oversight

Funeral-Related Industries: Complaints and State Laws Vary, and FTC Could Better Manage the Funeral Rule

Published by the Government Accountability Office on 1999-09-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to Congressional Requesters




September 1999

                 FUNERAL-RELATED
                 INDUSTRIES
                 Complaints and State
                 Laws Vary, and FTC
                 Could Better Manage
                 the Funeral Rule




GAO/GGD-99-156
United States General Accounting Office                                          General Government Division
Washington, D.C. 20548




                                    B-281214
                                    September 23, 1999

                                    The Honorable Charles Grassley, Chairman
                                    The Honorable John B. Breaux, Ranking Minority Member
                                    Special Committee on Aging
                                    United States Senate

                                    The Honorable Susan M. Collins, Chairman
                                    The Honorable Carl Levin, Ranking Minority Member
                                    Permanent Subcommittee on Investigations
                                    Committee on Governmental Affairs
                                    United States Senate

                                    This report responds to your request that we examine various issues
                                    involving consumers’ dealings with funeral-related or death care
                                    industries, which include businesses that provide funeral and cemetery
                                    goods or services. You expressed concern about consumers who may be
                                    faced with unneeded or inflated expenses or unfair or deceptive sales
                                    practices at a time when they are highly vulnerable—after the death of a
                                    loved one. You further stated that recent media accounts have focused on
                                    the need for consumers to approach death care transactions with
                                    considerable caution, especially because these purchases can be some of
                                    the most costly and emotionally difficult financial transactions a consumer
                                    can make.

                                    As agreed with your offices, our objectives were to (1) describe the
                                    availability of information on the nature and extent of consumer
                                    complaints about death care industries, (2) describe and assess the
                                    Federal Trade Commission’s (FTC) efforts to ensure compliance with its
                                    Funeral Rule, and (3) provide information on selected state governments’
                                    roles in protecting consumers in their death care transactions. The
                                    selected states were California, Florida, Maryland, New York, and Texas
                                    (see our scope and methodology section for a discussion of our selection
                                    criteria). We focused on transactions concerning funeral homes;
                                    cemeteries; and preplanned and prepaid funeral arrangements, commonly
                                    known as preneed arrangements.

                                    Comprehensive information on consumer complaints that would indicate
Results in Brief                    the overall nature and extent of problems that consumers experienced
                                    with various aspects of death care industries was not available for a
                                    variety of reasons. One reason is that consumers can complain to a variety



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of organizations about death care issues and can lodge the same complaint
to more than one organization. Another reason is that no single
organization or combination of organizations collects and compiles all
complaints into one database. Also, each organization can have its own
way of compiling and maintaining complaint information, which would
confound efforts to compile and analyze aggregate complaint data.
Although the organizations we contacted were able to provide some data,
the number of complaints about death care was generally low compared to
complaints about other categories of consumer issues. Among the reasons
these organizations gave for the relatively low number of complaints was
the personal or emotional component of the death care situation.

FTC’s Funeral Rule requires that funeral providers give consumers
accurate, itemized price information and various other disclosures about
funeral goods and services. Over the last 5 years, FTC has taken steps,
including distributing compliance guides and working with the funeral
home industry, to promote compliance with the Funeral Rule. FTC took
these steps because it was concerned about what it perceived as a
relatively low level of compliance (about one-third) among funeral homes
in the late 1980s.

FTC maintains that compliance among providers covered by the Rule has
increased “substantially” over the years. However, FTC does not have a
systematic or structured process for measuring funeral homes’ compliance
so that overall conclusions can be drawn about their actual compliance
with the Rule. FTC’s efforts to measure compliance have been limited to
narrowly scoped test-shopping sweeps in selected areas—that is, they are
not representative of the universe of funeral providers and do not cover all
elements of the Rule. We analyzed the available records of funeral homes
FTC test-shopped in fiscal years 1997 and 1998. Our analysis indicated that
among the limited sample of homes visited, compliance indeed was high
for the Funeral Rule’s core requirement--giving consumers itemized price
lists early in their meetings with funeral home staff--and somewhat lower
for other elements of the Rule we reviewed. However, from the records we
reviewed, it appears that FTC did not always take enforcement action
against funeral homes that potentially violated the Rule and did not always
document the reason. For example, according to its records, in fiscal years
1997 and 1998, FTC did not take action in over half the instances in which
funeral homes had one or more potential Funeral Rule violations.
According to FTC, one of the primary reasons it may not have taken action
was because it exercised prosecutorial discretion. When records indicated
that FTC took action on a potential Rule violation, we were not always
able to determine why. In addition, FTC’s letters to the funeral homes in



Page 2                                 GAO/GGD-99-156 Funeral-Related Industries
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             violation did not always provide the reason FTC took action, a practice
             that is suggested in FTC guidance on responding to a violation. We are
             making recommendations concerning these issues near the end of this
             report.

             The five selected states differed in their approaches to protecting
             consumers who deal with funeral homes and cemeteries and make
             preneed arrangements. Differences were most notable concerning the (1)
             regulatory structure of the five states and (2) requirements that these
             states placed on death care providers. However, the five states also had
             similarities in their approaches to protecting consumers who engage in
             death care transactions. For example, the five states all had licensing and
             minimum education requirements that funeral providers were required to
             meet. Each of the states also had laws and regulations that required
             funeral providers to disclose price and other information to consumers
             similar to the requirements of FTC’s Funeral Rule.

             Each year, American consumers arrange more than 2 million funerals at a
Background   total cost of billions of dollars. During 1997, according to Conning &
                                                                                1
             Company, an insurance industry publications and research firm, almost
             27,000 funeral service providers, such as funeral homes and crematories,
             had sales revenue of about $10 billion. The National Funeral Directors
             Association (NFDA) reported that in 1997, the average adult funeral cost
             about $5,500, including casket and vault. Table 1 shows NFDA data on the
             average cost for the most commonly selected funeral items as of January
             1997.




             1
                 Preneed Insurance: A Business to Die For? 1998, Conning & Company (Hartford: 1998).




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Table 1: Average Cost of Most                                                                                                                  a
Commonly Selected Funeral Items, as of   Most commonly selected items                                                       Average cost
January 1997                               Nondeclinable professional service charges                                              $1,079
                                           Embalming                                                                                  370
                                           Other preparation (e.g., cosmetology, hair)                                                133
                                           Visitation/viewing                                                                         305
                                           Funeral at funeral home                                                                    326
                                           Transfer of remains to funeral home                                                        134
                                           Hearse (local)                                                                             161
                                           Service car/van                                                                             81
                                           Acknowledgment cards                                                                        19
                                         Subtotal                                                                                  $2,607
                                           Casket, 18-gauge steel, sealer, velvet interior                                          2,176
                                         Subtotal with casket                                                             $4,783
                                           Vault, asphalt-coated concrete, sealer                                                     761
                                                                                                                                         b
                                         Total with casket and vault                                                              $5,544
                                         Note: Figures do not add due to rounding.
                                         a
                                          According to NFDA, the data on average cost of most commonly selected items are based on figures
                                         from its members’ general price lists as of January 1997. NFDA’s data were collected from 564
                                         questionnaire responses out of a total random sample of 1,500 NFDA members.
                                         b
                                          The prices listed by NFDA do not include cemetery charges, such as grave space, opening/closing
                                         grave, crypts/mausoleum, monument, or marker because these items are usually not purchased
                                         through the funeral home. NFDA included the cost of a vault for reference even though, according to
                                         NFDA, some funeral homes offer vaults and others do not.
                                         Source: National Funeral Directors Association.


                                         NFDA also maintains some data on the cost of final disposition, such as
                                         burial and cremation. For example, in 1997, according to NFDA, the cost of
                                         an individual grave space ranged from about $150 to over $1,900, and the
                                         cost of opening and closing the grave ranged from $125 to $750 for
                                         nonovertime work. In addition, according to NFDA, the cost of cremation
                                         ranged from $75 to $395; a bronze urn to hold cremated remains cost from
                                         $230 to $1,800; and in-ground placement of an urn ranged from $450 to
                                         $1,250. Although the variety of choices and the range of costs make it
                                         difficult to precisely estimate the cost of a typical funeral and burial,
                                                2
                                         AARP estimated the cost in 1998 to be about $8,000 and as much as
                                         $10,000 in some markets. Furthermore, AARP reported that the cost of
                                         funeral and burial arrangements is increasing. In fact, according to data
                                         collected by the Bureau of Labor Statistics (BLS), funeral expenses have
                                         grown faster than the rate of inflation. Figure 1 shows the extent to which
                                         funeral expenses have exceeded the rate of inflation, as indicated by the
                                         consumer price index (CPI), since 1990.




                                         2
                                             AARP was formerly known as the American Association of Retired Persons.




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Figure 1: Percent Change in CPI From
Previous Year for Funeral Expenses
Compared With CPI for All Items From
1990 Through 1998




                                       Source: Historical CPI for all Urban Consumers (U. S. city average) by commodity and service group
                                       and detailed expenditure categories, CPI Detailed Report, March 1999, BLS, Department of Labor.


                                       FTC has a major role in protecting consumers during death care
                                       transactions. The FTC Act declares unfair or deceptive acts or practices to
                                                                                3
                                       be unlawful when they affect commerce. Under its authority to
                                       promulgate rules, FTC has issued a trade rule entitled Funeral Industry
                                                                                            4
                                       Practices—more commonly called the Funeral Rule. The Funeral Rule
                                       was designed to (1) ensure that consumers receive the information
                                       necessary to make informed purchasing decisions and (2) lower existing
                                       barriers to price competition in the market for funeral goods and services.

                                       The Funeral Rule, which became fully effective in April 1984, declares it an
                                       unfair or deceptive act or practice for funeral providers to (1) fail to

                                       3
                                           15 U.S.C. 45.
                                       4
                                        FTC’s authority to issue rules is set forth at 15 U.S.C. 57a(a) and 15 U.S.C. 46(g). The Funeral Rule is
                                       set forth at 16 C.F.R. Part 453.




                                       Page 5                                                 GAO/GGD-99-156 Funeral-Related Industries
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furnish accurate price information to funeral consumers, (2) require
consumers to purchase items they do not want to buy, and (3) embalm
deceased human remains for a fee without authorization. The Rule further
declares it a deceptive practice for funeral providers to make certain
misrepresentations, such as that embalming is required by law when it is
not, that caskets must be used for cremation, or that funeral goods and
services have certain preservation and protection capabilities. To prevent
those practices, providers of funeral goods and services are to, among
other things, (1) give detailed printed information about prices, including
certain legal disclosures, to consumers who inquire about funeral
arrangements; (2) allow consumers to select only those goods and services
they desire (rather than offering goods and services only in predetermined
packages); and (3) seek express approval before embalming the deceased
for a fee. Since the Funeral Rule’s inception, it was amended once in 1994.
In April 1999, FTC announced that it was beginning to review the Funeral
Rule to determine if it should be further amended, maintained as is, or
           5
repealed. Appendix I contains a copy of the Funeral Rule that was in
effect as of July 1999.

State and local governments also have a role in regulating and overseeing
funeral homes and cemeteries. Commercial cemeteries are regulated
                                      6
primarily at the state or local level. According to a 1998 book on making
                       7
funeral arrangements, funeral homes and cemeteries are regulated by
state boards as well as other agencies, including offices of attorneys
general and departments of health and insurance. In addition, the book
points out that licensing and minimum education requirements for funeral
directors and embalmers differ from state to state. State laws also are the
primary source of regulation over preneed funeral contracts. According to
a 1996 law journal article, although every state, with the exception of
Alabama and the District of Columbia, has enacted some sort of regulatory
                                                                        8
action to oversee preneed contracts, the laws vary from state to state.
Examples of areas of differences in state statutes include the funding
options available to consumers, limitations on where proceeds from
preneed funeral contracts may be invested, and the percentage of preneed
sales proceeds required to be placed in trust.
5
 FTC is currently soliciting the views and suggestions of interested parties, and FTC staff hope to have
the entire rule review process completed within 2 years.
6
 Religious, municipal, and fraternal cemeteries are usually exempt from the various state regulations
that govern commercial cemeteries.
7
    Lisa Carlson, Caring for the Dead: Your Final Act of Love (Hinesburg, VT: Upper Access Inc., 1998).
8
 Judith A. Frank, “Preneed Funeral Plans: The Case for Uniformity,” The Elder Law Journal, Spring
(1996).




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              One of the major changes in the nature of death care industries is the
              increase in preneed contracts. Conning & Company estimated that the
              preneed funeral market, including preneed trust deposits and preneed
              insurance contracts, amounted to over $21 billion in 1996. Another change,
              according to FTC, is that cemeteries and casket retailers are now
              competing with traditional funeral providers, such as funeral homes, in the
              sales of caskets and other funeral goods and services. At the same time, an
              NFDA official said that there has been a movement away from
              independent family-owned funeral homes and a movement toward
              corporate or publicly owned homes. And according to reports in the
              media, there is a growing incidence of funeral homes and cemeteries being
              owned by the same few organizations.

