Death Care Compliance Law

Death Care Compliance Law

Preneed: A Pandora's Box of Problems

William Stalter is the founder of Stalter Legal Services and the Preneed Resource Company. Bill focuses his law practice on preneed and death care compliance, serving banks, funeral homes, crematories, and cemeteries. He has written multiple published articles

Missouri Seller Records: The Starting Point for an Audit Trail

Posted in Exams/audits, Recordkeeping, Uncategorized

The last time the Missouri State Board of Embalmers and Funeral Directors took up the issue of preneed seller record keeping requirements, the staff proposal emphasized a contract ledger approach.  The proposal sought to require a contract record that reflected the amount and date of each payment received and the corresponding dates and amounts deposited to trust, joint account or insurance.   The ledger card would have to be maintained manually, and would be very burdensome for the funeral home that allows consumers to pay by installments.   Ostensibly, the funeral home seller would be required to maintain a separate ledger card for each consumer, regardless of the method of funding.

In lieu of the ledger card approach, this author has proposed record keeping requirements to the State Board that would require one set of records documenting the funeral home’s receipt of consumer records by month and another set of monthly records documenting the transmission of consumer funds to the preneed funding agent.   These types of records would serve as the starting point for a financial examination that would employ an audit trail to track consumer funds through the hands of the funeral director to the appropriate funding agent.  The objective would be to determine that all consumer funds are being timely deposited with the funding agent.

Missouri’s Preneed Examination Process: A New Focus

Posted in Exams/audits, Missouri - SB1

For the first round of Missouri preneed examinations, the State Board of Embalmers and Funeral Directors had no choice but to jump into preneed sellers’ records and files.  Hundreds of funeral home had been selling preneed for decades without supervision or record keeping requirements.   So, the first exam objective was to look at everything and assess the condition of the seller’s records.   There is no doubt that the process found some significant record keeping issues.

When it came time in 2015 for the State Board to discuss the scope of the second round of preneed examinations, the staff pled their case for drilling deeper into seller records, and in particular, the performance and distribution records.   We will be the first to acknowledge that performance and distributions records are crucial to confirming fraudulent preneed activity.  While all sellers should be required to maintain such records, drilling down into every seller’s performance records will not be an efficient use of the $25 paid by each and every preneed consumer.

Rather, we believe that the State Board can become a more efficient, and effective, supervisor of preneed sellers if the primary objective of the exam process is to confirm that consumer funds are being administered correctly by funeral homes.  More specifically, are those funds being deposited with insurance companies, banks and trustees within the required number of days?

The handful of Missouri funeral directors that have gone to jail in the past couple of years were guilty of running preneed consumer funds through their business accounts.   All went years without complying with the deposit requirements, and as consequence, thousands of consumers were harmed.  While performance and distribution records will be  important to the prosecution of fraudulent funeral directors, an examination process that focused on deposit compliance would have led to earlier regulatory intervention and better protection of the preneed consumers.

We have requested that the State Board place on its December agenda the attached examination outline.

Missouri’s Funeral Board: Returning to the Scene of the Crime

Posted in Exams/audits, Recordkeeping

Two years ago, the Missouri State Board of Embalmers and Funeral Directors met in Independence to discuss their staff’s recommendations for seller record keeping requirements and the scope of preneed examinations.  As the minutes somewhat reflect, the staff proposals were met with strong public opposition.   (This blog documented those issues in prior posts that are listed below.)  As a consequence, the board voted to table the staff proposals one month, and scheduled a meeting for January 6, 2016.  When discussion of the proposals was renewed on January 6th, the public again pressed for more clarity on the record keeping requirements and to revise the scope of preneed examinations.   Funeral directors were actually demanding that the Board place more emphasis on tracking consumer funds, and less emphasis on individual contract review.   After a lengthy discussion the Board entertained a motion to allow the staff to continue examinations under the existing guidelines so long as a more detailed audit guideline was completed by Fall 2016.  That was met with strong public criticism, and the motion was withdrawn.  The Board then moved on to other business and eventually in to closed session.   The Board’s move into closed session normally signals the end of the matters to be discussed in open session, and accordingly, the public leaves.   But on this date, Board subsequently reconvened in open after the public had left and took up the staff proposals.   With two members absent, a mere quorum of 3 Board members voted to approve the staff’s original examination proposal.  (January 6, 2016 State Board minutes)

