Common Compliance Problems (Preneed)

Common Compliance Problems

As a result of the examination of several preneed funeral establishments and/or cemetery authorities, the Alabama Department of Insurance (ALDOI) has noticed several areas of concern with regard to compliance with the Preneed Funeral and Cemetery Act, ALA CODE § 27-17A (1975). It should be noted that all entities selling preneed funeral and/or cemetery services and/or merchandise are required to comply with all requirements of that law. A preneed entity is defined as any funeral establishment, cemetery authority or third-party seller that is selling preneed services and/or merchandise as defined under ALA CODE § 27-17A (1975). Those areas of concern are as follows:

Selling Preneed Contract without COA
Unregistered sales agents selling contracts
Using contract forms not approved by ALDOI
Not trusting funds within the required time-frame when the contract is paid in-full
Not purchasing an insurance policy for the full amount of the contract
Not completing the contract form fully (i.e. no signature, etc.)
Not accounting for Preneed contract funds separately
Not maintaining individual contract payment records
Not including preneed contract assets and liabilities on end of year balance sheet
Not maintaining quarterly (at least) statements from trust companies or insurance companies if insurance is used to fund contracts
Not having end of year financial statements prepared using GAAP
Not submitting Preneed activity reports to ALDOI by April each year as required
Contributions to Endowment Care Trust Funds not made as required
Using Preneed contracts containing a non-refundable clause
Improperly merging preneed contracts funds from pre May 2002 contracts with post May 2002 contracts
Not having a published price list available
Not maintaining detail deposit records for preneed monies
Not maintaining agreements with insurance companies used to provide policies to fund preneed contracts
Inadequate documentation maintained in preneed contract file, (i.e. no copy of Insurance policy, payment record etc.)
Failure to respond to correspondence from ALDOI

May 16, 2008