              To meet our objectives, we did our work primarily at FTC in Washington,
Scope and     D.C., and Dallas, TX; and at state funeral and cemetery regulatory offices
Methodology   in five states—California, Florida, Maryland, New York, and Texas. As
              agreed with your offices, we focused our efforts on five states because of
              time and staffing constraints. We selected California, Florida, New York,
              and Texas because these states had the highest number of deaths of all 50
              states in 1998. We selected Maryland because it recently had established a
              state regulatory agency with oversight responsibility for all but certain
              religious nonprofit cemeteries and because of Maryland’s close proximity
              to our headquarters. In addition, we interviewed selected national
              representatives of industry trade and regulatory associations and
              consumer advocacy groups that deal with death care issues (see app. II for
              the organizations of the representatives and officials we spoke with). From
              each of these organizations we collected and reviewed available
              documents on such matters as issues affecting death care industries and
              consumers, sales and revenues of death care providers and average costs
              of death care goods and services, and federal and state regulatory issues.
              We also did a literature and Internet search for information on issues
              affecting death care industries and consumers and reviewed pertinent
              books, magazines, trade publications, and periodicals regarding consumer
              concerns with related death care industries. We did our work between July
              1998 and July 1999, in accordance with generally accepted government
              auditing standards. Appendix II discusses our objectives, scope, and
              methodology in more detail.

              We requested comments on a draft of this report from FTC’s Chairman.
              FTC’s comments are discussed near the end of this letter and are reprinted
              as appendix VI. We also contacted responsible officials from the
              regulatory bodies in the five states to verify the information on regulation,




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                         oversight, and consumer information in this report. We made technical
                         changes as appropriate.

                         Comprehensive information on consumer complaints that would indicate
Comprehensive            the overall nature and extent of problems that consumers experienced
Information on Death     with various aspects of death care industries was not available for a
Care Complaints Was      number of reasons. One reason is that consumers can complain to a
                         variety of organizations about death care issues and can complain to more
Not Available            than one organization about the same incident. Another reason is that no
                         single organization or combination of organizations collects and compiles
                         all complaints into one database. Also, each organization can have its own
                         way of compiling and maintaining complaint information, which would
                         confound efforts to compile and analyze aggregate complaint data.
                         Although the organizations we contacted were able to provide some data,
                         the number of complaints about death care was generally low compared to
                         complaints about other categories of consumer issues. Among the reasons
                         these organizations gave for the relatively low number of complaints was
                         the personal or emotional component of the death care situation.

Consumers Can Complain   Consumers can complain to a number of organizations about death care
                         issues—from FTC at the federal level, to funeral licensing boards at the
to a Number of           state level, to local consumer groups. Thus, it is difficult to determine the
Organizations            universe of organizations accepting complaints. In addition, consumers
                         can lodge the same complaint to more than one of these organizations. For
                         example, although consumers can lodge a complaint with FTC, intervening
                         in individual disputes is not something FTC does. Instead, FTC refers
                         consumers to other organizations for complaint resolution. Thus, FTC
                         officials said that a single complaint could be contained in the files of
                         multiple organizations. At the state level, consumers may complain to a
                         variety of organizations. For example, in Texas, a consumer may complain
                         to the state’s office of the Attorney General and also to regulators
                         responsible for any particular aspect of the death care industry, such as
                         the Texas Department of Banking, which is responsible for regulating
                         cemeteries and preneed funeral arrangements; or the Texas Funeral
                         Service Commission, which is responsible for regulating funeral providers.

                         Consumers also can register complaints with nongovernmental
                         organizations, both those that handle consumer complaints in general and
                         those that specialize in death care matters. One of the best-known general
                         consumer complaint organizations is the Better Business Bureau (BBB),
                         which accepts complaints and can intervene on behalf of consumers
                         through its local bureaus. One specialized organization that accepts
                         complaints only about death care is the Funeral Service Consumer



                         Page 8                                 GAO/GGD-99-156 Funeral-Related Industries
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                             Assistance Program (FSCAP), which provides consumer information,
                             problem-solving resources, and recommendations for action concerning
                             funeral services. According to FSCAP, it attempts to work with consumers
                             to resolve their concerns, but if it cannot, FSCAP officials refer them to the
                             appropriate state or local government agency. Another specialized
                             organization, the Cemetery Consumer Service Council (CCSC), assists
                             consumers in matters involving private cemeteries and memorial parks.
                             According to CCSC, consumer complaints it receives at its national office
                             are forwarded to the appropriate state CCSC representative for
                                                       9
                             investigation and action. CCSC reports that its state representatives
                             resolve many complaints by telephone and then notify the consumer. At
                             the local level, organizations such as the Syracuse Memorial Society will
                             respond to complaints about death care industries.

No Single Organization or    Regardless of how many organizations accept complaints, no single
                             organization or combination of organizations collects and compiles all
Combination of               complaints. Even if data from all of the organizations that accept
Organizations Collects and   complaints could be collected and compiled, because of differences in the
Compiles All Complaints      way complaints are recorded, there is no assurance that the aggregate
                             number of complaints would be accurate—that is, not overstated or
                             understated—or that the nature of complaints would be recorded. This is
                             because the various organizations and agencies that accept complaints
                             have their own approaches for compiling and maintaining complaint
                             information, often in dissimilar formats that do not lend themselves to
                             systematic compilation or analysis.

                             For example, in the selected states we visited, we found that most of the
                             states (California, Maryland, New York, and Texas) used a manual process,
                             rather than an automated one, for recording and filing death care
                             complaints. This manual process made it difficult to retrieve aggregate
                             data. For example, before 1998, in Maryland, complaints for cemeteries
                             were filed with complaints about other licensed businesses, such as beauty
                             shops. For the one state, Florida, that used an automated system for
                             complaints, detailed information about the nature of complaints was not
                             recorded.

                             In addition, not all organizations that accept complaints record
                             information on the nature of complaints, only whether a complaint was
                             lodged. For example, BBB headquarters, which compiles all BBB data on
                             consumer complaints, does not have information in its database on the

                             9
                              When no state CCSC exists, the national office is to work with the state cemetery board or similar
                             state government agency to assist the consumer.




                             Page 9                                               GAO/GGD-99-156 Funeral-Related Industries
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                              nature of those complaints, only information on the number of complaints
                              by industry category. The reason for this, according to a BBB official, is
                              that local bureaus of the BBB give headquarters statistics only on the
                              aggregate number of complaints. Only the bureaus have details on the
                              nature of those complaints. For that information, one would have to
                              contact each local BBB office, which may or may not have the information
                              available for a given year.

Available Data Indicate a     Although we were unable to identify the overall nature and extent of
                              consumers’ problems with various aspects of death care industries,
Range of Concerns, but        available complaint data indicated a range of consumers’ concerns. These
Most Organizations Stated     concerns ranged from cemeteries’ failure to mow or trim grass to funeral
There Were Few                homes’ efforts to dissuade customers from using caskets sold by parties
Complaints                    other than themselves. Although the range of complaints was broad, we
                              did not find large numbers of complaints at FTC, nongovernmental
                              organizations, and selected state agencies. Generally across all of the types
                              of organizations we contacted, most officials and representatives said that
                              they received few complaints about death care. Reasons provided for the
                              low number of complaints included the personal or emotional component
                              of the death care situation and the fact that consumers may have been
                              satisfied with the goods and services received.

                              For example, for fiscal year 1998, FTC’s internal consumer complaint
                              database, the Consumer Information System (CIS), contained 46,091
                              consumer complaints, 152 of which were on the subject of death care (0.33
                              percent). FTC staff assessed these complaints and determined that 58
                              involved potential violations of the Funeral Rule; the remaining 94
                              concerned other issues, such as rude service, contractual disputes, and
                              cemetery and preneed complaints. Our analysis of CIS data for specific
                              complaints consumers made to FTC in fiscal year 1998 includes the
                              following as examples of the broad range of complaints received:

                            • A California consumer used the Internet to complain that a preneed trust
                              for the entire cost of a funeral was purchased in 1977, yet additional fees of
                              $1,026 were added when the trust was executed in 1998.
                            • A Michigan consumer complained by mail that a funeral home’s fees were
                              combined rather than being displayed as separate line items as required by
                              FTC’s Funeral Rule.
                            • A New Jersey woman complained by telephone that she was a victim of
                              deceptive practices. The complainant reported that her mother was
                              embalmed without permission and that the funeral home claimed that
                              communicable disease laws prevented the use of a rental casket; her
                              inquiry to the state mortuary board revealed that there were no such laws.



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                                       • A California consumer complained by telephone that a funeral home was
                                         going to charge an additional $470 for the use of a casket not purchased
                                         directly from the home.
                                       • An Iowa consumer complained by mail that the casket delivered by a
                                         funeral home was not the model specified in the preneed agreement and
                                         that this funeral home regularly attempted to get customers to pay more
                                         for caskets.
                                         The BBB received 453 complaints about death care goods and services for
                                         calendar year 1997, the most recent year for which BBB headquarters had
                                         data. Table 2 shows the area of death care goods and services about which
                                         consumers complained and the number of complaints BBB received.

Table 2: Number of Complaints to BBB
regarding Death Care-Related Goods       Area of death care                                                          Number of complaints
and Services for Fiscal Year 1997        Funeral-related services                                                                    255
                                         Funeral directors                                                                           169
                                         Monuments/memorials                                                                           22
                                         Cremation services                                                                             4
                                         Cemeteries                                                                                     3
                                         Total                                                                                       453
                                         Note: Because we did not contact local BBBs and BBB headquarters has data in its database only on
                                         the number of death care complaints, we could not provide information on the nature of these
                                         complaints.
                                         Source: BBB data.


                                         When comparing 1997 BBB inquiry and complaint data for death care to
                                         such data for other types of businesses, there were about one-third fewer
                                         total complaints for death care than there were for barber and beauty
                                         shops (654). The data indicate that BBB received far fewer complaints
                                                                                                  10
                                         about death care than about automotive repair (15,551). Data were not
                                         available that would permit adjustment of these comparisons to a per-
                                         transaction basis. That is, although there were far fewer consumer
                                         transactions concerning death care industries than concerning barber and
                                         beauty shops or automotive repair shops, we cannot make a proportional
                                         assessment of the complaints.

                                         In the selected states, consumer complaint data from each state were not
                                         available for us to review. For example, the California Public Interest
                                         Research Group stated that the California Department of Consumer Affairs
                                         received 603 complaints about cemeteries and 384 complaints about

                                         10
                                            According to BBB data, complaints about automotive repairs comprised complaints about repairs to
                                         the following: body and paint; brakes, shocks, and mufflers; electrical service; rebuilt and exchanged
                                         engines; mechanicals (except transmissions); radiators and air conditioning; tires and retreads;
                                         transmissions; wheel alignments; and windshields or glass.




                                         Page 11                                              GAO/GGD-99-156 Funeral-Related Industries
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                            funeral homes for fiscal year 1995/1996. However, officials from both
                            organizations said the complaint data were not available to confirm those
                            numbers. In general, if they collected complaints, state-level organizations
                            were either (1) only able to provide statistics about them and not detailed
                            information on the nature or extent of complaints or (2) did not want to
                            furnish such information because of confidentiality concerns. In our
                            discussions with state agency officials and our review of available
                            documents provided, officials generally stated that they received few
                            complaints about death care.

Reasons Consumers May Not   Clearly consumers may not complain about the goods and services they
Complain                    receive from death care providers because they are satisfied. However,
                            there are also factors that might inhibit complaints. Officials from
                            organizations at all levels told us that consumers often did not report
                            problems because of the emotional component of death care or because
                            they did not want to dwell on negative occurrences about the death of a
                            loved one. One FTC official said that although he was not aware of any
                            study to support it, anecdotally, consumers tended not to complain
                            because of embarrassment or ignorance. In addition, a representative of a
                            consumer group in Texas said that consumers are sometimes reluctant to
                            complain because they know they have overpaid for death care services
                            and do not want to reveal their mistakes to others. A BBB representative
                            said that consumers might believe that death care is a personal matter
                            rather than a consumer matter. Therefore, consumers may not think to
                            complain the same way they would about a defective washing machine or
                            automobile. Similarly, AARP officials said that AARP members are
                            generally not inclined to report personal problems they have experienced
                            with death care and that for this reason complaints are not considered to
                            be a good measure of customer satisfaction. Further, users of preneed
                            arrangements may leave no one in a position to complain.

                            Also, consumers may not be aware of the FTC Funeral Rule and states’
                            laws relating to death care industries. Without knowing about the Funeral
                            Rule and the laws, consumers may not know they have the right to
                            complain. FTC officials said that they believe that consumers are not
                            comparison-shopping when they enter into funeral transactions and that
                            the lack of comparison-shopping could be related to the lack of consumer
                            information about FTC and its Funeral Rule. Thus, if consumers do not get
                            price lists from funeral homes or cemeteries when they are supposed to,
                            they probably do not know that they are entitled to such lists.