So since December 2015, Missouri preneed consumers have paid almost $1 million in preneed contract fees.   While the Board and their staff argued about record keeping requirements, local prosecutors put a handful of funeral directors in jail for preneed fraud.   The Board’s failure to pursue those funeral directors for fraud led legislators to question who the Board was really seeking to protect.  Yet, preneed examinations continue to place more emphasis on preneed contract compliance than on whether consumer funds have been deposited with the bank.

The State Board returns to Independence this December 13th, and the members need to take up reform of the financial examination process.  In our next post, we will outline our reform proposal to the State Board.

Prior blog posts:  The use of sampling vs. 100% contract reviews;  the need for exit interviews, and the need to search for fraud.

Missouri Preneed Examinations: An Important Pivot

Posted in Exams/audits, Missouri - SB1, Uncategorized

In their last meeting, the members of the Missouri State Board of Embalmers and Funeral Directors took a small, but important pivot in the preneed examination process.  The State Board approved a recommendation made by the Financial Examination Committee that the Committee review each examination report and prepare the letter that accompanies the report to the preneed seller.   The Board will use this new procedure to assess the seriousness of the exceptions and to use the letter as an education opportunity.

Since the examination process was initiated more than six years ago, the staff conducted the examination and forwarded an exceptions report to the preneed seller.  Those exception reports included all issues found by the examiner, regardless of severity.  For some, the exception reports dinged the seller for ‘missing’ files that the examiner failed to locate before leaving the funeral home.   The exception report also included issues on contracts for which the funeral home was not the seller.   The inclusion of such issues on the exception report led many funeral homes to complain that the State Board staff was ‘out of control’,  and resulted in funeral homes going on the defensive when responding to the State Board.

The State Board also signaled that this is only the first change to be made to the preneed examination process.  But, getting the Board’s industry members more engaged in the examination process is critical to resolving the long standing disputes over record keeping requirements and the future scope of preneed examinations.   As witnessed by the recent news story out of Perryville, Missouri has its share of problem preneed sellers.  The State Board needs to assume a proactive role protecting consumer funds and that starts with more involvement in the exam process.

Death Care Trade Associations: Will New Blood Be Enough?

Posted in Associations

With the Dead Beat’s permission, we are sharing at a column they ran earlier this summer.  An anonymous contributor suggested that Death Care associations are headed for obsolescence. The author noted that attendance at Midwest conventions have dropped dramatically, and attributed this in part to a failure to adapt meetings and conventions to the needs of the industry’s Millenniums.   That column offers antidotal evidence that young directors are complaining that the association convention fails to offer information or skills that can be taken home and incorporated into their business.   The knock against association membership not providing an adequate return on investment is not new.  Mortuary Management ran a similar column (Colleague Wisdom) in 2008.   But, while the Mortuary Management column didn’t offer any suggestions for improvement, the Dead Beat column does.

To cut down on time demands, the Dead Beat column recommends that association board business be conducted by conference calls.  We would take that recommendation a step further, and recommend one of several video conferencing software options.  A video conference allows participants to share documents and judge each other’s reactions to ideas and recommendations.

We also like the recommendation about webinars, but would also take that suggestion further.   Allow educational webinars to be sponsored by vendors.  Webinars that provide good content will be popular with association members, and provide vendors the marketing opportunities they seek.

To get out of ‘a rut’, associations need to actively court Millenniums, women, and growing ethnic communities.   The column appropriately suggests recruiting from mortuary schools.  But, associations also need to recruit the ‘corporates’, who can be valuable sources for industry trends.

