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

The Missouri Funeral Board: Was There a 2014 Warning?

Posted in Compliance, Missouri - SB1

Starting with its 2014 fiscal year, the Missouri State Board of Embalmers and Funeral Directors has initiated 334 complaints against Missouri funeral homes.  That is an average of 11 complaints per month.  During the four years that preceding 2014, the State Board filed only 77 complaints against funeral homes, or an average of 1.5 complaints per month.  What happened in 2014 that prompted the State Board to begin filing so many complaints?  Had the first round of financial examinations uncovered rampant preneed fraud within the industry?  One rumor suggested that the Attorney General’s Office had rebuffed a State Board request to file a preneed disciplinary complaint with the Administrative Hearing Commission.   Supposedly, the Attorney General declined the request because the Board had a reputation for lax enforcement, and that caused the Board to adopt a zero tolerance towards licensee compliance lapses.

In 2014, tensions were running high between the State Board and the Missouri Funeral Trust, and so we don’t doubt that the State Board approached the Attorney General’s Office regarding a disciplinary proceeding.  The conflict was further inflamed when the Missouri Funeral Trust subsequently filed its own lawsuit against the State Board.  The circumstances lend credibility to the rumor, but one aspect of the rumor fails the sniff test.  The State Board did not have Chapter 436 enforcement powers until Senate Bill No. 1 was passed in 2009.  So, how could the State Board have a reputation for lax preneed enforcement when it previously had no such powers?  The State Board was only 4 years into the financial examination process, and most sellers’ exams were still open.

We cannot help but to wonder whether the Attorney General’s Office declined the State Board request on other grounds.  The State Board has yet to pass regulations regarding critical requirements of Chapter 436, and perhaps the Attorney General’s Office raised that issue back in 2014.   Rather than defer enforcement until rules could be formally adopted pursuant to Chapter 536, the State Board moved forward on a zero tolerance program that relied upon outside counsel to file discipline proceedings when licensees did not capitulate.  Of the 334 complaints filed since 2014, how many would the Attorney General have rejected for the lack of a formal regulation or because the complaint represented an overreach of an existing regulation?

Missouri Policy Changes: Return to Start, Do Not Pass Go or Collect $200

Posted in Missouri - SB1

Over the past couple of years, the Missouri State Board of Embalmers and Funeral Directors implemented a number of policy changes that affected the funeral industry.  New requirements were imposed on licensing and reporting, and complaints were filed against licensees that failed to comply with those new requirements.  It is not uncommon for a state agency to define an action as a policy (as opposed to a rule) so that it does not have to comply with Missouri’s Administrative Procedures Act (Chapter 536).   However, many of the State Board’s policy changes are reflected in rule proposals that have been approved by the State Board, but never finalized pursuant to Chapter 536.  Other policy changes were based on a “new” interpretation of an existing regulation.  In either situation, the State Board was required to comply with Chapter 536 before implementing the policy change.  In failing to do so, each policy change subject to Chapter 536 will be voided when challenged in court, and the prevailing licensee could be awarded attorneys’ fees.

Missouri State Board of Embalmers and Funeral Directors: Ten Years after NPS

Posted in Compliance, Exams/audits, Missouri - SB1

Ten years after the collapse of NPS, the Missouri State Board of Embalmers and Funeral Directors has a confidence problem with licensees and legislators.  Licensees see a regulator that is obsessed with DBAs, renewal reports, and exams that focus on contract provisions.  Legislators see a regulator that will not fulfill the SB1 mandate to protect consumers.   Compounding this confidence problem, the Board staff persists in implementing changes without complying with Missouri laws.

In response to our December Regulatory Report, we received a letter written by an attorney claiming to represent the Board Chairman. The letter disputed that there is a formal review process for rules approved by the State Board.  That gross misstatement of Missouri law prompted us to make several open record requests to the State Board.  It is widely known that the Chairman was dissatisfied with the Division attorney formerly assigned to the Board, and we sought to determine whether the Board Chairman or Executive Director were seeking legal advice from the Division.  But, the Division responded to our request by advising the Sunshine Law does not require the disclosure of communications that would be protected by the attorney/client privilege.  That response begs the question whether the staff had sought legal advice, or is flying blind when implementing changes and pursuing discipline.

Our open record requests also sought communications among the Board members and staff.  We hoped to learn what input was sought from members before changes were implemented by the staff.  The Board did respond to those requests and we learned that changes were typically implemented without any input sought from Board members.

When NPS collapsed, the Missouri General Assembly moved quickly to establish a joint legislative committee for preneed reform.  That legislative joint committee requested the State Board form a working group for recommendations to the General Assembly.  The Chapter 436 Working Group met six times over the course of several months.  Two hotly debated issues were whether the State Board should retain jurisdiction over preneed, and if so, whether the Board should be given preneed rulemaking authority.

The Working Group recommended that the State Board retain preneed jurisdiction so that Board’s industry members could bring their experiences to future deliberations about preneed programs.  That recommendation was endorsed by Working Group representatives from the Division of Finance and the Division of Insurance.  The Working Group also recommended that the State Board be given preneed rulemaking authority so that it would have flexibility in responding to issues.

