primarily due to the timing of payment and timing of plan changes compared to prior year and current year. next the unearned contributions decrease from 24 percent to $44 million attributed to payroll deduction. in 2014 there was only one pay period processed compared to two pay periods prior to year-end. to continue on with our required communications and our responsibilities under the general accepted auditing standards we first consider the control necessary to design an effective audit approach however not for the purpose of providing an opinion ora insurance of operating effectiveness of internal controls as you do

with a publically traded company we design based on understanding of the trust as to the absence of the material in the statement in the financial statement and this means that we develop an audit performance materiality and we audit to that threshold so we sample transactions and analytically test accounts so we do not test all transactions. we also perform a systems compliance with regulation with laws and contracts only to the level that can have a direct material effect on the financial statement and last we'll pine on the financial statement and compliance based on audit results as indicated earlier. we had two clean opinions. okay we

communicate significant accounts that require judgments or estimates. we consider these areas higher inherent risk because of the significance to the financial statement and because of the possibility of future events affecting that may differ from management's current judgment. the significant estimate hyphenated by systems in the reserve claims and estimate for the reverse in the health plan is based upon an actionary analysis for debts incurred but not reported. our audit consist of our own actuaries analysis reviewing the method and data and as far as the audit procedure we test the underlying data that both actuaries reviewed and were reasonable and fall within the range allowable understand

the standards. in terms of the audit adjustments, overall noting the department does have the materially clean and reconciled books. we have no disagreement or difficulties with management. the finance and accounting department were prompt with request and had knowledgeable staff and complied with all of our audit request and we appreciate the assistance of pamela and her team of getting the audit completed on time for the city's requirement. in regards to no consultation with other accountants. we note to the board that to the best of our knowledge that management has not consulted due to management not

agreeing with our analysis or interpretation of accounting literature. we have no major issues discussed with management prior to retention, prior to our contracted services we have not had discussions outside the normal course of the audit and maintain independence with the system and the city and county and with regards to material written communication we have an engagement letter with the city and coined of -- county of san franciscans and a letter from management completed to finalize audit. i stand for any questions. >> any questions? >> >> yes, you are very clear about the limitation of why you are view around internal controls and i think it's on page of the audit statement

where you refers -- reference this. you make clear where you don't have an opinion of effectiveness of internal controls. >> krenth. >> my question is what would it take for you to have such an opinion? >> >> that type of opinion is not required under the government auditing standards for this organization. it can be an add on request and opt to, what it would require is additional procedures and thorough procedures performed over all the processes and key internal controls with the organization. throughout our audit process we do evaluate the processes key to financial statement and test design of controls and to the point of limiting the risk that we've identified in over all inherent risk on financial statement accounts. so we do

an overall for the purpose of determining rick in the audit and control process. we just do not perform to a separate extended level of audit of issue of report. >> i know it's another topic of the role of the treasurer and getting an understanding on how that operates and works. you make a brief reference to the role of the treasurer and you move on. is there anything that you think we ought to know as we try to understand this better, this process in relationship with the city treasurer's office? >> >> with the city treasurer's office in regards to our audit procedures we do confirm and evaluate the processes and the

inter departmental processes. overall i believe the process is in place and followed by the system, set by the city and county and we have looked at that, we also confirm the balances with them and evaluate the investment pools that the department, the system does rely and have on their financial statement captioned. does that answer your question in >> yes. so you have looked at the general process? >> >> yes. >> thank you. >> any other questions from commissioners in >> i know there were no adjustments for the materiality factor but were there any past adjustments or misstatements. >> no. >> any other questions?

