The first record described in the proposed Missouri recordkeeping regulation could actually require preneed sellers to maintain three, maybe four, sets of journals:
(1) receipt and disbursement journals containing a record of deposits to and withdrawals from both preneed trusts and preneed joint accounts, specifically identifying the date, source, and description of each item deposited as well as the date, payee, and purpose of each disbursement;
This section contemplates a journal for consumer payments received by the seller and deposited to trust or joint account, and a journal of disbursements from the preneed trust or joint account to the seller. With regard to trust funded contracts, Missouri law requires all consumer payments be made to trust. However, this proved burdensome for sellers with a high volume of payments, and consequently sellers are allowed to administer payments through a commercial clearing account. When a clearing account is used to process individual consumer payments, a commingled, lump sum deposit is then made to the trust at month end.
When a seller does use a clearing account to administer consumer payments, the regulation may require one receipts journal for the clearing account and another receipts journal for the trust account. Or, the regulation could be interpreted to require a receipts journal and disbursements journal for the clearing account. The journals would have to be sufficient to allow an auditor to determine that the consumer payment was deposited to trust within the time required by statute.
When consumers make their payments directly to the trust, the seller may, or may not, actually handle the payment. Consumer payments may be made by a direct deposit or by checks mailed directly to the trust. When the seller does not handle the payment, it is not clear whether the seller would be required to document such payments to the receipts journal.
Another question that comes to mind is whether the seller can use a bank transaction report to satisfy the receipts journal requirement. Some of our bank clients include the consumer’s name when recording a deposit to their system. However, commingled, lump sum deposits made from a clearing account would not reflect individual consumer names. With such deposits, supporting detail might have to be provided that reflects a reconciliation of the deposit to the clearing account receipts.
To the extent that bank generated reports are used, sellers will have to be current in their production of such reports because most banks limit the time such data is maintained on line. The banks we work with limit the availability of such data from 18 months to 24 months. Sellers are only audited once every 5 years, and if a seller waits until an audit is scheduled to retrieve reports, the first three or so years will not be available.
Sellers should also note that the regulation is also seeking the source of funds, i.e., whether the consumer paid by check or cash.
At one time, it was custom for preneed sellers to book consumer payments to the funeral home’s income records, and defer recognition of the income until performance of the contract. The funeral home’s tax records would have been a source for the journals, and other records, sought by the proposed regulation. However, the practice of booking preneed payments to income is no longer encouraged. Consequently, the proposed regulation would require the Missouri preneed seller to maintain financial records that are in addition to their tax and financial records.