But, what we have learned is that the Board staff has implemented licensing and discipline requirements without seeking input from Board members, or from the industry.  Some requirements exceed the Board’s statutory authority, which suggests that the staff also acted without seeking input from the Division legal office.  And, requirements impacting the industry were implemented without compliance with Chapter 536.   This is not the preneed reform that the Missouri General Assembly intended.  We will explore the repercussions of these failures in future posts.

Missouri Funeral Board: Another Cure for Memory Loss

Posted in Compliance, Exams/audits, Missouri - SB1

The latest rumor being spread about the Missouri State Board of Embalmers and Funeral Directors is that the Board members met in a closed executive session without staff or attorneys to discuss the need for change in the legal representation of the Board.  According to the rumor, the decision was made to send the Board chairman to the Division of Professional Registration to request a change in attorneys.  Such a meeting would have occurred at the September 22, 2017 Board meeting, or at an impromptu Board meeting between September 23rd and October 17th.  The Board’s change in legal counsel began with the October 18th meeting.

The State Board’s website does not reflect any meeting notices between the dates of September 22nd and October 18th.   Minutes of the September 22nd meeting are not available to reflect whether the Board members met in an executive session.   There were no video cameras present during the September 22nd open session, and so it is doubtful any closed executive session was recorded.  If the legal representation meeting was held subsequent to September, no notice was given.  Apparently someone’s memory has grown fuzzy.   Missouri’s Sunshine Law is intended for such lapses in memory.   However, the January 13th letter described in our prior blog post states that Board members are barred from disclosing information discussed in closed sessions, and individuals who release such information may be fined $100,000.  If accurate, does this mean the Board members cannot discuss what happened at the secret executive session or when it occurred?  If so, the rumor might mean someone is taking a big risk in attempting to set the record straight.  As for the veiled threat made in that letter against this author, we’ll take the safe route and make some open records requests.  The question is how far back we have to go to determine when the Board’s memory lapses began and how many times the Sunshine Law has been broken.

The Missouri Board Chairman’s Rally Cry: Follow Me, Boys!

Posted in Exams/audits, Missouri - SB1, Recordkeeping, Reporting, Uncategorized

Pursuant to a notice that may, or may not, satisfy state law, the Missouri State Board of Embalmers and Funeral Directors met in closed session this morning.   At the State Board’s December meeting, Division counsel advised that 24 hours’ notice to the public was required to amend the Board’s agenda.   Notice of this 9:00 am January 18th closed meeting was emailed out at 9:21am on January 17th.  The Board’s website suggests that agenda was posted 8:45 am on January 17th.   In that we receive the email meeting notification about half the time an agenda is posted, the Board’s website probably rules.

Followers of blog have jumped to the conclusion that our January 13th post was the subject of today’s meeting.  Yes, the Chairman may have called for today’s meeting to make a rally cry to the Board members.  But it is also likely that the Chairman sought the meeting to share correspondence that he, and this author, received after the Saturday blog post.

Not to steal the Chairman’s thunder, the correspondence casts new light on the Board’s direction during the past 27 months.  Since late 2015, the State Board staff became cyber cops visiting every funeral home’s website to look for “Inc.”, commas, apostrophes, and anything else that might be missing from a sign or document.   Enforcing the single DBA requirement took a higher priority than the safety of consumer funds.  The Board also adopted a zero tolerance towards preneed renewals, and changed the forms and process without notice to licensees.    (A preneed renewal isn’t timely filed unless we say it is.)

AHC Complaints were filed against licensees without proper due process and the Board stonewalled the industry’s request for open meetings to discuss seller record requirements and future examinations.   An examination guideline was approved under suspect circumstances that burdens licensees and consumers without rational benefits or protections.  Authority is drawn from rule proposals approved by the Board in 2016 but never submitted to the Secretary of State pursuant to Chapter 536.

The Board’s actions taken in isolation may not constitute a restraint of trade, but a different conclusion can be argued when the actions from the past two years are examined as a whole.

The Missouri Funeral Board: Cures for Memory Loss

Posted in Compliance, Exams/audits, Missouri - SB1, Recordkeeping, Uncategorized

With its January 9th and 10th agenda, the Missouri State Board of Funeral Directors and Embalmers exhibited yet another example of memory loss.  Just weeks prior, the State Board voted to have one or more special meetings on seller records and the financial examination process.  The motion approved by the Board was to have those meetings at ‘future date to be determined’.  Since that vote was made at the beginning of a morning open session when this author was the only member of the public present, I sought clarification of the Board vote during the afternoon open session.  The Board did then clarify the special meetings would be at some future date to be determined.  But a mere three weeks later, our seller records and examination proposals were included on the January 9th and 10th agenda.

There are only three explanations for the change in meeting dates.  The State Board revisited its infamous strategy of waiting until after the closed session to reconvene in open after the public had left.   Or, maybe the State Board revised the December vote by mail ballot.  Or, did the Board Chairman and Executive Director set the January agenda in disregard of the Board’s December vote?