>> before we go to public comment, i would like to thank you for submitting a clean audit. many years ago we did not have a clean audit. thank you very much. congratulations. any is there any additional public comment? seeing none, public comment is closed. pamela, you said you were going to present the financial statement? >> >> pamela levin cfo, as ms. calvin said that one of the parts they do as part of the audit is they look at the financial statement and they get incorporated at a very high level in the comprehensive financial report which i will call the khafre. the financial statement stands alone like many other

departments pfc has separate ones and sfo have separate ones. these are available in our office and on lean. i -- online. i would like to point out the difference of the balance, an increase of $15.5 million from last year of $77.7 million as of june 30, 2014. against that, $92.8 million we have identified and have worked with aon to identify $77 million in obligations with leaves $15.8 million that is not obligated within the reserves. however, i will be reporting in the next discussion about how things and as you know last

year things go up and down within the trust. so, the $15. million in fiscal years 12 #shgs 13, 14, are attributed to $11.9 million of premiums over claims increased incurred but not reported obligation claims lower utilization, savings from the employer group waiver program for the medicare pharmacy benefits and the $11.9 million will be used to stabilize the city in 15-17. $3.8 million decreased in the blue shield flex due to subsidizing premiums during fy 13-14 and the application is the early retirement

insurance program called the errp and the $4.6 million for dental plans for underwriting gains and $2.8 million associated with the flexible spending accounts, excess contribution in the 205 budget which is used for communications, wellness, analytics, it can be used for actuarial. that will be available for future use. there is interest income which is equal to a million dollars this fiscal year and performance guarantee penalties and forfeit yours. we have the $92.8 million in the net assets within the trust. i will identify the $77 million that are either

obligations or reverse -- reserves against that $92 million. there is vision plan and dental for the $92 million. and $30.7 million which we use the $2 million to subsidize the rate. 1.9 million. the aco contingency, this is per the policy discussed earlier this year the premiums accepting between these years is is from last year june and july they got a

credit then there is the available balance some of which will go to the all payers data base which marina will give a presentation on and then the flexible spending account. on a monthly basis we'll continue to monitor and report the projected year-end balance for the trust based on actuals reserves level will be evaluated by an in the report in 2015. any questions. >> the last item you mentioned about the last numbers and you mentioned would be used for

the all claims data base. that is not in your written report, correct? >> or could you point it out to me? >> >> the 205, i mentioned for the 205 that it could be used for in the report -- for the $2.8 million increase. >> on page 2 #shgs before we went to the 205 we went to 104 per member per month and it set aside for wellness, communication, actuary for

reduced care cost. one of the things when we went to you in january and talked about the budget for the 205, we call it the 205 rather than the 104, that was one of the items. we also are funding a lot of the wellness initiatives that stephanie talks about and we fund the out of that the communications which includes all the open enrollment and it also includes various kind of initiatives that we want to go forward with like updating or ub grading the website so it can handle more of the more period tinent kinds of information that we like to put out including wellness and some other types of activities. >> can you remind me the process for actually allocating those funds. does

that go 32 you the regular city budget at the beginning it -- of the fiscal year you have to say we plan to spend this amount out of this fund or is that done out of ad hoc approval? >> >> the trust is outside of the board of supervisors purview. they don't actually approve other than the rates and benefits, but they don't approve the budget that we have the 205 that we have for these allowable activities. what we do is we bring forward to you the board, to review what the use is, the proposed uses are. we did that in january, so we provided the information about what kind of wellness types of activities we plan to do during this

calendar year. we talk about the communications. we came forward and presented that and i believe it was, it's on the agendas an approval process of the board. so we don't do it ad hoc. we had a plan for each -- we had a high level plan to the extent that we are going forth and having a project that we are doing against that money, we do go forward and ask for your approval of that contract and that's what the items are that are before you in terms of the all payer claims data base. >> if for example we thought

completely making this up as a hypothetical, if you thought that adding two wellness staff would make a significant difference, yes, the 205 can be used to fund wellness, can that be done out of the trustor would you run the fund out of the city process? >> >> we only pay for the wellness coordinator and the communications out of the trust and that goes through the budget process. it's considered they call it off budget which means that it's charged to something other than what the general fund whatever the board is approving. we can add staff unless it's approved by the board of supervisors. so we don't intend to at this point in time intend to add more staff that would be charged against the 205.