                            Finally, in a 1978 report on funeral industry practices, FTC stated that
                            consumer complaints generally do not provide a complete gauge of



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                                                        11
                        consumer problems. The report also stated that even at the time the
                        Funeral Rule was proposed and under consideration, the number of
                        consumer complaints filed against funeral directors was modest. Despite
                        the low number of complaints, FTC was able to promulgate the Funeral
                        Rule because, among other things, it believed that

                        “the emotional trauma of bereavement, the lack of information, and time pressures place
                        the consumer at an enormous disadvantage in making funeral arrangements. These
                        conditions mean that the funeral consumer lacks much of the information and freedom of
                        choice available in most other consumer transactions.”

                        Over the last 5 years, FTC has taken steps, including distributing
FTC’s Efforts to        compliance guides and working with the funeral home industry, to
Promote Compliance      promote compliance with the Funeral Rule. FTC took these steps because
Include Distributing    it was concerned about what it perceived as a relatively low level of
                        compliance. For the late 1980s, FTC reported that only about one-third (36
Guidelines, Test-       percent) of funeral providers complied with two key requirements of the
Shopping, and Working   Funeral Rule—giving consumers a general price list (GPL) and an itemized
With Funeral Home       final statement of goods and services selected. FTC based this compliance
Industry                rate on a study it did in 1987 during a review of the Funeral Rule. To
                        conduct its study, FTC questioned selected consumers who had arranged
                        funerals in the past 18 months about their experiences with the funeral
                        homes and what was done by the homes to comply with the Rule.

                        During the early years after the Funeral Rule became effective, FTC’s
                        enforcement of the Rule was complaint-based. FTC filed 41 civil penalty
                        cases from 1984 through 1994 that were based on investigations of
                                                                               12
                        complaints received about individual funeral providers. Because of the
                        perceived low compliance rate based on the 1987 study results it reported
                        and the small number of funeral providers FTC was able to investigate in
                        10 years, FTC adopted a new approach to try to ensure funeral provider
                        compliance.

                        According to FTC, it mailed more than 18,000 compliance guides to
                        “virtually every member” of the funeral home industry throughout the
                        nation in June 1994. Beginning in October 1994, FTC initiated a test-
                        shopping Rule enforcement approach, called “sweeps,” targeting funeral
                        homes in a particular region, state, or city. Under this approach, FTC sent
                        FTC staff, state investigators (such as those from offices of state attorneys

                        11
                             Funeral Industry Practices, FTC, Final Staff Report (Washington, D.C.: 1978).
                        12
                          FTC filed eight additional cases from 1995 through 1996 as a result of investigations performed
                        earlier.




                        Page 13                                                 GAO/GGD-99-156 Funeral-Related Industries
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general), or other volunteers (such as members of AARP) posing as
consumers to test-shop a funeral home--by simulating a funeral
transaction--and determine whether the funeral home was complying with
the Rule. An FTC official said that FTC did not investigate individual
complaints about a funeral home unless a complaint was made about a
home in an area that FTC had already targeted for test-shopping.

According to FTC, the sweeps methodology was initially designed to
quickly raise the overall compliance level with the Funeral Rule’s core
requirement: giving consumers an itemized GPL early in their meetings
with funeral home staff. FTC officials said they believed the sweeps
methodology was a more effective law enforcement tool than conducting
traditional investigations because FTC could leverage its resources to
make a bigger impact by test-shopping more funeral homes. Thus,
according to FTC officials, there was a greater likelihood that
noncompliance with the Rule would be detected.

In September 1995, NFDA proposed sponsoring a nonlitigation alternative
to civil penalty actions for Rule violations when test-shopping revealed
that funeral homes failed to provide the GPL and other price lists required
by the Rule (i.e., for caskets and outer burial containers). This proposal,
which was approved in modified form and implemented by FTC in 1996,
was called the Funeral Rule Offenders Program (FROP). Among other
things, violators of the Funeral Rule could have been offered the FROP
option. Those who chose to enroll in FROP would agree to make voluntary
payments to the U.S. Treasury equal to 0.8 percent of average annual gross
sales and participate in training organized by NFDA that was designed to
teach them how to comply with the Rule. According to FTC, the sweeps
and FROP were expected to deter funeral homes from violating the Rule
because (1) Rule violations were more likely to be detected and (2)
violations required payments that were substantial enough to be treated as
more than the mere cost of doing business as well as 5 years of compliance
training and monitoring.

Although sweeps focused solely on whether a funeral home provided a
GPL, by fiscal year 1997, the sweeps methodology had evolved so that
additional violations were considered when FTC was making the decision
about whether to offer FROP to a funeral home. In addition by fiscal year
1997, the official in each FTC region coordinating the test-shopping was to
review the GPL to ensure that it contained the disclosures and other
requirements. From October 1994 to September 1998, FTC test-shopped
958 funeral homes, or 4.3 percent of the 22,300 funeral homes in the United




Page 14                               GAO/GGD-99-156 Funeral-Related Industries
                           B-281214




                           States (see app. III for information on the number of sweeps and funeral
                           homes shopped by state and city).

                           In addition, FTC has taken steps to educate consumers and funeral
                           industry providers about the Funeral Rule. These steps include the
                           publication and distribution of Funeral Rule consumer brochures and
                           speaking engagements before consumer and industry groups.

                           FTC maintains that compliance among providers covered by the Rule has
Despite Its Efforts,       increased “substantially” over the years. However, FTC does not have a
FTC Cannot Measure         systematic or structured process for measuring funeral homes’ compliance
Industrywide               so that overall conclusions can be drawn about the effectiveness of its
                           enforcement efforts. FTC’s efforts to measure compliance have been
Compliance With            limited to narrowly scoped test-shopping sweeps in selected areas. These
Funeral Rule               sweeps were not representative of the universe of funeral providers and
                           have not covered all elements of the Funeral Rule. We analyzed the
                           available records of funeral homes FTC test-shopped in fiscal years 1997
                           and 1998. Our analysis indicated that among the limited sample of homes
                           visited, compliance indeed was high for the Funeral Rule’s core
                           requirement--giving consumers itemized price lists early in their meetings
                           with funeral home staff--and somewhat lower for other elements of the
                           Rule we reviewed. However, it appears that FTC did not always take
                           action on funeral homes that potentially violated the Rule. According to
                           FTC, one of the primary reasons it may not have taken action was because
                           it exercised prosecutorial discretion.

FTC Reported Substantial   FTC has reported a substantial increase in Funeral Rule compliance
                           among funeral providers from 1987, when FTC conducted its study, to
Increase in Funeral Rule   1998, the most recent year for which FTC provided compliance data.
Compliance but Has Not     According to FTC, since the inception of FROP, funeral home test-
Developed a Systematic     shopping has demonstrated that compliance among funeral homes has
Way for Determining        substantially increased. FTC press releases and documents that FTC
                           provided during our review indicate that test-shopping has demonstrated
Compliance                 that compliance with the Funeral Rule was as high as 90 percent during
                           fiscal years 1997 and 1998. However, although FTC has reported a
                           substantial improvement in Funeral Rule compliance, FTC’s approach for
                           measuring changes in the levels of compliance is somewhat problematic.
                           This is because (1) FTC’s current approach is not comparable to the
                           approach used to derive its baseline level of compliance, (2) compliance is
                           not measured in a systematic way using a statistically valid sample of the
                           universe of funeral providers, and (3) FTC’s reported compliance figures
                           deal solely with what FTC considered the core requirement and does not
                           measure compliance with other elements of the Rule.



                           Page 15                               GAO/GGD-99-156 Funeral-Related Industries
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Our review of available documents and our discussions with FTC officials
showed that FTC could not substantiate whether compliance has
increased since the inception of the Rule. The methodology of FTC’s 1987
                                                                  13
study, which FTC used to report a compliance rate of 36 percent, differs
from that of the post-1994 test-shopping, which it used to report a
compliance rate of 90 percent for fiscal year 1997. The two methodologies
are not comparable, and the elements of the Funeral Rule tested were not
the same. The methodology of the 1987 study involved interviewers
querying consumers who had arranged a funeral during the 18 months
preceding the inquiry about whether they were shown a GPL and provided
an itemized final statement of goods and services. It seems likely that at
least some respondents who may have been grieving and in emotional
distress would not remember whether or not they had been shown a GPL
                                                                    14
or provided an itemized statement of goods and services selected. The
Funeral Rule requires that consumers be given a GPL rather than shown
one. The more recent sweeps methodology assesses whether consumers
were given a GPL. Thus, the behavior being measured by FTC’s baseline
study and the more recent sweeps methodology is different. Further, the
more recent sweeps methodology does not assess whether consumers
received an itemized statement of goods and services.

Because of the differences in methodologies and measures used to reach
the reported compliance rates, any increase reported by FTC cannot be
substantiated. In fact, the sweeps methodology, while retaining a strong
focus on whether a GPL is given, has evolved in such a manner that it
would be difficult to confirm a pattern of change and compliance resulting
from sweeps from year to year.

Also, FTC’s selection of test-shopping sites cannot be considered
representative of funeral providers nationwide. According to FTC, the goal
of Funeral Rule sweeps is to increase funeral homes’ compliance with the
Funeral Rule and to deter noncompliance. We could not assess whether
these goals were being met, nor could FTC, given the test-shopping
samples and the scope of the sweeps. To undertake its sweeps, FTC did
not select a representative sample of funeral homes to test-shop. For

13
 When FTC makes comparisons between current compliance rates and past rates, it cites the 36
percent as the baseline, which combines results related to a consumer being shown the GPL as well as
receiving an itemized statement of goods and services. In relation to the GPL alone, the 1987 study
shows that 67.9 percent of respondents said that they were shown a GPL. Of those, 23.2 percent said
they received it at or near the beginning of the discussion with funeral home personnel—the point at
which the Funeral Rule requires the GPL be provided.
14
 According to FTC, this statement allows consumers to evaluate their selections and make any desired
changes. It is to be provided to the consumer at the end of the arrangement discussion.




Page 16                                            GAO/GGD-99-156 Funeral-Related Industries
                              B-281214




                              example, FTC did not test-shop funeral homes in New England in either
                              fiscal year 1997 or fiscal year 1998, the period for which we reviewed FTC
                              data. In addition, in fiscal year 1998, although FTC test-shopped funeral
                              homes in the West, Midwest, and Southwest, Florida was the only state in
                              which homes were test-shopped on the East Coast. According to FTC, the
                              factors it considers in selecting sites for conducting sweeps include
                              whether resources are available in FTC regional offices and whether
                              resources are available at the respective offices of state attorneys general
                              or AARP for partnering with FTC to carry out sweeps.

                              Although the Funeral Rule applies to all providers of funeral goods and
                              services, including certain cemeteries, FTC has test-shopped only funeral
                              homes. According to FTC officials, they have not identified the number of
                              cemeteries that are covered by the Funeral Rule or performed any sweeps
                                                    15
                              at cemeteries to date. Therefore, FTC has neither identified the universe
                              of providers of funeral goods and services that are to comply with the Rule
                              nor tested such providers’ compliance. Without knowing which providers
                              are subject to the Funeral Rule, FTC cannot select a representative sample
                              to determine an accurate compliance rate.

                              FTC’s reported compliance figures for recent years refer only to
                              compliance with what FTC considers to be the core Funeral Rule
                              requirement—giving consumers itemized price lists early in their meetings
                              with funeral home staff. Although sweeps in fiscal years 1997 and 1998
                              collected data concerning other elements, such as misrepresentations and
                              disclosures, FTC has confined its reporting of compliance to the core
                              requirement.

Our Analysis Indicated That   Our analysis of FTC records on 22 funeral home sweeps covering a total of
                              596 funeral homes for fiscal years 1997 and 1998 indicated that compliance
Compliance Was High           with certain elements of the Funeral Rule ranged from 79 to 99 percent,
Among Test-Shopped            depending on the element tested. However, it appears that FTC did not
Homes for GPLs, but FTC       always take action on funeral homes that potentially violated the Rule.
Did Not Always Act on         Available records did not always enable us to determine the reasons FTC
                              did or did not take action when potential Funeral Rule violations occurred.
Potential Rule Violations     However, FTC officials told us that the agency may not have taken action
                              for a number of reasons, including prosecutorial discretion, lack of staff
                              resources, and the evolving nature of the sweeps program.



                              15
                               According to FTC, some proportion of all cemeteries provides funeral goods and services but may still
                              be outside FTC’s jurisdiction as nonprofit organizations.




                              Page 17                                             GAO/GGD-99-156 Funeral-Related Industries
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                                       Our analysis of FTC records for funeral home sweeps for fiscal years 1997
                                       and 1998 showed that for the items we examined, compliance was high at
                                       the funeral homes shopped. For example, most of the homes FTC test-
                                       shopped provided a GPL at the appropriate time during the discussion of
                                       the funeral transaction, and very few homes engaged in verbal
                                       misrepresentations of the goods and services consumers were required to
                                       purchase. Table 3 shows the results of our review of FTC’s records
                                       regarding the provision of the GPL at the required time for fiscal years
                                       1997 and 1998.