The Dead Beat column suggests that associations are losing members to other types of leadership groups and roundtables.  Associations should give thought to developing roundtable groups in lieu of spending funds on high dollar motivational speakers.  We have heard industry members express interest in attending association meetings if they could hear from peers (and the big boys) on issues such as sales programs, staffing, and compliance.

These kinds of changes require time and leadership.  Unfortunately, cemetery associations tend to be dependent upon volunteers, and funeral associations have limited budgets and personnel.   Accordingly, we would suggest that death care associations give thought to banding with other state associations, or (God forbid) reaching across the competition divide to cemeteries, crematories and monument builders.  The Southern Cemetery, Cremation and Funeral Association is a good example.   The SCCFA is also somewhat unique in its allowing vendors to participate in the association’s leadership.

Determining Preneed Trust Investment Returns: A Quick and Simple Method

Posted in Preneed Shortfalls, Total Return Trust

Most funeral directors would be hard pressed to calculate what investment return their preneed trust is producing.  Regular deposit and distribution activity makes computation of investment returns difficult.  The more frequent the activity, the harder it is to compute the return.  Accordingly, it would be easier for the funeral director to look at paid in full contract, and compare its value at different dates.  For example, assume an $8,293.50 contract was sold on September 1, 2012 with a single premium (trusted at 100%).  Five years later that contract is serviced in October, and the funeral home receives $9,758.24, the trust has had a simple annual return of 3.5%.  The investment return of $1,464.74 (9758.24-8293.50) is divided by $8,293.50 to come up with an aggregate return of 17.66%.  That aggregate return is divided by the years the contract was outstanding (5).

With regard to mutual funds, investment research analysts use five time periods to assess the fund’s performance: year-to-date, one year, three years, five years and 10 years. Of most relevance to investors such as preneed sellers are the five and 10-year periods, with the latter time frame being considered the best measure of an investment manager’s ability to perform.

So, if preneed sellers want to measure their trust performance against other funding options, take a sampling of contracts with a sales date prior to October  1, 2007, and perform the calculation set out above.  Be sure to use contracts that were paid in full on the date of sale.  If different start dates are used, the returns should differ slightly, but they should be within a fraction of a percent of each other.

Sale of NPS Preneed Contract Approved

Posted in NPS/Lincoln

A Texas court has approved the sale of a majority of the NPS preneed business to a Texas insurance company and its subsidiary.  As we reported a few weeks ago, Liberty Bankers Life Insurance and Capitol Life Insurance Company will assume the NPS preneed business written in Missouri and Illinois as of November 1st.  Funeral homes holding NPS contracts should anticipate receiving more information after November 1st.

Stay Out of Jail Card: A Workout Plan to Keep Consumers Whole

Posted in Compliance

A few weeks ago we reported on a legislative auditor’s recommendation to sunset the West Virginia Funeral Board because of its poor handling of consumer fraud complaints.   Criticism of the Board focused primarily on the Harding Family Group matter, where Chad Harding had filed fraudulent insurance claims of almost $1 million.  But, the auditor’s report also referenced a complaint against the Broyles-McGuire Funeral Home.  Independent news reports suggest that Joel McGuire made fraudulent claims of almost $75,000.  Accordingly to a recent press release, Mr. McGuire has since pled guilty to wire fraud and could face 20 years in federal prison.   So, how is it that the funeral director who steals $1 million can avoid prison while the funeral director who steals $75,000 faces 20 years in the slammer?     Mr. Harding, with the assistance of an outside investor, restored the stolen funds.  In contrast, Mr. McGuire locked his funeral home’s doors and fled the state.

With regard to either of these situations, the WV State Board never appears to have been an active player in seeking a workout plan that would protect the consumers.  A plan to replace stolen consumer funds would be dependent upon the continued operation of the funeral home.  That may also require leaving the funeral home in the control of the owner.   The alternative would be a fire sale of the funeral home assets that would bring pennies on the dollar.