>> i understand that. that was a hypothetical. i'm just trying to understand the interaction between the budget and the process. >> it's something that i think we need to look at between now and january because i believe personally that we need this that we need to present more information to you so then you, the board, can say yes, we approve these things whether it's a bring to the extent that we have to cut our operating budget because of the changes , the initiatives that were passed this current election and if we could

theoretically use some of the 205 for actuarial work. we don't intend to do that but it's basically the options if we are put against the wall, yes. but we would let you understand that, but it's an interesting thing to think about. i'm glad that you are thinking through these issues and we are lucky that it does not go through the board of supervisors because it gives some flexibility but it's important that it be transparent how it is we are planning to spend the money. >> it does have to be approved through our board. >> that's what i'm in inquiring in exactly what the process is. i'm glad you are thinking about it and i'm glad in january those of you who

remain will be working on this. >> the board last january, the recommendations for the 205 was routine expenses $800,000 data analytics $500,000 communication $175 so we had a $1.8 million so that's what the board approved. and the board was presented with what the expenditures had been in 2013. >> i'm not being critical in anyway. it's just understanding so everybody understand this. for those of us in government we understand why these issues matter. can you just remind me, pamela the authority limits at the various levels? >> >> decision ? >> that is in the authority

level of approving a contract? >> >> when do you need to bring an action to which level. you don't bring every single contract to us. there must be standards. >> there is a standard practice, we are looking at this because one of the things is that and we were proposing some changes to the governance policy that we are working with tom cortex what we would like to do is say that you approve projects, you approve doing things and then we come back to you and the dollar value that's in there now is

very low. >> what is it? >> maybe a little over $100,000. >> okay. that answers my question. i appreciate it. >> there is a lot of authority on the part of the board to contract for health benefit related issues without going through the purchasing, the city's purchasing, but it has to meet all the other structures that govern us and something the city attorney approves. my thinking is

that the things that are large issues, i mean, i don't believe you should have to approve us getting a consultant to look at the files to see how we could do it electronically, but you would need to approve if we were going for a full on project of doing replacing all of our membership files with electronically. so, but there is the threshold, but we are looking at this with the govps governance committee. >> as you are looking on it

that indeed to help this board do it's if fiduciary duties could be part of this budget i assume. >> it could be something that i would like to look into with the city attorney. it needs to be within the realm of those benefitting actually expenses to reduce health care cost category, so i guess what i would like to do and i understand that you want more training is that we first ask for general fund money for it and if not we can look into or simultaneously we will look into possibility of using -- >> i hadn't particularly focused on any category of activity. i was trying to get at a general principal in

terms of understanding this particular budget area and what it's authorization is, and so i was asking a higher levelcious not any specific activity in terms of this board being identifying a need to meet it's if fiduciary responsibilities would these types of activities qualify to be covered by this type of budget support. >> i think the answer is we don't know at this time, right? >> >> to answer the high level question what's allowed from the trust fund set out in a 423 and pamela is right, what's allowed is expenses incurred to reduce health care cost and there is no general

administrative cost sections allowed in that charter section. that's the general standard that's set out there and that's the review we have when each specific case comes up. >> all right. more to follow on this question. >> any other questions or comments by commissioners? >> any public comment on this item? >> no. seeing none, next item, please. cl eric clerk item 7, discussion item. hss financial reporting as of september 30, 2014. pamela levin. >> today i will provide a summary of receive into you and expenses of the trust fund and the general fund administrative budget based on actual through september 30th. for the trust fund right now

we are projecting $11.7 million decrease in the net assets in the trust fund. that would take the 92.8 down to $81.1 million by fiscal year end. again, this is 3 months. july, august and september and these for those of you who have heard me for over the last year that i have been here we've gone up and down. our projections go up and down. the 11.7 decreased in the assets is due to 4.4 decrease in the projected city plan net assets. it's in the report, but 3.7 was used to stabilize the 2015 rates, $700,000 was used for premium

credits used for 2014 rates for unions accepting the 9383 contribution model and the blue shield flex net assets. from the $4.9 million used to stabilize the 2015 rate $1.1 million of the eerp and $1 million for premium credits for 2014 rates for unions accepting the 9893 contribution model and also an $800,000 decrease in estimated medical hmo insurance premium, revenues due to the eerp credit and the $900,000 increase in interest income including the interest on the erp and the $4 million due to

the transfer to the general fund pursuant to the 14-15 general fund budget. so, the net assets is