Table 3: Results of FTC Funeral Home
Sweeps for FY 1997 and FY 1998—                                                   Fiscal year 1997                  Fiscal year 1998
Provision of GPL                       Results                                    Number         Percent            Number       Percent
                                                             a
                                       Total available files                          256          100%                 304        100%
                                       GPL provided on time                           221             86                277           91
                                       GPL provided late or not at all                 35             14                 27            9
                                       a
                                       During FY 1997 and 1998, FTC test-shopped 292 and 304 funeral homes, respectively. FTC did not
                                       have files available for 36 of the homes shopped for FY 1997. In addition, although FTC had files for
                                       256 and 304 of the homes that were shopped for FY 1997 and FY 1998, respectively, 33 of the FY
                                       1997 files and 58 of the FY 1998 files did not contain the GPLs that shoppers were to have obtained.
                                       According to FTC officials, these GPLs were not available because two regions did not keep them.
                                       Source: GAO analysis of FTC records.


                                       FTC records also are to document whether the funeral home made
                                       misrepresentations about whether embalming was required or certain
                                       items must be purchased, depending on the type of funeral. Our analysis of
                                       FTC’s records showed that most funeral homes did not make
                                       misrepresentations to the test-shopper. Table 4 shows the results of our
                                       review of FTC’s records concerning representations about embalming and
                                       items consumers were required to buy for fiscal years 1997 and 1998.

Table 4: Results of FTC Funeral Home
Sweeps for FY 1997 and FY 1998—                                                           Fiscal year 1997           Fiscal year 1998
Provision of Proper Representations    Results                                            Number      Percent        Number      Percent
                                       No misrepresentations occurred                         252        98%             300        99%
                                       Misrepresentations occurred                               4          2              4           1
                                       Source: GAO analysis of FTC records.
                                       We also examined FTC records to test whether funeral homes provided
                                       identifying information and disclosures on the GPL as required by the
                                       Funeral Rule. We reviewed the GPLs that FTC made available to us to
                                       determine whether funeral homes included (1) the requisite identifying
                                       information, such as the address and telephone number of the funeral
                                       home and the effective date of the GPL; and (2) selected disclosures
                                       required by the Rule. We selected three of the six disclosures that the
                                       Funeral Rule requires a funeral home to put on its GPL and other price



                                       Page 18                                             GAO/GGD-99-156 Funeral-Related Industries
                                       B-281214




                                       lists to focus on. These disclosures were a consumer’s right to purchase
                                       only goods and services desired; proper representation about whether
                                       embalming is required by the state or municipality; and, if the funeral
                                       home offers cremation, a consumer’s right to an alternative container to a
                                       casket for cremation. Our analysis showed that most funeral homes
                                       included identifying information and the selected disclosures. Table 5
                                       shows the extent to which the identifying information and the three
                                       selected disclosures were on the GPLs from sweeps conducted from fiscal
                                       years 1997 and 1998.

Table 5: Results of FTC Funeral Home
Sweeps for FY 1997 and FY 1998—                                                       Fiscal year 1997               Fiscal Year 1998
Identifying Information on GPL and     Results                                        Number        Percent          Number       Percent
Selected Disclosures                   Total GPLs examined                                223         100%                246       100%
                                       Identifying information on GPL                     199            89               235          96
                                       Identifying information not on GPL                  24            11                11           4
                                       Selected disclosure statements on
                                       GPL                                                 181               81            195             79
                                       Selected disclosure statements not
                                       on GPL                                               42               19              51            21
                                       Note: We tested for three of six disclosures that are required to be on the GPL—a consumer's right to
                                       purchase only goods and services desired; proper representation about whether embalming is
                                       required by the state or municipality; and, if the funeral home offers cremation, a consumer's right to
                                       an alternative container to a casket for cremation.
                                       Source: GAO analysis of FTC records.


It Appears That FTC Did                We also analyzed the extent to which FTC took action on funeral homes
                                       for which potential violations were identified during sweeps for fiscal
Not Always Act on Potential            years 1997 and 1998. We found that FTC did not always (1) take action
Violations Identified During           when potential violations occurred or (2) document the reasons for its
Funeral Home Sweeps or                 actions.
Document Reasons
                                       Once FTC staff have noted that a Funeral Rule violation has occurred, they
                                       can determine the appropriate response or action according to the severity
                                       of the violation. One possible enforcement action is a letter that notifies
                                       the funeral home that it is not in compliance with the Rule, including a
                                       warning that future noncompliance could result in a monetary penalty;
                                       another is a written offer for the funeral home to enter FROP as an
                                       alternative to a law enforcement proceeding; and a third is a full law
                                       enforcement proceeding based on the determination that the funeral home
                                       has committed gross violations. Our analysis showed that in some cases
                                       FTC did not use any of these options when test-shopping disclosed
                                       potential violations. Specifically, according to its records, in fiscal years
                                       1997 and 1998, FTC did not take action in more than half the instances in
                                       which funeral homes had one or more potential Funeral Rule violations.



                                       Page 19                                              GAO/GGD-99-156 Funeral-Related Industries
                                        B-281214




                                        Table 6 shows the extent to which FTC did or did not take enforcement
                                        action on such homes as noted during our review of FTC records on
                                        sweeps carried out in fiscal years 1997 and 1998.

Table 6: Results of FTC Funeral Home
Sweeps for FY 1997 and FY 1998—                                                        Fiscal year 1997               Fiscal year 1998
Extent of FTC Enforcement Actions       Homes with potential violations                Number       Percent            Number      Percent
Against Funeral Homes That Had One or    FTC took action                                    38          43%                  26        33%
More Potential Violations                FTC took no action                                 50            57                 54          68
                                        Total                                               88           100                 80         100
                                        Note 1: Potential violations comprise the following categories: GPL provided late or not at all; verbal
                                        misrepresentations; missing identifying information; and missing disclosure statements (i.e., a
                                        consumer's right to purchase only goods and services desired, proper representation about whether
                                        embalming was required by the state or municipality, and a consumer's right to an alternative
                                        container to a casket for cremation). More than one violation may have occurred at a single funeral
                                        home.
                                        Note 2: For fiscal year 1997, individual categories of potential violations for which FTC took no action
                                        ranged from 17 to 75 percent. For fiscal year 1998, the range was 33 to 82 percent. We are not
                                        identifying the percentages for individual categories in order to protect information FTC deemed to be
                                        confidential law enforcement information.
                                        Note 3: Percentages do not total 100 due to rounding.
                                        Source: GAO analysis of FTC records.


                                        Because other factors could influence FTC's decision to pursue a case, an
                                        indication in its records of a potential violation does not necessarily mean
                                        that FTC would be expected to take an enforcement action. However,
                                        available records did not always allow us to identify the specific reasons
                                        FTC did not act on potential violations of the Funeral Rule. When records
                                        indicated that FTC took action on a potential Rule violation, we were not
                                        always able to determine why. In addition, FTC’s letters to the funeral
                                        homes in violation did not always provide the reason FTC took action, a
                                        practice that is suggested in FTC guidance on responding to a violation.

                                        FTC headquarters officials told us that they were uncertain as to the exact
                                        reasons why regional staff did not act on individual potential violations.
                                        However, FTC’s Funeral Rule Coordinator and the Assistant Director for
                                        Marketing Practices told us that there are numerous reasons FTC would
                                        not take action against a funeral home, even though the documentation on
                                        the home may indicate that a violation occurred. For instance, the Funeral
                                        Rule Coordinator said that the FTC official reviewing the test-shopping
                                        record may have asked further questions of the test-shopper and
                                        determined that the Rule had not really been violated. She and the
                                        Assistant Director stated that they were uncertain why that information
                                        was not documented.




                                        Page 20                                              GAO/GGD-99-156 Funeral-Related Industries
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FTC officials also told us that another reason an action may not have been
taken is that FTC staff have discretion as to whether they should pursue a
potential violation on the basis of the likelihood that FTC staff can make a
solid case. In comments on a draft of this report, FTC’s Chairman also
stated that FTC can exercise prosecutorial discretion when deciding to
take action on any individual case. During our review, FTC officials
pointed out that FTC policy is to pursue full enforcement actions only if
there is sufficient evidence to file the matter in federal court. These
officials also told us that they did not believe that some types of violations,
particularly those for missing identifying information, warranted any type
of action because, in isolation, they were not considered substantive.
Nonetheless, the officials acknowledged that such violations as those
involving missing disclosures would probably warrant a compliance letter,
and they could not explain why such a letter had not been sent in certain
cases. They acknowledged that a more consistent procedure for use of
compliance letters was needed.

FTC headquarters officials also told us that FTC staff may not have taken
action or documented the reasons because the sweeps program is still
evolving. They said that during the early sweeps, such as those conducted
during 1995, FTC sweeps focused on the key requirement of the Rule—
having a GPL and giving it at the right time. By fiscal year 1996, FTC staff
also started to examine whether two other lists—the outer burial container
list and the casket price list—were provided to test-shoppers. And by fiscal
year 1997, test-shoppers were instructed to also gather information on
misrepresentations about embalming and required purchases during the
funeral consultation. Also in that year, FTC regional offices were
instructed to review GPLs to ensure that the required disclosures were
included. However, given the sweeps methodology, FTC cannot determine
whether funeral homes were complying with certain elements of the
Funeral Rule, such as accuracy of prices and the provision of a statement
of goods and services selected.

In fact, FTC’s guidance for conducting sweeps instructs FTC regional staff
to consult with the Funeral Rule Coordinator in the Division of Marketing
Practices at FTC headquarters in making determinations about such things
as a GPL being in compliance with the Rule or the timing of the
presentation of the GPL. According to the guidance, FTC’s Funeral Rule
Coordinator is to maintain records regarding these determinations so that
they may be instructive in subsequent sweeps and cases. The guidance
also points out that advising the Funeral Rule Coordinator about actions,
such as sending a compliance letter, “will allow the development of a
consistent response to these violations.”



Page 21                                 GAO/GGD-99-156 Funeral-Related Industries
                         B-281214




                         FTC headquarters officials acknowledged that they had not done an
                         analysis of the documentation on sweeps as we had. They said that when
                         regions are doing sweeps, staff from the Division of Marketing Practices
                         hold conference calls with regional staff to discuss issues that arise during
                         the sweeps. FTC also provided documentation that indicated such
                         communication between headquarters and regions occurred. However,
                         FTC headquarters officials said that headquarters staff viewed Funeral
                         Rule sweeps as primarily a regional program and assumed that regional
                         offices would be consistent in their implementation of the program based
                         on the training provided. FTC was unable to provide evidence of historical,
                         systematic documentation of sweeps decisionmaking and results. The lack
                         of such documentation could indicate weak internal controls over the
                         Funeral Rule program. Among other things, such controls are to help
                         ensure that the objectives of the program are achieved.

                         The five selected states differed in their approaches to protecting
Selected States Varied   consumers who deal with funeral homes and cemeteries and make
in Their Approaches to   preneed arrangements. Differences were most notable concerning the (1)
Protecting Consumers     regulatory structure of the five states and (2) requirements that these
                         states placed on death care providers. However, the five states also had
Who Arrange Death        similarities in their approaches to protecting consumers who engage in
Care                     death care transactions. For example, the five states all had licensing and
                         minimum education requirements that funeral providers were required to
                         meet. Each of the states also had laws and regulations that required
                         funeral providers to disclose price and other information to consumers
                         similar to the requirements of FTC’s Funeral Rule. Appendix IV contains
                         additional information on the selected states’ laws and regulations and the
                         oversight of funeral homes and cemeteries.

Funeral Homes            The selected states had various approaches for regulating funeral homes.
                         For example, in three of the states (Florida, Maryland, and Texas)
                         regulatory agencies with responsibilities for funeral homes were governed
                         by a board or a commission made up of industry practitioners and
                         consumer representatives. In the other two states (California and New
                         York), the industry was regulated by a government agency but not by a
                                                   16
                         board or a commission. Another difference among the states was their
                         approach to inspections of funeral homes. Two of the states (Florida and
                         Maryland) required that all funeral homes within the state be inspected on
                         an annual basis. In Maryland, for example, inspections included reviews of
                         required price lists, a completed funeral services contract, a preneed
                         contract form, and funeral home facilities. Texas law required biennial
                         16
                              New York’s Bureau of Funeral Directing, which regulates funeral homes, has an advisory board.




                         Page 22                                                GAO/GGD-99-156 Funeral-Related Industries
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                                                        17
             inspections of funeral homes. California and New York did not have an
             annual inspection requirement and took a more complaint-driven approach
             to conducting inspections.

             The five states also had some key differences among their requirements for
             funeral providers that affected consumers. For example, two of the states
             (California and Texas) required that funeral directors make available to
             consumers a state-produced brochure answering commonly asked
             questions concerning death care, including information on where to send
             complaints. Maryland and New York have produced consumer brochures
             but had no requirement that funeral homes make them available to
             consumers. Florida did not produce a brochure.