With regard to the infamous ‘wait until the public leaves’ strategy, see our post “Missouri’s Funeral Board: Returning to the Scene of the Crime”.    The January 6, 2016 meeting minutes reflect that record keeping and examination outlines were tabled at one point and that another motion was subsequently approved by a 3-0 vote.   Those minutes do not comply with state law because they fail to address the Board Chairman’s vote, or whether he was present or absent.   Nor do the minutes reflect the open discussion that led the public to believe that the seller record and examination issues would be taken up after the staff provided more definitive record requirements.  The minutes also fail to accurately reflect that the Board went into closed session to discuss other matters, and subsequently reconvened into open with three members (or was it four?).  The short Board then approved the staff proposals submitted in December.   What we don’t know is whether there was any collusion among the Board members during the 1/6/16 closed session to re-convene in open session and ratify the staff proposals that the industry opposed.  If the Board got away with it once, could they do it again?  Without accurate minutes of the December 2017 meeting, anything could be possible.

Regarding mail ballots, the State Board website does not reflect any such meetings since January 2017.  If there was a mail ballot vote to change the time for special meetings from “to be determined at a future date” to January 9th and 10th, the Board has violated Missouri’s Sunshine Law.  It is one thing to drag one’s feet in providing timely and accurate minutes of open meetings, but is quite another to hold meetings without any notice to the public.

That leaves the possibility that the Chairman and Executive Director are acting in disregard of the Board’s December vote.  We are not quite sure of the full implications of this level of misconduct, but it has only been ten years since the State Board was punished by the Federal Trade Commission.  (The Chairman was a member of the State Board at that time, a fact the FTC will not forget.)

The State Board has been challenged from time to time to provide timely minutes of open meeting sessions.  The delays run from several months to years.  Such delays can lead to memory loss on the part of staff and/or Board members.  The State Board recognized this problem a few years ago, but the public is left to speculate what happened.  But, the current State Board Chairman previously provided one solution to avoiding Board memory loss: video record both the open and closed sessions of State Board meetings.  Chairman McGhee served on the State Board about ten years ago and when his term expired, he would attend the Board meetings to record them.  At that time, he suggested that someone needed to keep an eye on the Board.   Since the public cannot attend Board’s closed sessions, can the industry trust the Chairman or the Executive Director to carry out his proposal?  In raising the Chairman’s solution, we assume the Chairman intends to have the audio on when recording Board meetings.

We will look at other cures to memory loss in future posts.

Missouri’s Record Keeping Meeting(s): A Date to Be Determined

Posted in Associations, Exams/audits, Master Trusts, Missouri - SB1, Recordkeeping

In preceding posts, we have outlined recommendations to the Missouri State Board of Embalmers and Funeral Directors regarding the preneed examination process and record keeping requirements.  While our correspondence was not included on the Board’s December 13th agenda, the Board entertained a motion to amend the agenda to include our correspondence on the afternoon open session.  The State Board attorney advised against the motion on the basis that 24 hour notice to the public was required.  While frustrated with the Chairman’s decision to omit our correspondence from the December agenda, we agreed in principal with the position taken by the Board’s attorney.   Although the Board may be free to take up issues raised by the public, we felt the last minute addition of our correspondence to the agenda would not afford those sellers with the most at stake a fair opportunity to provide input.   By a unanimous vote, the Board agreed to schedule a special examination review meeting after the current mandatory rule review process is completed.

While there was readiness on the part of Board members to take up the exam and record keeping issues on December 13th, the Missouri Funeral Directors and Embalmers Association must be involved in the process.   For the better part of two years, the Board staff exhibited a reluctance to openly discuss record keeping requirements.  The staff proposals were vague, and potentially burdensome to all sellers.   Those proposals also hinted at additional record keeping requirements for preneed fiduciaries.   Out of concern for trust funded programs, we reached out to the MFDEA to plan a push for special record keeping meetings.  This author agreed to take the lead in requesting meetings or hearings on exams and records, and the MFDEA would provide input on behalf of the Missouri Funeral Trust and other sellers who were members of the Association. But, our requests for a special meeting were never granted, and the Board eventually filed its Complaint against the MFT.

In hindsight, it could be said that the Division was afraid of tipping their hand before filing the MFT complaint.  Their strategy may have been to first secure discipline, and thus gain an advantage in obtaining concessions for record keeping requirements.  But, in an unrelated administrative hearing proceeding, we did not find the State Board and its staff knowledgeable about fiduciary administration.  Accordingly, we anticipate that it will be difficult for the MFT to resolve the Complaint’s record keeping allegations so long as seller record requirements remain undefined.

Ultimately, it will be the State Board members’ decision to set the record requirements to be imposed on MFT and its trustee.  To the extent those record keeping requirements are imposed on the MFT trustee, the state’s other preneed fiduciaries could be impacted.  Accordingly, we are seeking the special meetings to educate the State Board members on fiduciary administration before setting standards that could burden other fiduciaries.

In prior posts we have alluded to how accounting and administrative platforms vary from bank to bank.   As a part of the education process, we will drill down into those issues in upcoming posts.

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.