Here in the Midwest, the death care industry is just beginning to experience the increase in preneed reporting and oversight. Some funeral directors are already frustrated with the new requirements, and are biding the time to when they can vent towards the preneed regulator.
Over the past 4 years, state agencies in Illinois, Kansas and Missouri were made to account for their roles in the failures of preneed programs. The replies were very similar: an outdated law tied our hands. There was some truth to those excuses, and state legislatures responded with laws that provide the regulators greater oversight authorities, including expanded examination powers. What rankles funeral directors is that the examinations are aimed at individual operators who had nothing to do with master program collapses.
With the preneed sale originating at the funeral home or cemetery, the on-site examination is a necessary component to effective oversight. However, state regulators struggle with how to conduct an effective preneed examination program. Limited budgets are also requiring the examination process to be efficient.
Illinois stands out from the other two states in that it had audit and reporting procedures in place before its crisis arose. Illinois funeral homes have given diverging descriptions of their audit experiences. Some reported having regular audits, while others report they had never been audited. To better understand the Illinois procedures, I requested a copy of the Comptroller’s examination guidelines. That request was declined with an explanation that such a disclosure may make it easier for funeral homes to circumvent the audit process.
The Illinois audit process failed both the industry and the consumer because the trust procedures contemplate depository funding and relied too heavily upon the tax cost basis of the preneed trust fund. The examination did not incorporate procedures regarding the qualifications of the depository/trustee, the investment of the funds or the fees charged to the funds. A recent conversation with an Illinois examiner suggests that the Comptroller continues to follow the old audit procedures despite their deficiencies.
In contrast, the staff for the Missouri State Board of Embalmers and Funeral Directors has been giving a lot of thought to how the on-site audit should be conducted. Prior to the collapse of National Prearranged Services, the State Board had minimal preneed reporting and examination powers. The examinations conducted this year are the first in 20 years, and recent regulation proposals provide a clue to what concerns the State Board staff have from those initial exams (isolated insurance policies, old contracts, etc).
While the State Board tabled the staff concerns for future discussion, those issues will continue to be reflected in the procedures followed by examiners (and by the preneed seller reports submitted to the State Board). For Missouri preneed sellers, the situation may only add to their frustration. First, there is the uncertainty of what to expect when the examination is conducted. And then, there are the issues raised by the examiner regarding practices that funeral directors may have been following for years.
There is not much that can be done about the frustration that stems from the evolving examination process. The preneed transaction is changing, and regulators will have to adapt their exam procedures accordingly. But the State Board will serve an important role in keeping the examination process focused on the crucial issues. That focus will be defined by the exchange that occurs between the staff and the Board over specific audit findings. These exchanges serve to educate the staff and examiners on the business of the death care industry, which should improve the efficiency of preneed oversight.
As other Midwest states initiate new preneed examination procedures, their regulators must find different ways to ‘learn the business’. Pursuing the wrong issues will only waste precious resources and alienate funeral homes and cemeteries.