In its own defense, the WV Funeral Board claimed it is the last to learn of funeral directors’ fraudulent conduct, and suggested that it was conserving resources by waiting to take action after the conclusion of other agencies’ proceedings.   Bull Hockey.   For the protection of industry consumers, an industry board of funeral directors should assume a proactive role once fraud is discovered.  Funeral directors will understand better than the Attorney General’s office about the value of a funeral home operation and whether a workout plan could be successful.

West Virginia Funeral Board: Flagged for Expedience

Posted in Associations

The West Virginia Legislature’s Audit Office has given that state’s Funeral Board a failing grade.   The audit report was covered in detail in the September 25th editions of the Memorial Business Journal and the Funeral Service Insider, and we recommend both newsletters to our readers.  Hyperlinks to the newsletters are below.  In a nutshell, a former president of the Funeral Board made fraudulent death claims on about $1 million of Homesteaders insurance policies.  Homesteaders sued the funeral director, and won a judgment.  With help from a local businessman, the funeral director settled with Homesteaders.  The West Virginia Attorney General’s Office brought a separate lawsuit, and the former Board president reached a settlement with the Attorney General.   Watching the funeral director wiggling from the hook of responsibility, the West Virginia Funeral Directors Association pressed the State Board to take action against the funeral director.

Eventually, the WVFDA became frustrated with the lack of action taken by the Funeral Board, and reached out to the West Virginia Legislature.  Then two years after first receiving notice of the fraudulent conduct, the State Board accepted a ‘plea bargain’ agreement prepared by the funeral director’s attorney.  Per the plea bargain, the former Board president received a 6 month license suspension.  This outraged some of the State Board members, and the West Virginia Funeral Directors Association.

The Legislature responded quickly, and within a few weeks, their auditor went calling upon the State Board with his findings.  The Board’s Executive Director responded in writing, citing the advice given by their attorneys that the Board’s hands were tied until a complaint was received.  The letter also attempts to justify the plea bargain by explaining the legal costs avoided by the State Board.  But the letter only served as fodder for the auditor in lambasting the State Board for favoring one of their own over the duty to protect consumers.

In actuality, the Board and its staff did probably perceive the plea bargain as an expedient resolution.  But in doing so, the Board members failed their industry and consumers.  For the three new members that voted to approve the plea bargain, their credibility is ruined.  Sunsetting the State Board is not the appropriate answer.  As the auditor suggests, the State Board needs to be reconstituted, and with industry members with strong ethical track records.

*Reprinted from the Funeral Service Insider – September 25, 2017

**Reprinted from the Memorial Business Journal – September 25, 2017

To subscribe to the Funeral Service Insider, visit  www.funeralserviceinsider.com.

To subscribe to the Memorial Business Journal, visit http://www.nfda.org/news/nfda-publications/nfda-memorial-business-journal.

The New Owner of NPS: Liberty Banker Life

Posted in NPS/Lincoln

The Special Deputy Receiver over National Prearranged Services recently filed an application to assign a significant portion of the NPS preneed contracts to Liberty Bankers Life Insurance, and a subsidiary, Capitol Life Insurance Company.  If approved by the court, the NPS contracts will transfer on November 1st.  Preneed contracts sold in Missouri and Alabama will be assumed by Capitol Life, and the remaining states’ contracts will be assumed by Liberty Bankers.  Both companies will rely on an independent insurance company, Texas Service Life Insurance Company, to process claims.

Of the preneed contracts being transferred, Missouri is the largest block involved and Illinois is the second largest.  Missouri contracts will account for almost half of the business transferred.  Missing from the transaction are most Texas preneed contracts.  Texas contracts account for less than 1% of the transfer.  When NPS collapsed in 2008, Texas was hardest hit by the failure.  If the proposed sale to Liberty Banker Life does not include the Texas contracts, the SDR must have other plans (or offers) for the Texas contracts.

It is too early to tell how the transfer will impact the current claims process.  However, Liberty Bankers Life and Capitol Life specialize in final expense products, and therefore are familiar with the death care business.  The transaction will provide these insurance companies a marketing toehold with funeral homes.

Funeral homes should anticipate some joint announcement from the SDR and Liberty Bankers Life the second week of November.