             Similarities also existed among the five states’ regulatory approaches. For
             example, the five states all had licensing requirements for funeral directors
             and embalmers and minimum education requirements that these funeral
             providers were required to meet. In addition to FTC’s Funeral Rule, each
             of the states had state requirements similar to those of the Rule. For
             example, each state (1) required that funeral directors provide an itemized
             price list to consumers; and (2) prohibited funeral directors from making
             misrepresentations, including falsely representing that embalming is
             required by law.

Cemeteries   The five states also differed in their approaches to regulation and oversight
             of those cemeteries within their jurisdictions, such as nonreligious, for-
             profit cemeteries (see app. IV for details on cemeteries covered by the
             selected states). For example, in Maryland the office with regulatory
             responsibility for cemeteries was administered by a single individual with
             the authority to perform the numerous functions of the office. In New
             York, cemeteries were regulated by a board consisting of the Secretary of
             State, the Attorney General, and the Commissioner of Health. The selected
             states also differed in terms of the requirements and restrictions placed on
             cemeteries, including restrictions on what goods and services cemeteries
             could sell. In addition, New York was unique among the five states in that
             it required that cemeteries under its jurisdiction be operated on a not-for-
             profit basis.

             In each of the selected states, the state regulatory agencies responsible for
             cemeteries had jurisdiction over only a fraction of the total number of
             cemeteries in the state because certain types of cemeteries, such as
             religious and municipal cemeteries, were exempt from state regulation.
             17
                  As of September 1, 1999, Texas law requires that inspections be conducted annually.




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                       Oversight of cemeteries is conducted primarily at the state or local level.
                       FTC’s Funeral Rule applies only to certain cemeteries that sell both funeral
                       goods and services.

Preneed Arrangements   The selected states also differed in their treatment of preplanned, prepaid
                       funeral transactions, which are commonly called preneed arrangements
                       and are regulated by state law. Although each of the five states had
                       promulgated some sort of regulation of preneed contracts, the laws varied
                       widely. Differences in the states’ statutes included the percentage of
                       preneed sales proceeds that each state required to be placed in trust and
                       limitations on where proceeds from preneed contracts may be invested. In
                       addition, two of the five states (Florida and Texas) required sellers of
                       preneed contracts to pay a fee to a state consumer protection fund for
                       every preneed contract they sold. The purpose of such a fund is to
                       compensate consumers for situations in which sellers of preneed contracts
                       are later unable to perform the terms of the contract. Appendix V contains
                       additional information on preneed arrangements in general and in the
                       selected states.

                       Our review found that although some data on problems that consumers
Conclusions            experienced with various aspects of death care were available,
                       comprehensive information on consumer complaints that would indicate
                       the overall nature and extent of such problems was not. The organizations
                       we contacted generally stated that the number of complaints about death
                       care was low compared to other consumer issues. Among the reasons
                       these organizations gave for the relatively low number of complaints
                       included the personal or emotional nature of the death care situation.

                       State and federal governments have laws and regulations to protect
                       consumers in arranging death care transactions. For the five states we
                       focused on, we found differences in their regulatory structures for death
                       care providers and in their requirements for those providers; we also found
                       similarities, including licensing and minimum education requirements for
                       funeral providers. In addition, all five states had laws and regulations that
                       required funeral providers to disclose price and other information to
                       consumers, similar to the requirements of FTC’s Funeral Rule.

                       At the federal level, FTC’s Funeral Rule was designed to protect
                       consumers when arranging death care transactions. FTC has taken steps,
                       including distributing compliance guides to funeral homes and working
                       with the funeral home industry, intended to ensure compliance with the
                       Funeral Rule. However, FTC cannot, with any reasonable assurance,
                       report that there is high nationwide compliance with the Rule or a



                       Page 24                                GAO/GGD-99-156 Funeral-Related Industries
                     B-281214




                     substantial increase in compliance compared to a decade ago, because
                     FTC does not have a systematic or structured process for measuring
                     funeral homes’ compliance so that overall conclusions can be drawn about
                     their actual compliance with the Rule and the effectiveness of FTC’s
                     enforcement strategies. FTC’s efforts to measure compliance have been
                     limited to narrowly scoped test-shopping sweeps in selected areas—that
                     is, they are not representative of the universe of funeral providers and do
                     not cover all elements of the Rule. We did not do an analysis on the
                     resources needed for FTC to establish a nationwide compliance rate.
                     However, a more strategic selection of sites and a more systematic
                     approach to conducting sweeps and analyzing results could provide more
                     convincing evidence of the overall level of compliance with the Funeral
                     Rule.

                     Although our work indicated that indeed compliance was high among
                     funeral homes that FTC test-shopped in fiscal years 1997 and 1998 for the
                     three elements of the Funeral Rule we reviewed, it appears that FTC did
                     not always take enforcement action against funeral homes that potentially
                     violated the Rule and did not always document the reasons. When records
                     indicated that FTC took action on a potential Rule violation, we were not
                     always able to determine why. In addition, FTC’s letters to the funeral
                     homes in violation did not always provide the reason FTC took action, a
                     practice that is suggested in FTC guidance on responding to a violation.

                     Just as any agency’s management is responsible for ensuring its agency’s
                     compliance with laws and regulations, it also is responsible for
                     establishing effective internal controls. In the case of the Funeral Rule,
                     FTC promulgated the Rule and is responsible for establishing effective
                     internal controls for ensuring consistency in its (1) determinations of
                     whether violations of the Rule’s requirements occurred and (2)
                     documentation on the specific reasons FTC did or did not act on such
                     violations. Although FTC had guidance on how determinations regarding
                     violations were to be made, the guidance was not followed consistently, as
                     evidenced by the lack of documentation explaining whether and why FTC
                     took action for some potential violations and not others.

                     To help assess the overall effectiveness of FTC’s Funeral Rule
Recommendations to   enforcement strategy, we recommend that the Chairman of FTC (1) review
the FTC Chairman     possible approaches to determine the most cost-effective means for FTC
                     to conduct sweeps that would result in both a more convincing sample of
                     funeral providers and a broader analysis of the various requirements of the
                     Funeral Rule and (2) develop and implement a plan for carrying out such
                     an approach in a systematic manner.



                     Page 25                               GAO/GGD-99-156 Funeral-Related Industries
                      B-281214




                      To ensure that FTC can consistently (1) determine whether violations of
                      the Rule’s requirements occurred and (2) document the specific reasons
                      FTC did or did not act on such violations, we recommend that the
                      Chairman of FTC train FTC staff on the specific standards needed for a
                      consistent and acceptable level of documentation.

                      We received written comments on a draft of this report from the FTC
Agency Comments and   Commissioners in a letter dated August 25, 1999 (see app. VI). These
Our Evaluation        comments are contained in a letter signed by the Chairman of FTC, by the
                      direction of the Commission, and in a dissenting statement by one of FTC's
                      Commissioners. According to the Chairman's letter, the Commission
                      voted 3 to 1 to issue this response. The dissenting statement reflected the
                      views of the one commissioner who voted against submitting the response.

                      FTC did not specifically comment on our recommendations. However, the
                      letter signed by the Chairman discussed three points under separate
                      headings: (1) "Test Methodology" for measuring funeral providers'
                      compliance with FTC's Funeral Rule, (2) enforcement practices, and (3)
                      other comments. Under the first heading of test methodology, the
                      Chairman’s letter stated that the report "incorrectly suggests that the FTC
                      cannot document a nationwide increase in compliance with the core
                      requirement of the Funeral Rule and that [FTC has] tested compliance in
                      'narrowly scoped test-shopping sweeps.'" As we have stated in the report,
                      we believe that because of the differences among the methodologies and
                      the elements FTC used in the 1980s and in the 1990s to measure
                      compliance with the Funeral Rule, the assessed methodologies do not
                      yield results that are comparable. Therefore, any increase in compliance
                      reported by FTC cannot be substantiated. Also, although FTC has test-
                      shopped 958 funeral homes in its 32 sweeps of 22 states and the District of
                                                      18
                      Columbia over a 4-year period, FTC selected these sites and the homes to
                      be shopped on the basis of the availability of resources from FTC regional
                      offices and offices of partnering organizations, not as an appropriate
                      sample from which to assess compliance. Indeed, FTC has not identified
                      the universe of providers of funeral goods and services that are to comply
                      with the Rule. Thus, we do not believe that FTC is positioned to draw
                      overall conclusions about actual compliance with the Rule. As we
                      recommended, FTC would benefit from an approach that used a more
                      convincing sample of funeral providers for conducting sweeps and a
                      broader analysis of Funeral Rule requirements.

                      18
                         The letter signed by the Chairman cites table III.1 in Appendix III and points out that “the Commission
                      has conducted 32 sweeps in 24 states.” In fact, table III.I and FTC’s source document lists 22 states and
                      the District of Columbia.




                      Page 26                                               GAO/GGD-99-156 Funeral-Related Industries
B-281214




Under the second heading of enforcement practices, the Chairman’s letter
stated that the report correctly notes that FTC has "not pursued every
potential violation of each provision of the Rule." The Chairman’s letter
continues to state that "merely focusing on quantity of prosecutions does
not present an accurate picture of the impact of the Commission's
activities." We do not find fault with the statement in the Chairman’s letter
that "the decision to take action in any individual case is the result of the
exercise of prosecutorial discretion, which is no different from the sort of
decisionmaking and resource allocation in which all law enforcement
agencies must engage." However, in FTC's case, it did not take action on
more than half of all funeral homes identified in sweeps for fiscal years
1997 and 1998 as having potential Funeral Rule violations. As the one
dissenting Commissioner pointed out in his statement, the proportion of all
the potential violations for which FTC did not act is worthy of review to
“confirm that they are not likely to cause substantial consumer injury.”
Because available records did not always allow us to identify the specific
reasons FTC did or did not act on potential violations of the Funeral Rule,
we could not determine the impact of such inaction on consumers.

Finally under the third heading of other comments, the Chairman’s letter
stated that "we believe that GAO fairly points out that some improvements
are needed in the Funeral Rule program's record keeping." According to
the Chairman’s letter, FTC officials have said that a review of FTC staff’s
procedures has begun. We applaud FTC’s efforts to review its procedures
and believe that FTC’s acknowledgement of needed improvements to the
program’s recordkeeping is an appropriate first step in establishing
effective internal controls over the Funeral Rule program. By taking this
step and training staff as we recommended, FTC should be better
positioned to ensure consistency in its (1) determinations of whether
violations of the Rule’s requirements occurred and (2) documentation of
the specific reasons it did or did not act on such violations. Furthermore,
we believe that these efforts may better position FTC to more effectively
manage the Funeral Rule program and systematically analyze the extent to
which certain Rule violations have the potential for substantial consumer
injury.

In his dissenting statement, the one Commissioner who voted against
submitting the response agreed with many of the points made by his
colleagues, including that the decision to not take action on individual
cases appears to have resulted from the exercise of prosecutorial
discretion. However, he stated he did not believe the response
appropriately addressed the concerns raised in our draft report. Among
other things, he said that (1) FTC should take great care to avoid stating or



Page 27                                GAO/GGD-99-156 Funeral-Related Industries
B-281214




implying that it is in a position to conclude that a statistically valid
nationwide projection of compliance can be made, and (2) a careful
analysis of the concerns raised in the draft would have better served the
public interest to confirm his suspicions that FTC does not have any
substantial enforcement problems.

As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from the
date of this letter. At that time, we will send copies of this report to the
Honorable Robert Pitofsky, Chairman of the Federal Trade Commission;
Judd Gregg, Chairman, and Ernest F. Hollings, Ranking Minority Member,
of the Subcommittee on Commerce, Justice, State, the Judiciary, and
Related Agencies, Senate Appropriations Committee; John Ashcroft,
Chairman, and Richard H. Bryan, Ranking Minority Member,
Subcommittee on Consumer Affairs, Foreign Commerce and Tourism,
Senate Committee on Science, Commerce, and Transportation; Harold
Rogers, Chairman, and Jose E. Serrano, Ranking Minority Member, of the
Subcommittee on Commerce, Justice, State, the Judiciary, and Related
Agencies of the House Appropriations Committee; and W.J. Tauzin,
Chairman, and Edward J. Markey, Ranking Minority Member,
Subcommittee on Telecommunications, Trade and Consumer Protection,
House Committee on Commerce. We will also make copies available to
other interested parties upon request.

Please contact me or John F. Mortin on (202) 512-8676 if you or your staff
have questions. Major contributors to this report are acknowledged in
appendix VII.




