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Financial Statements Complete financial statements are not prepared; therefore, the overall financial condition of DHHL is not readily apparent. Partial statements are prepared for the DHHL annual report and for the monthly Commission meetings. But these statements only contain selected financial data for certain fund accounts. The last complete financial statements that we could locate were for the fiscal year ended June 30, 1972. Because the overall financial condition is not apparent, inappropriate management decisions may have been made. An example is the previously discussed management of DHHL's cash resources. Complete financial statements provide a degree of visibility pertaining to the management of DHHL resources, from the perspective of both management and outside parties. And, review of financial statements by management can serve as the basis for questions concerning certain account balances or other sensitive financial matters. One such account balance that should have raised a question was an accounts receivable balance of $365,781 in the Hawaiian Home Loan Fund, that is due from the Borrowed Money Fund. This type of interfund transaction is questionable because it is conceivable that the Borrowed Money Fund was used so the funds could be loaned at a higher rate of interest, since the Act sets the rate of interest on loans from the Hawaiian Home Loan Fund at 2.5 percent. DHHL fiscal office personnel could not provide us with information as to when or why the transaction(s) was made. Another problem related to the financial reports and records is that they do not separately identify the expenses of the Molokai water system. Thus, there is no assurance that water rates are adequate to recover the operating expenses of the water system. We were informed by DHHL officials that there have not been any requests for DHHL financial statements, and that DHHL has higher priorities for its limited staff resources. However, we believe that annual financial statements, and quarterly or monthly statements, if practical, should be available, especially for a governmental organization with cash balances of about $10 million and loans/accounts receivable in excess of $32 million. Accounting System Is Not Auditable There has not been any financial audit of DHHL's funds and accounts conducted since the Hawaii Legislative Auditor attempted to audit the DHHL loan funds for the fiscal year ended June 30, 1978. The last audit of all DHHL funds and accounts was performed by the Hawaii Comptroller, for the 10-year period ended June 30, 1972. The Legislative Auditor's report on the attempted audit of the fiscal year 1978 loan funds concluded that "the department's financial records are inaccurate and unverifiable," and that the records "were not in an auditable condition." Accordingly, the auditors were unable to express an opinion on the financial statements. In our opinion, the accounting system is still in an unauditable condition. In addition, there are no financial statements (combined balance sheet, statement of revenues and expenses, and statement of changes in fund balances) prepared by DHHL upon which an opinion could be expressed. The main deficiency in the accounting system is that key reconciliations are not performed. As noted in the Legislative audit report, there were 394