The Massachusetts Division of Professional Licensure and the state Board of Registration of Funeral Directors and Embalmers are taking flak over the one and half million dollars of preneed funds that may been diverted by the owner of the defunct Ryder Funeral Home in South Hadley. The Daily Hampshire Gazette reported that 200 Massachusetts funeral homes are late in filing their annual preneed reports and the newspaper is pressuring state regulators to explain how some funeral homes, such as the Ryder Funeral Home, were allowed to go years without filing a report.
Massachusetts death care regulators are not alone in the quest to obtain prompt preneed reports from funeral homes and cemeteries. This issue was highlighted by Nebraska’s Department of Insurance when preneed legislation was discussed with the industry last year. The Illinois Comptroller implemented a new fine system with the annual report form released last month. A few years ago, Missouri’s State Board of Funeral Directors and Embalmers began suspending sellers’ licenses when their paperwork was not timely submitted. But with limited staff and resources, how is a regulator to distinguish the tardy licensee from the funeral home or cemetery that is diverting preneed funds to their operating account? As a representative of the Massachusetts State Board points out, there is no way to distinguish tardy guys from bad guys if so many operators are late to file. So, the first course of action for that State Board was to request administrative complaints filed against all tardy filers. But, will this provide regulators the information they need to red flag operators that may be diverting preneed funds?
Another member of the Massachusetts State Board described the preneed reports as useless, and recommended that preneed funds be kept out of the funeral director’s hands by requiring preneed payments be made with checks made payable to insurance companies or guaranteed trusts.
Missouri sought to implement a similar approach with regard to trust funded contracts, but the requirement met strong opposition from operators that provide primary accounting of contract payments. Most corporate trustees do not have the administration required for installment payments or consumer payments that must be split among contracts and charges. Nor did funeral operators want to bear the cost for banks to develop such administration. Use of a clearing account dedicated to the operator’s preneed sales could remedy this problem. Dictating the format of deposit transmittals to the clearing account, reports of the division of the payments, and resulting transmittal of trust deposits would provide inspectors an audit trail from the consumer’s hand to the preneed trust. But, such reports may be difficult to understand if they are not produced monthly or quarterly. While the Board’s staff may not have the time to review each quarterly clearing account report, the timely production of the reports would signal the operator is at least making timely deposits to the trust.
But, only the consumer may know whether all deposits have been made to his or her trust. Consequently, the Massachusetts State Board may want to expand its preneed requirements to include an annual consumer statement similar to that required by Illinois. Each year, Illinois preneed trustees must produce a consumer statement that advises the contract purchaser the deposits and withdrawals that have been made to their preneed account. The statement must also disclose the fees and taxes paid from the account, and its market value. In theory, the consumer statement will trigger inquiries if the trustee fails to report a contract sold, or reports lower trust deposits than what the purchaser could expect. The concept has merit for state death care regulators that lack the resources to turn every page of a funeral home’s preneed records. Until a contract goes paid in full or lapses for failure of payments, the trustee could produce an annual consumer statement that would be mailed to the consumer, and made available at the funeral home where the contract was purchased. The regulator’s website could advise consumers to expect a statement from the trustee, and to visit their funeral homes if the statement causes any questions. If funeral director’s explanation does not add up, then an inquiry should be made to the state board. That inquiry would create the red flag that would prompt the examiner to review the periodic reports filed on behalf of the funeral home.