Laurie E. Ekstrand
Associate Director
Federal Management
and Workforce Issues




Page 28                                 GAO/GGD-99-156 Funeral-Related Industries
Page 29   GAO/GGD-99-156 Funeral-Related Industries
Contents



Letter                                                                                              1


Appendix I                                                                                         34

FTC's Funeral Rule
Appendix II                                                                                        40

Objectives, Scope, and
Methodology
Appendix III                                                                                       46

FTC Funeral Home
Sweeps
Appendix IV                                                                                        47
                         Funeral Homes                                                             47
Information on           Cemeteries                                                                52
Funeral Homes and
Cemeteries in Selected
States
Appendix V                                                                                         59
                         Preneed Arrangements                                                      59
Information on           Regulation of Preneed Arrangements in the Five Selected                   60
Preneed Arrangements       States

in the Selected States
Appendix VI                                                                                        67

Agency Comments
Appendix VII                                                                                       72

GAO Contacts and
Staff
Acknowledgments


                         Page 30                             GAO/GGD-99-156 Funeral-Related Industries
         Contents




Tables   Table 1: Average Cost of Most Commonly Selected                             4
           Funeral Items, as of January 1997
         Table 2: Number of Complaints to BBB regarding Death                       11
           Care-Related Goods and Services for Fiscal Year 1997
         Table 3: Results of FTC Funeral Home Sweeps for FY                         18
           1997 and FY 1998—Provision of GPL
         Table 4: Results of FTC Funeral Home Sweeps for FY                         18
           1997 and FY 1998—Provision of Proper
           Representations
         Table 5: Results of FTC Funeral Home Sweeps for FY                         19
           1997 and FY 1998—Identifying Information on GPL and
           Selected Disclosures
         Table 6: Results of FTC Funeral Home Sweeps for FY                         20
           1997 and FY 1998—Extent of FTC Enforcement
           Actions Against Funeral Homes That Had One or More
           Potential Violations
         Table III.1: Number and Location of Funeral Homes FTC                      46
           Test-Shopped by Date of Sweep
         Table IV.1: California Funeral Homes—Regulation,                           47
           Oversight, and Consumer Information
         Table IV.2: Florida Funeral Homes—Regulation,                              48
           Oversight, and Consumer Information
         Table IV.3: Maryland Funeral Homes—Regulation,                             49
           Oversight, and Consumer Information
         Table IV.4: New York Funeral Homes—Regulation,                             50
           Oversight, and Consumer Information
         Table IV.5: Texas Funeral Homes—Regulation, Oversight,                     51
           and Consumer Information
         Table IV.6: California Cemeteries—Regulation, Oversight,                   52
           and Consumer Information
         Table IV.7: Florida Cemeteries—Regulation, Oversight,                      54
           and Consumer Information
         Table IV.8: Maryland Cemeteries—Regulation, Oversight,                     55
           and Consumer Information
         Table IV.9: New York Cemeteries—Regulation, Oversight,                     56
           and Consumer Information
         Table IV.10: Texas Cemeteries—Regulation, Oversight,                       57
           and Consumer Information
         Table V.1: California Regulation of Preneed                                60
           Arrangements
         Table V.2: Florida Regulation of Preneed Arrangements                      62
         Table V.3: Maryland Regulation of Preneed Arrangements                     63




         Page 31                              GAO/GGD-99-156 Funeral-Related Industries
          Contents




          Table V.4: New York Regulation of Preneed                                      64
            Arrangements
          Table V.5: Texas Regulation of Preneed Arrangements                            65


Figures   Figure 1: Percent Change in CPI From Previous Year for                          5
            Funeral Expenses Compared With CPI for All Items
            From 1990 Through 1998




          Abbreviations

          BBB           Better Business Bureau
          BLS           Bureau of Labor Statistics
          CCSC          Cemetery Consumer Service Council
          CFP           Cemetery and Funeral Programs
          CIS           Consumer Information System
          CPI           Consumer Price Index
          DCI           data collection instrument
          DLLR          Department of Labor, Licensing, and Regulation
          FAMSA         Funeral and Memorial Society of America
          FDIC          Federal Deposit Insurance Corporation
          FROP          Funeral Rule Offenders Program
          FSCAP         Funeral Service Consumer Assistance Program
          FTC           Federal Trade Commission
          GPL           general price list
          NFDA          National Funeral Directors Association




          Page 32                                  GAO/GGD-99-156 Funeral-Related Industries
Page 33   GAO/GGD-99-156 Funeral-Related Industries
Appendix I

FTC's Funeral Rule


Source: COMPLYING
WITH THE FUNERAL
RULE: A Business Guide
Produced by the Federal
Trade Commission, August
1995; pp. 45-50.




                           Page 34   GAO/GGD-99-156 Funeral-Related Industries
Appendix I
FTC's Funeral Rule




Page 35              GAO/GGD-99-156 Funeral-Related Industries
Appendix I
FTC's Funeral Rule




Page 36              GAO/GGD-99-156 Funeral-Related Industries
Appendix I
FTC's Funeral Rule




Page 37              GAO/GGD-99-156 Funeral-Related Industries
Appendix I
FTC's Funeral Rule




Page 38              GAO/GGD-99-156 Funeral-Related Industries
Appendix I
FTC's Funeral Rule




Page 39              GAO/GGD-99-156 Funeral-Related Industries
Appendix II

Objectives, Scope, and Methodology


              Our objectives were to (1) describe the availability of information on the
              nature and extent of consumer complaints about the death care industry,
              (2) describe and assess the Federal Trade Commission’s (FTC) efforts to
              ensure compliance with its Funeral Rule, and (3) provide information on
              selected state governments’ roles in protecting consumers in their
              transactions with the death care industry. We did our work primarily at
              FTC in Washington, D.C., and Dallas, TX; and at state funeral and cemetery
              regulatory offices in five states—California, Florida, Maryland, New York,
              and Texas. We selected California, Florida, New York, and Texas because
              these states had the highest number of deaths of all 50 states in 1998. We
              selected Maryland because it had recently established a state regulatory
              agency with oversight responsibility for all but certain religious nonprofit
              cemeteries and because of Maryland’s close proximity to our headquarters
              office. As agreed with your staff, we focused our efforts on these five
              states because of time and staffing constraints. Once we selected the
              states, we concentrated our efforts at the agencies that we identified as
              those most likely to have responsibility for consumer-related death care
              matters in their respective states.

              In addition, we interviewed representatives of selected national, state, and
              local industry trade and regulatory associations and consumer advocacy
              groups that deal with death care issues. Although we recognize that there
              are numerous organizations that are involved in one or many components
              of death care, we judgmentally selected the organizations to contact
              because of time constraints, staff availability, and travel costs. Although
              regulatory bodies may exist in each of the selected states for monuments,
              crematories, and other funeral industries, we focused our efforts on
              regulatory bodies for funeral homes, cemeteries, and preneed
              arrangements. In consideration of these factors, in addition to the state
              agencies responsible for death care oversight and regulation, we met with
              representatives of various industry and consumer groups. At the national
              level, we contacted the following organizations: AARP; the Better Business
              Bureau (BBB); the Cremation Association of North America; the Funeral
              and Memorial Society of America (FAMSA); the International Cemetery
              and Funeral Association; the National Alliance of Life Insurance
              Companies; the National Association of Attorneys General; the National
              Association of Insurance Commissioners; the National Funeral Directors
              Association (NFDA); the North American Cemetery Regulators
              Association; the Insurance and Research Publications Division of Conning
              & Company; and the editor of Preneed Perspective.




              Page 40                                GAO/GGD-99-156 Funeral-Related Industries
Appendix II
Objectives, Scope, and Methodology




At the state level, we contacted the following organizations by state:

• California—State Offices: Office of the Attorney General, California
  Department of Justice; Cemetery and Funeral Programs, California
  Department of Consumer Affairs; and California Department of
  Insurance.
  Consumer Groups and Industry Representatives: California Public
  Interest Research Group; Forest Lawn Memorial Parks and Mortuary;
  Association Resource Center, a management company for the California
  Funeral Directors Association.

• Florida—State Offices: Bureau of Life and Health Insurer Solvency and
  Market Conduct Review, Division of Insurer Services, Florida
  Department of Insurance; Bureau of Funeral and Cemetery Services,
  Division of Finance, Office of the Comptroller; Board of Funeral
  Directors and Embalmers, Division of Professions, Florida Department
  of Business and Professional Regulation; Office of the Attorney General.
  Consumer Groups and Industry Representatives: Florida Funeral and
  Memorial Society; Florida Funeral Directors Association.

• Maryland—State Offices: State Board of Morticians, Department of
  Health & Mental Hygiene; Office of Cemetery Oversight, Division of
  Occupational and Professional Licensing, Department of Labor,
  Licensing, and Regulation; Office of the Attorney General; Life and
  Health Section, Maryland Insurance Administration.
  Consumer Groups and Industry Representatives: Memorial Society of
  Maryland; Maryland State Funeral Directors Association; Loudon Park
  Funeral Home and Cemetery.

• New York—State Offices: Division of Cemeteries, State of New York
  Department of State; Bureau of Funeral Directing, State of New York
  Department of Health; Office of the Attorney General.
  Consumer Groups and Industry Representatives: Memorial Society of
  Hudson-Mohawk Region, the Rochester Memorial Society, and the
  Syracuse Memorial Society; L. F. Sloane Consulting Group (a cemetery
  representative); New York Funeral Directors Association.

• Texas—State Offices: Texas Funeral Service Commission; Special
  Audits Division, Texas Department of Banking; Texas Department of
  Insurance; Office of the Attorney General.
  Consumer Groups and Industry Representatives: Austin Memorial and
  Burial Information Society; Texas Funeral Directors Association;




Page 41                                GAO/GGD-99-156 Funeral-Related Industries
Appendix II
Objectives, Scope, and Methodology




  Greenwood Funeral Homes and Cemetery.

At each of the nongovernmental organizations we contacted, we spoke
with officials regarding death care issues and collected and reviewed
available documents and studies on such things as industry sales and
revenues, consumer issues associated with the sales of death care goods
and services, and consumer-related federal and state regulatory issues. We
also did a literature and Internet search for information on issues affecting
death care industries and consumers and reviewed pertinent books,
magazines, trade publications, and periodicals regarding consumer
concerns with those industries.

To describe the availability of information on the nature and extent of
consumer complaints about the death care industry, we met with FTC
officials; representatives of the aforementioned national trade, regulatory,
and consumer advocacy organizations; and state regulatory officials in the
five states. At FTC, we reviewed data from FTC’s Consumer Information
System (CIS), which became fully operational in the fall of 1997 and is
FTC’s database of consumer complaints, inquiries, and requests for
information. The CIS database contained a total of about 200 categories
within which consumer complaints were included. The categories in CIS
covered a wide range of topics, such as (1) creditor debt collection; (2)
home repair; (3) investments; (4) health; and (5) leases for various
products and services, such as automobiles and furniture. We identified
one of those categories—funeral services—as the one that could most
likely provide us information on consumers’ complaints about death care
issues. FTC provided data from CIS showing 834 records for fiscal year
1998. We then sorted the records into individual categories and analyzed
the data to determine the extent and nature of complaints received by
FTC. In addition, at the other organizations we contacted, we discussed
with officials the extent to which they may have collected and maintained
readily available data on consumers’ problems concerning death care
issues and the types and extent of complaints they received. We also
discussed with them the various reasons why such information was not
readily available.

To describe and assess FTC’s efforts to ensure compliance with its Funeral
Rule, we met with FTC officials to discuss regulatory practices,
enforcement, and oversight of death care industries. We also obtained and
reviewed pertinent laws, regulations, and FTC documents pertaining to the
history of FTC’s efforts to promulgate the Rule and enforce compliance. In
addition, we reviewed FTC’s manual for initiating, implementing, and
concluding Funeral Rule test-shopping, sometimes called Funeral Rule



Page 42                                GAO/GGD-99-156 Funeral-Related Industries
Appendix II
Objectives, Scope, and Methodology




sweeps; and we analyzed FTC records on funeral provider compliance
with the Funeral Rule for fiscal years 1997 and 1998. Specifically, for these
fiscal years, we requested the universe of records (596) that documented
the results of FTC’s Funeral Rule test-shopping efforts at funeral homes in
various locations across the country. FTC could not provide 36 files
because the regional office performing the sweep did not retain those
records when a test-shopper did not find a problem.

For each of the 560 available files, we used a standardized data collection
instrument (DCI) that was designed to capture such information as
whether the shopper received a general price list (GPL) or whether
specific misrepresentations were made about matters like embalming. We
also used the DCI to compile data from the available GPLs provided by
funeral homes during the test-shopping. FTC could provide price lists for
only 469 test-shops. FTC officials could not fully explain why the GPLs
were missing from the records but stated several possible reasons.
According to FTC officials, in one regional office, an FTC official used the
GPLs from previous test-shopping experiences to train future test-
shoppers. Also, an FTC official speculated that perhaps other price lists
were missing because the GPL was not received from the test-shopper, or
FTC lost the GPL from the records. We reviewed the available GPLs to
determine whether identifying information and disclosures contained on
them was required by the Funeral Rule. The identifying information we
looked for was the name, address, and telephone number of the funeral
home; the caption “General Price List”; and the effective date of the GPL.
We also reviewed the GPL for three required disclosure statements:


• “The goods and services shown below are those we can provide to our
  customers. You may choose only the items you desire. However, any
  funeral arrangements you select will include a charge for our basic
                          1
  services and overhead. If legal or other requirements mean you must
  buy any items you did not specifically ask for, we will explain the reason
  in writing on the statement we provide describing the funeral goods and
  services you selected.”

