“Nitpicking” was one of the terms frequently used by Missouri funeral directors when referencing their preneed exam exceptions report. (Other descriptions are not appropriate for print.) The initial exam guideline provided no guidance to examiners for prioritizing problems found in preneed contracts and records. It was common to see exception reports with dozens, even hundreds, of technical ‘violations’. The original guidelines did not distinguish certain types of preneed contracts, and that led examiners to erroneously cite numerous contracts with a disclosure violation. Sellers were then required to respond to these erroneous exceptions. These responses were frequently bounced back and forth between the Board staff and the seller, without giving the Board or its attorney a chance to weigh in. Examinations could drag on for several months over insignificant issues.
The State Board eventually took its first step to address this problem a year ago October when a resolution was adopted to have the Examination Committee review each exceptions report before a Board letter would be sent out to the funeral home. However, the Board’s then Chairman allowed the staff to continue to send exception letters without Board oversight. Those subsequent exception letters continued to cite some of the same erroneous issues to sellers.
The format of the exceptions report can also be challenging to the State Board’s Examination Committee. An exceptions report that is several pages long might suggest a funeral home might have some serious problems. But, as it was with one of our clients, the exception report could be citing problems for contracts which the funeral home is not the seller. It took multiple letters to the State Board’s Executive Director to resolve that issue.
The Board’s October exam handbook would bring the staff back to the path approved last October. All exception reports would have to be reviewed by the Examination Committee before a letter is sent to the funeral home. The examiners would have to prepare the exception report with a summary that classifies problems as legal, recordkeeping or financial. The first round of examinations focused on contract form compliance and recordkeeping. As a consequence, most exceptions tended to fall into one of those two categories. Going forward, the Board should be focused on the financial issues, and the Examination Committee should turn to the exception report’s summary to see how many financial issues are listed.
While the State Board will remain diligent to see that preneed contract forms comply with Chapter 436, this can be the easiest of the industry’s problems to fix. A seller can be required to revise its contract form and to agree to administer outstanding contracts in compliance with Chapter 436.
Recordkeeping could be a little more difficult to address. Compliance could mean implementing new procedures or software, or obtaining professional assistance. But generally, this means prospective changes to how records are created and maintained. But that may not be necessarily be true when the seller has not maintained adequate records to document Section 436.031 distributions.
Financial exceptions could be one of several issues: the seller is underfunded, the seller is receiving improper distributions, the seller is not making timely deposits, the seller does not maintain adequate records to determine the adequacy of funding, or the seller does not main adequate records to determine compliance with Section 436.031. Per the handbook, the exception report should explain whether financial problems appear to be isolated or systematic. The examiner should also provide his/her assessment whether the financial problem is an obvious error.
The handbook’s instructions to prioritize and summarize the exception report are intended to help the Examination Committee with its own assessment when issuing an exceptions letter to the funeral home. The exception letter could take different courses based on the Exam Committee assessment. Minor exceptions could be noted to the funeral home with suggestions on how to address the issues, but that the Board is closing the examination file. Funeral homes with recordkeeping problems and multiple financial errors may get an exception letter that seeks input from the funeral home regarding how it would propose correcting the problems. Funeral homes with significant recordkeeping issues, significant underfunding or systemic financial issues would receive an exception letter seeking a detailed explanation to be given to the State Board.