In September of last year, the Columbus Dispatch published a story critical of the Ohio State Board of Funeral Directors and Embalmers. Examining the Board’s efforts to address preneed fraud, the story reported that prosecutions of funeral directors were more the result of consumer complaints than Board inspections. That must have struck a nerve with Governor John Kasich, who appointed a public member to the Board with an apparent instruction to “shake things up”. The conflict that has since ensued between the Board’s executive director and the public member recently became national news. The spin coming from the various news sources has been very negative regarding the willingness of industry boards to prosecute their own members. But, those stories beg the question about the role that a state funeral board should take when initiating criminal prosecutions.
When Missouri re-wrote its preneed law in the wake of the National Prearranged Services scandal, the legislature sought recommendations from a committee of industry representatives, consumer groups and regulatory agencies. One of the committee’s initial discussions was whether preneed oversight should be transferred to a state agency other than the Missouri State Board of Embalmers and Funeral Directors. Ultimately, the committee recommended that the State Board retain primary jurisdiction. As explained in prior posts (It’s not my job, man. and Missouri’s Preneed Reform: the 2015 Factor.), this author endorsed that decision. An industry board can better assess a preneed seller’s actions for intent to comply with the preneed law. But now, Missouri funeral directors and their association are asking why their State Board hasn’t been more proactive in pursuing the bad apples.
One factor is the difficulty in distinguishing honest mistakes from the intent to avoid the law. The majority of funeral homes are family owned and operated. The owner wears many hats, and the administration of consumer payments is often pushed to the back of the desk when a death call is received. The funeral home’s books and records could help the State Board to make the distinction, but Missouri has never specified what records are required. Consequently, the quality of recordkeeping in Missouri can vary substantially from funeral home to funeral home.
Those calling for an industry board to take the initiative in criminal prosecutions should also consider whether a group of laymen (and possible competitors) should be making the decision to prosecute. That decision should be left to the State Attorney’s office or the local prosecutor. The local prosecutor should be the first choice because of the motivation to protect his/her constituents. However, local prosecutors will not be familiar with the obscure law that governs preneed contracts. The local prosecutor’s job is further complicated when the preneed law is decades old. Prosecution in Missouri is much easier under the 2009 law than it was under the 1982 law.
The current controversy in Ohio concerns whether the email response of the State Board executive director to the reporter had been altered: “I am unwilling to comment on how our inspectors examine pre-need contracts, or conduct pre-need audits as it could seriously impede our ability to identify fraud in the future if published.” Giving Ms. Niekamp the benefit of the doubt, including the italicized language does little to make her response less evasive. We have gotten the same response from regulators in Illinois and Missouri. The reality is that it is very difficult to identify preneed fraud when the unfunded contracts are hidden, and regulators do not want to acknowledge that fact. Detecting fraud is often dependent upon having sufficient records so as to indentify irregularities in the seller’s practices. Such as servicing contracts without seeking payment. Or declining deposit activity when the number of sales are constant. Or insurance/trust distribution requests that do not tie to a statement of goods and services. Another sign of fraud would be when the preneed seller obstructs the inspection or audit process. To avoid the cloud of doubt that hangs over the Ohio State Board, an industry board should seek the input of the prosecutors and the state funeral directors association in the development of guidelines for the referral of preneed cases. One prominent state association executive expressed pride to this author in their role in making their state’s regulator more effective in combating preneed fraud.
If the Missouri State Board seems reluctant to pursue criminal prosecutions, the actions of the Missouri Funeral Directors and Embalmers Association have also been a factor. The Association has openly challenged the Board’s authority to request preneed records. While the challenges were intended to shield the Missouri Funeral Trust, the message given to funeral homes has been much broader. When the Board pressed funeral homes for preneed records, the Association insinuated to State Board members that they could have personal liability exposures pursuant to North Carolina State Board of Dental Examiners v. Federal Trade Commission. Subsequently, the Association’s master trust program sued the State Board for breaches of confidentiality alleging disclosures of information and documents obtained through an audit.
I, for one, have been frustrated by the lack of action regarding Missouri funeral directors that have blatantly thumbed their noses at Chapter 436. However, Association members who question the Board’s failure to pursue the bad apples need to appreciate the hypocrisy of their complaint.