, that names the County as a party requires a
response and therefore carries with it some minimal level of liability
exposure. An absolute zero level of liability exposure does not exist.
5. Question: Is liability to the County and to the Council reduced if the funds
are not legislatively appropriated in a special fund?
Answer: Yes. Presently, there is no authority for the Council to manage
this trust fund. Should the Council desire to manage the trust assets or to
have decision-making authority over the trust fund, concurrence of the
State Attorney General and approval of the Court would be necessary.
The function of the Council would then be that of a trustee and therefore
subject the Council to both criminal and civil liability exposure.
6. Question: Must the procedures to expend funds and other policies of the
Trust Fund be established by rules pursuant to Chapter 92, Hawaii
Revised Statutes?
Memo to Constance Kiriu, Legislative Auditor
Page -3-
March 1, 2004
Answer: No. The administrator and the trustee or their designees are not
"agencies" within the meaning of Section 91-1, Hawaii Revised Statutes,
nor are they a "board," a body created by constitution, statute, rule or
executive order pursuant to Section 92-2, Hawaii Revised Statutes.
Further any procedure on internal management of the trust is not a "rule"
under the definition of Section 91-1, Hawaii Revised Statutes, and
therefore the trust is not subject to either Chapter 91 or Chapter 92, HRS.
Please note that when the trust was administered by the State Department
of Finance, the internal management procedures were not subject to
Chapters 91 and 92, Hawaii Revised Statutes, for the same reasons.
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KPMG LLP - ~ -
P.O. Box 4160 O~ ~TjeYI~gF(phlp 80p8~ y531 7286
Honolulu, HI 96812 0.150 r8X 808~41~~[93Q~2~ ~ j
March 11, 2004
Ms. Constance R Kiriu
Legislative Auditor
Office of the County Clerk
County of Hawaii
25 Aupuni Street
Hilo, HT 96720
Dear Connie,
At your request, I am providing our thoughts on your memorandum dated March 2, 2004
pertaining to the County of Hawaii's (the County) treatment of the Shippers' Wharf Committee
Trust Fund (the Trust Fund). As discussed during our telephone conversation this week, our
responses to the questions raised in your memorandum are as follows:
Ouestions #I and #2:
Must the Trust Fund be created or established as a `special fund' by the County Council
pursuant to Section 10-12, Hawaii County Charter?
If yes, must the County Council appropriate monies in the special fund or may revenues
and expenditures be transacted without legislative approval?
When deciding whether or not to establish a `special revenue fund' pursuant to Section 10-12 of
the Hawaii County Charter, the County should consult with its legal counsel and policy-making
authoriries.
Based on our limited knowledge of the facts and circumstances surrounding the County's
involvement with the Trust Fund, it appears that the assets of the Trust Fund do not belong to
the County and the County Co>mcil does not have decision-making authority over the way those
assets are used. The Office of the Corporation Counsel has determined that the Trust Fund
monies are charitable trust funds and are not public funds requiring an appropriation by the
County Council to be expended. Accordingly, it may not be appropriate to combine the
activities of the Trust Fund with the rest of the County's fiscal operations. Strictly from an
accounting standpoint, the activities of the Trust Fund appear to be more fiduciary in nature
mama uq a u S n~nnan ernaev vrn~arsnm, ~s me u s
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Page 2
Ms. Constance R Kiriu
County of Hawaii
March 11, 2004
Ouestion #3:
Must the Shippers' Wharf Committee Trust Fund be reported in the County's
Comprehensive Annual Financial Report (CAFR).
Yes. Because the County has custody of the Trust Fund's assets, the account balances of the
fund should be included in the County's fund financial statements as a fiduciary fund type.
However, because the assets are merely held by the County in a fiduciary capacity (e.g., the
assets do not belong to the County), we believe that the account balances and transactions of the
Trust Fund should be excluded from the County's government-wide financial statements.
Ouestion #4•
Will KPMG audit this Trust Fand if it is in the CAFR? What is the extent of the audit?
Yes. If the Trust Fund is included in the County's CAFR, it will be subject to our audit
procedures, which may include, but not be limited to, confirmation of the Trust Fund's year-end
cash and investment balances, as well as the performance of analytical review procedures over
the Trust Fund's interest earnings and cash disbursements.
Question #5:
Will KPMG's review require an amendment to the contract and would the work increase
the contract amount?
Based on our preliminary understanding of the Trust Fund and our initial assessment of the
materiality of the account balances of the Trust Fund in comparison to the County as a whole,
we do not anticipate having to amend our contract. However, if we are requested to opine on
separate, stand-alone financial statements of the Trust Fund or perform additional compliance
'.eGrli pErtalnmg i0 t}ie TIl:St i und, ali al"ne:7dmcni i0 Gut COntrdGt may be necessary d'ue t6 an
increase in the scope of services provided.
I hope you find this information useful. Should you have any additional questions, please feel
free to contact me at (808) 541-9332.
Very truly yours,
KPMG LLP
Ralph T. Kanetoku
Partner