• “Except in certain special cases, embalming is not required by law.
  Embalming may be necessary, however, if you select certain funeral
  arrangements, such as a funeral with viewing. If you do not want

1
 If customers cannot decline the basic services fee, the funeral provider must include this sentence.
The provider may add the phrase “and overhead” after the word “services” in this sentence if the fee
includes the recovery of overhead costs.




Page 43                                              GAO/GGD-99-156 Funeral-Related Industries
Appendix II
Objectives, Scope, and Methodology




    embalming, you usually have the right to choose an arrangement that
    does not require you to pay for it such as direct cremation or immediate
            2
    burial.”

• “If you want to arrange a direct cremation, you can use an alternative
  container. Alternative containers encase the body and can be made of
  materials like fiberboard or composition materials (with or without an
                                                                         3
  outside covering). The containers we provide are (specify containers).”

The Funeral Rule also requires that the GPL contain other disclosures,
such as a casket price list statement; and requires itemization of prices for
certain goods and services, such as immediate burial. We did not review
individual GPLs for compliance with these other items because of time and
staffing constraints.

In addition, we used the DCI to record what action FTC took, if any, in
regard to potential Funeral Rule violations. We then analyzed these data to
determine the number and type of potential Funeral Rule violations that
may have occurred and whether FTC acted on them. We considered FTC
to have taken action if it had sent a letter (1) to the funeral home advising
the home of noncompliance and warning that additional action could
occur if the home did not comply in the future, (2) offering the funeral
provider the opportunity to enter NFDA’s Funeral Rule Offender’s Program
(FROP) rather than be subject to civil penalty actions, or (3) notifying the
funeral home that it was beginning full law enforcement proceedings on
the basis of gross violations of the Funeral Rule. We did not assess the
                                                                    4
effectiveness of FROP, a program sponsored by FTC and NFDA. We
reviewed the letters FTC sent to the funeral homes in question, when
available, to determine the reason FTC took action on potential violations.

To provide information on selected state governments’ roles in protecting
consumers in their transactions with the death care industry, we spoke
with officials from the previously mentioned state agencies that have
responsibility for regulation and oversight of death care in those states. At
2
 The phrase “except in certain special cases” need not be included in this disclosure if state or local
law in the area(s) where the provider does business does not require embalming under any
circumstances.
3
 We took into account the fact that if the funeral home does not arrange direct cremations, this
statement does not need to be included on the GPL.
4
 FROP, which FTC approved and implemented in 1996, was designed to penalize Funeral Rule
offenders and educate them about the Rule. Participants enter the program for 5 years, and not enough
time has lapsed to determine if FROP has been successful in stemming Funeral Rule violations among
its participants.




Page 44                                               GAO/GGD-99-156 Funeral-Related Industries
Appendix II
Objectives, Scope, and Methodology




these organizations, we collected pertinent laws, regulations, and
documents covering three areas—funerals, cemeteries, and preneed
funeral arrangements—and analyzed these laws, regulations, and
documents with a focus on consumer protection issues in each
jurisdiction. We also administered a DCI to discuss regulatory and
consumer protection issues with appropriate state officials and to ensure
that we obtained consistent information from each of the organizations.
The DCI covered such topics as preneed funeral and burial arrangements,
including trusts and insurance; at-need funeral and cemetery
arrangements; and consumer affairs and consumer awareness in the state
regarding both preneed and at-need death care arrangements. We
contacted responsible officials from the regulatory bodies in the five states
to verify information on the states.

We did our work between July 1998 and July 1999, in accordance with
generally accepted government auditing standards.




Page 45                                GAO/GGD-99-156 Funeral-Related Industries
Appendix III

FTC Funeral Home Sweeps


                                      The following table contains information on the 32 sweeps FTC carried out
                                      since it began test-shopping funeral homes to ensure their compliance with
                                      the Funeral Rule and the number of funeral homes shopped by state and
                                      city.

Table III.1: Number and Location of
Funeral Homes FTC Test-Shopped by     Date                     State                  City                   Number of funeral
Date of Sweep                                                                                              homes test-shopped
                                      October 1994             FL                     Tampa                                26
                                      December 1994            DE                     Statewide                            22
                                      January 1995             TN                     Nashville                            23
                                      February 1995            MS                     Jackson, Yazoo City,                 18
                                                                                      Vicksburg
                                      March 1996               OH                     Columbus                             32
                                      May 1996                 CO                     Denver                               26
                                                                                                 a
                                      June 1996                MA                     Statewide                            40
                                      June 1996                OK                     OK City                              26
                                      July 1996                D.C.                   Washington                           30
                                      September 1996           IL                     Chicago area                        119
                                      January 1997             NJ                     Statewide                            35
                                      June 1997                AR                     Little Rock                          21
                                                                                                b
                                      July 1997                CA                     San Jose                             11
                                      July 1997                WA                     Spokane                               4
                                      July-September 1997      CO                     Pueblo, Colorado                     22
                                                                                      Springs
                                      August 1997              PA                     Philadelphia area                    55
                                      August 1997              GA                     Atlanta                              19
                                      August 1997              CA                     Southern CA                          13
                                      August 1997              WA                     Seattle                              17
                                      September 1997           TX                     Fort Worth                             23
                                      September 1997           IA                     Statewide                              62
                                      September 1997           CA                     East Bay                               10
                                      December 1997            CA                     Sacramento                             22
                                      January 1998             OK                     Tulsa                                  27
                                      May 1998                 CA                     Marin County                            8
                                      June 1998                CA                     Santa Rosa                              5
                                      August 1998              MI                     Detroit, Lansing,                      42
                                                                                      Grand Rapids
                                      August 1998              FL                     Pinellas, Hillsboro,                   80
                                                                                      Leon counties
                                      August 1998              UT                     Salt Lake City                         32
                                      September 1998           MN                     Minneapolis-St.Paul,                   55
                                                                                      Rochester, Duluth,
                                                                                      Saint Cloud
                                      September 1998           NV                     Las Vegas, Reno,                       22
                                                                                      Carson City
                                      September 1998           LA                     Baton Rouge                            11
                                      Total                                                                                 958
                                      a
                                      This sweep included six cities.
                                      b
                                      This sweep included the South Bay area of CA.




                                      Page 46                                          GAO/GGD-99-156 Funeral-Related Industries
Appendix IV

Information on Funeral Homes and
Cemeteries in Selected States

                                          This appendix contains information about the regulation and oversight of
                                          funeral homes and cemeteries in the five selected states—California,
                                          Florida, Maryland, New York, and Texas. It also discusses state-required
                                          information that is to be provided to consumers about funeral homes and
                                          cemeteries.

                                          Appendix V discusses preneed funeral arrangements and provides
                                          information on the regulation of preneed arrangements in the selected
                                          states.


Funeral Homes
California                                The Cemetery and Funeral Programs (CFP) of the California Department
                                          of Consumer Affairs regulates both the funeral and cemetery industries in
                                          California.

                                          Table IV.1 provides information on the regulation and oversight of
                                          California funeral homes and shows state requirements regarding
                                          consumer information.


Table IV.1: California Funeral Homes—Regulation, Oversight, and Consumer Information
Category                                                        Yes     No     Comments
Law or regulation
 Licensing requirement for funeral directors, embalmers, and     X             All three licenses must be renewed on an
 funeral establishments                                                        annual basis.
 Requirement that funeral directors complete continuing          X             Licensees are required to complete 14 hours of
 education credits                                                             continuing education every 2 years.
 Requirement that state regulatory office be notified of change  X
 of funeral home ownership
 Requirement prohibiting the combined ownership of funeral               X
 homes and cemeteries
 Requirement that low-cost caskets be included as part of                X     All caskets must be either physically displayed
 funeral home displays                                                         in the casket selection room or displayed
                                                                               photographically.
Oversight
 Required annual inspections of all funeral homes                        X     A CFP official stated that the office does not
                                                                               inspect all of the state’s funeral homes on an
                                                                               annual basis, but it conducts unannounced
                                                                               inspections of about 200 of the state’s
                                                                               approximately 800 funeral homes. He further
                                                                               said that although complaints often generate
                                                                               inspections, CFP maintains an ongoing random
                                                                               inspection program.




                                          Page 47                                    GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix IV
                                               Information on Funeral Homes and Cemeteries in Selected States




Category                                                              Yes           No       Comments
Consumer Information
 Requirement that state regulatory office produce a consumer           X                     California law requires that CFP produce and
 brochure for consumers who inquire about funeral goods and                                  make available to funeral establishments a
 services                                                                                    consumer guide for funeral and cemetery
                                                                                             purchases. Funeral establishments are
                                                                                             required to prominently display and make
                                                                                             available this guide.
 Requirement that all funeral contracts contain state regulatory       X                     California law requires that CFP’s name,
 office’s contact information                                                                address, and telephone number be on such
                                                                                             contracts.
                                               Source: CFP, California Department of Consumer Affairs.


Florida                                        The Board of Funeral Directors and Embalmers of the Department of
                                               Business and Professional Regulation has jurisdiction over the funeral
                                               industry in Florida. The Board is made up of seven members appointed by
                                               the governor; five of whom are licensed funeral directors, and two of
                                               whom are consumer representatives who must have no affiliation with the
                                               funeral industry.

                                               Table IV.2 provides information on the regulation and oversight of Florida
                                               funeral homes and shows state requirements regarding consumer
                                               information.


Table IV.2: Florida Funeral Homes—Regulation, Oversight, and Consumer Information
Category                                                        Yes     No     Comments
Law or regulation
 Licensing requirement for funeral directors, embalmers, and     X             All three licenses must be renewed every 2
 funeral establishments                                                        years.
 Requirement that funeral directors complete continuing          X             Licensees are required to complete 12 hours of
 education credits                                                             continuing education every 2 years. Licensees
                                                                               also must have completed a single Board-
                                                                               approved course on communicable diseases
                                                                               and HIV/AIDS.
 Requirement that state regulatory office be notified of change  X
 of funeral home ownership
 Requirement prohibiting the combined ownership of funeral               X
 homes and cemeteries
 Requirement that low-cost caskets be included as part of        X             The least expensive casket offered for sale
 funeral home displays                                                         must be displayed in the same manner as the
                                                                               other caskets.




                                               Page 48                                           GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix IV
                                               Information on Funeral Homes and Cemeteries in Selected States




Category                                                              Yes            No       Comments
Oversight
 Required annual inspections of all funeral homes                       X                     Annual inspections of funeral homes are
                                                                                              required, and additional inspections can be
                                                                                              conducted in response to complaints. State
                                                                                              inspectors have responsibility for 800 to 1,000
                                                                                              funeral homes in addition to inspections for
                                                                                              cosmetology salons, barbers, and
                                                                                              veterinarians.
Consumer Information
 Requirement that state regulatory office produce a consumer                          X
 brochure for consumers who inquire about funeral goods and
 services
 Requirement that all funeral contracts contain state regulatory                      X
 office’s contact information
                                               Source: Board of Funeral Directors and Embalmers, Division of Professions, Florida Department of
                                               Business and Professional Regulation.


Maryland                                       The State Board of Morticians, Department of Health & Mental Hygiene
                                               regulates the funeral industry in Maryland. The Board of Morticians
                                               consists of 12 members; 8 of whom are licensed morticians or funeral
                                               directors, and 4 are consumer representatives. An Executive Director
                                               oversees the day-to-day work of the Board.

                                               Table IV.3 provides information on the regulation and oversight of
                                               Maryland funeral homes and shows state requirements regarding
                                               consumer information.


Table IV.3: Maryland Funeral Homes—Regulation, Oversight, and Consumer Information
Category                                                        Yes   No     Comments
Law or regulation
 Licensing requirement for funeral directors, embalmers, and     X           All three of these licenses must be renewed
 funeral establishments                                                      every 2 years.
 Requirement that funeral directors complete continuing          X           Licensees are required to complete the
 education credits                                                           equivalent of 12 hours of Board-approved
                                                                             continuing education courses during the 2-year
                                                                             term of the license.
 Requirement that state regulatory office be notified of change  X
 of funeral home ownership
 Requirement prohibiting the combined ownership of funeral              X    A Board of Morticians official stated that the
 homes and cemeteries                                                        owner would be required to have separate
                                                                             licenses for the funeral home and the
                                                                             cemetery.
 Requirement that low-cost caskets be included as part of               X
 funeral home displays
Oversight
 Required annual inspections of all funeral homes                X           Inspections also are made on the basis of
                                                                             written complaints received by the Department.




                                               Page 49                                           GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix IV
                                               Information on Funeral Homes and Cemeteries in Selected States




Category                                                              Yes            No      Comments
Consumer Information
 Requirement that state regulatory office produce a consumer           X                     A Board of Morticians official stated that the
 brochure for consumers who inquire about funeral goods and                                  Board has produced a brochure, in
 services                                                                                    collaboration with the Maryland Office of
                                                                                             Cemetery Oversight, which will be made
                                                                                             available to funeral homes for distribution.
                                                                                             However, another official added that funeral
                                                                                             homes are not required by law to hand out
                                                                                             these brochures.
 Requirement that all funeral contracts contain state regulatory                      X
 office’s contact information
                                               Source: State Board of Morticians, Department of Health & Mental Hygiene.


New York                                       The Bureau of Funeral Directing of the State of New York’s Department of
                                               Health has jurisdiction over funeral homes in New York State. A Director
                                               administers the Bureau. The Bureau also has a funeral directing advisory
                                               board, which consists of six licensed funeral directors, three consumer
                                               representatives, and one cemetery representative.

                                               Table IV.4 provides information on the regulation and oversight of New
                                               York funeral homes and shows state requirements regarding consumer
                                               information.


Table IV.4: New York Funeral Homes—Regulation, Oversight, and Consumer Information
Category                                                        Yes   No     Comments
Law or regulation
 Licensing requirement for funeral directors, embalmers, and     X           All three licenses must be renewed every 2
                        a
 funeral establishments                                                      years.
 Requirement that funeral directors complete continuing                X     A Bureau of Funeral Directing official stated
 education credits                                                           that a continuing education bill passed the
                                                                             state legislature and is currently awaiting the
                                                                             governor’s signature. If enacted, this bill would
                                                                             require 12 hours of continuing education every
                                                                             2 years.
 Requirement that state regulatory office be notified of change  X
 of funeral home ownership
 Requirement prohibiting the combined ownership of funeral       X
 homes and cemeteries
 Requirement that low-cost caskets be included as part of        X
 funeral home displays
Oversight
 Required annual inspections of all funeral homes                      X     Bureau officials stated that about 300 of the
                                                                             state’s approximately 2,000 funeral homes are
                                                                             inspected each year. These officials further
                                                                             stated that inspections and investigations are
                                                                             largely complaint driven.




                                               Page 50                                           GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix IV
                                               Information on Funeral Homes and Cemeteries in Selected States




Category                                                               Yes             No       Comments
Consumer Information
 Requirement that state regulatory office produce a consumer                            X       The Bureau has produced separate consumer
 brochure for consumers who inquire about funeral goods and                                     brochures for preneed and at-need funeral
 services                                                                                       arrangements; however, there is no
                                                                                                requirement that funeral directors make these
                                                                                                brochures available to consumers.
 Requirement that all funeral contracts contain state regulatory         X                      A Bureau of Funeral Directing official stated
 office’s contact information                                                                   that the Bureau’s contact information is
                                                                                                required to be included on the itemized
                                                                                                statement that funeral directors give to
                                                                                                consumers.
                                               a
                                               An official from the Bureau of Funeral Directing said that New York licenses funeral firms, not funeral
                                               establishments.
                                               Source: Bureau of Funeral Directing, New York Department of Health.

                                                                                                                                                     1
Texas                                          The Texas Funeral Service Commission regulates funeral homes in Texas.
                                               The Commission is made up of nine commissioners, including four
                                               licensed embalmers or funeral directors and five consumer
                                                               2
                                               representatives. An Executive Director administers the daily business of
                                               the Commission.

                                               Table IV.5 provides information on the regulation and oversight of Texas
                                               funeral homes and shows state requirements regarding consumer
                                               information.


Table IV.5: Texas Funeral Homes—Regulation, Oversight, and Consumer Information
Category                                                        Yes     No     Comments
Law or regulation
 Licensing requirement for funeral directors, embalmers, and     X             A Texas Funeral Service Commission official
 funeral establishments                                                        stated that funeral directors and embalmers
                                                                               licenses must be renewed every 2 years and
                                                                               funeral establishment licenses must be
                                                                               renewed annually.
 Requirement that funeral directors complete continuing          X             Licensees renewing in 1999 are required to
 education credits                                                             complete 14 hours of continuing education.
                                                                               Licensees renewing in 2000 are required to
                                                                               complete 16 hours of continuing education.
 Requirement that state regulatory office be notified of change  X
 of funeral home ownership
 Requirement prohibiting the combined ownership of funeral              X
 homes and cemeteries

                                               1
                                                Amendments to the law governing the Texas Funeral Service Commission took effect on September 1,
                                               1999. Information about regulation, oversight, and consumer information concerning Texas funeral
                                               homes was current through July 1999, the end of our data collection period.
                                               2
                                               Under the amended law, the Commission is made up of six Commissioners, including two persons
                                               who are each licensed as both a funeral director and embalmer and four consumer representatives.




                                               Page 51                                              GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix IV
                                               Information on Funeral Homes and Cemeteries in Selected States




Category                                                             Yes            No       Comments
 Requirement that low-cost caskets be included as part of             X
 funeral home displays
Oversight
 Required annual inspections of all funeral homes                                    X       Although Texas law requires that funeral
                                                                                             establishments be inspected every 2 years, a
                                                                                             Commission official stated that all Texas
                                                                                             funeral establishments are inspected on an
                                                                                                           a
                                                                                             annual basis.
Consumer Information
 Requirement that state regulatory office produce a consumer           X                     Texas law requires that the Commission
 brochure for consumers who inquire about funeral goods and                                  produce and make available to funeral
 services                                                                                    establishments a consumer brochure for
                                                                                             funeral purchases. Funeral establishments
                                                                                             are required to provide each prospective
                                                                                             customer with a copy of the brochure when
                                                                                             funeral services are discussed.
 Requirement that all funeral contracts contain state regulatory       X
 office’s contact information
                                               a
                                               Under the amended law, funeral establishments must be inspected annually.
                                               Source: Texas Funeral Service Commission.



Cemeteries
California                                     CFP also regulates the cemetery industry in California. CFP has
                                               jurisdiction over private cemeteries but does not regulate others, such as
                                               religious and municipal cemeteries and fraternal burial parks. As
                                               mentioned earlier, CFP has jurisdiction over both the funeral and cemetery
                                               industries in California.

                                               Table IV.6 provides selected information on the regulation and oversight of
                                               cemeteries in California and shows state requirements regarding consumer
                                               information.


Table IV.6: California Cemeteries—Regulation, Oversight, and Consumer Information
Category                                                      Yes         No     Comments
Law or regulation
 Jurisdiction over all cemeteries within state                             X     Religious and public cemeteries, and certain
                                                                                 private and fraternal burial parks less than 10
                                                                                 acres in size and established before
                                                                                 September 19, 1939, are exempted from state
                                                                                 regulation. CFP officials stated that about 200
                                                                                 of the approximately 2,000 cemeteries,
                                                                                 representing about 40% of the burials in the
                                                                                 state, are under CFP’s jurisdiction.




                                               Page 52                                          GAO/GGD-99-156 Funeral-Related Industries
                                              Appendix IV
                                              Information on Funeral Homes and Cemeteries in Selected States




Category                                                              Yes             No      Comments
 Licensing requirements                                                X                      Separate cemetery brokers and salespersons
                                                                                              licenses must be obtained from CFP and must
                                                                                              be renewed on an annual basis. A certificate
                                                                                              of authority also must be obtained for a
                                                                                              cemetery before interments can be made
                                                                                              there.
 Restrictions on what cemeteries can sell                                             X
                                          a
 Perpetual or endowment care requirements                              X                      California law does not permit a cemetery
                                                                                              authority to represent an endowment care
                                                                                              fund as “perpetual or permanent.” CFP-
                                                                                              regulated cemeteries must create an
                                                                                              endowment care fund and must fulfil a
                                                                                              minimum deposit requirement of $2.25 per
                                                                                              square foot for each grave sold.
Oversight
 Required annual inspections of all cemeteries                                        X       CFP conducts investigations of regulated
                                                                                              cemeteries on the basis of complaints.
Consumer Information
 Requirement that state regulatory office produce a consumer           X                      California law requires that CFP produce and
 brochure for consumers who inquire about cemetery goods                                      make available to cemetery authorities a
 and services                                                                                 consumer guide for funeral and cemetery
                                                                                              purchases. Cemetery authorities are required
                                                                                              to prominently display and make available this
                                                                                              guide.
 Requirement that all cemetery contracts contain state                 X                      California law requires that CFP’s name,
 regulatory information                                                                       address, and telephone number be on such
                                                                                              contracts
                                              a
                                               The selected states have additional care requirements for items, including crypts and mausoleums as
                                              well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage to
                                              states’ perpetual or endowment care deposit requirements for gravesites sold. According to a
                                              cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of
                                              maintenance regardless of available funding; under endowment care, a cemetery will provide a
                                              certain level of maintenance according to the level of funding.
                                              Source: CFP, California Department of Consumer Affairs.


Florida                                       The Board of Funeral and Cemetery Services, Department of Banking and
                                              Finance, Office of the Comptroller, regulates the cemetery industry in
                                              Florida. The Board consists of seven members appointed by the governor,
                                              including two funeral directors who are not associated with a cemetery
                                              company, two licensed cemetery operators, and three consumers who are
                                              not associated with the funeral or cemetery industry. The Board does not
                                              have jurisdiction over certain religious, county and municipal, and
                                              community and nonprofit association cemeteries.

                                              Table IV.7 provides selected information on the regulation, oversight, and
                                              information available to consumers concerning cemeteries under Florida’s
                                              jurisdiction.




                                              Page 53                                            GAO/GGD-99-156 Funeral-Related Industries
                                              Appendix IV
                                              Information on Funeral Homes and Cemeteries in Selected States




Table IV.7: Florida Cemeteries—Regulation, Oversight, and Consumer Information
Category                                                      Yes        No                    Comments
Law or regulation
 Jurisdiction over all cemeteries within state                            X                    An official with the Office of the Comptroller
                                                                                               stated that approximately 170 of the 3,000
                                                                                               cemeteries in the state are under the
                                                                                               jurisdiction of the Office. Some of the
                                                                                               cemeteries that fall outside of the Office’s
                                                                                               jurisdiction include religious cemeteries of less
                                                                                               than 5 acres; religious cemeteries owned and
                                                                                               operated before June 23, 1976; county and
                                                                                               municipal cemeteries; and community and
                                                                                               nonprofit association cemeteries, which
                                                                                               provide only single-level ground burial and do
                                                                                               not sell burial spaces or merchandise.
 Licensing requirements                                                 X                      A license is required to operate a cemetery,
                                                                                               and must be renewed on an annual basis.
 Restrictions on what cemeteries can sell                                              X
                                          a
 Perpetual or endowment care requirements                               X                      Cemeteries regulated by the Office of the
                                                                                               Comptroller must deposit into a care and
                                                                                               maintenance trust fund 10% of payments
                                                                                               received for gravesites sold.
Oversight
 Required inspections of all cemeteries                                 X                      An official with the Office of the Comptroller
                                                                                               stated that cemeteries are inspected annually
                                                                                               for upkeep and recordkeeping. The Office has
                                                                                               the authority to examine the financial affairs of
                                                                                               cemetery companies and to conduct
                                                                                               investigations on the basis of written
                                                                                               complaints.
Consumer Information
 Requirement that state regulatory office produce a consumer                           X
 brochure for consumers who inquire about cemetery goods
 and services
 Requirement that all cemetery contracts contain state                                 X       An official from the Office of the Comptroller
 regulatory information                                                                        said that preneed cemetery contracts must
                                                                                               contain certain disclosures, including state
                                                                                               regulatory information; however, these
                                                                                               disclosures are not required for at-need
                                                                                               contracts.
                                              a
                                               The selected states have additional care requirements for items, including crypts and mausoleums
                                              as well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage
                                              to states’ perpetual or endowment care deposit requirements for gravesites sold. According to a
                                              cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of
                                              maintenance regardless of available funding; under endowment care, a cemetery will provide a
                                              certain level of maintenance according to the level of funding.
                                              Source: Bureau of Funeral and Cemetery Services, Division of Finance, Office of the Comptroller.


Maryland                                      The Office of Cemetery Oversight in the Department of Labor, Licensing,
                                              and Regulation (DLLR) regulates the cemetery industry in Maryland. The
                                              Office was created in 1997 in response to concerns that consumers were



                                              Page 54                                             GAO/GGD-99-156 Funeral-Related Industries
                                            Appendix IV
                                            Information on Funeral Homes and Cemeteries in Selected States




                                            not adequately protected in their dealings with cemeteries. The Office has
                                            responsibilities for all but certain religious, nonprofit cemeteries in the
                                            state and is administered by a Director appointed by the Secretary of
                                            DLLR.

                                            Table IV.8 provides selected information on the regulation, oversight, and
                                            information available to consumers concerning cemeteries under
                                            Maryland’s jurisdiction.


Table IV.8: Maryland Cemeteries—Regulation, Oversight, and Consumer Information
Category                                                     Yes         No     Comments
Law or regulation
 Jurisdiction over all cemeteries within state                           X      Religious, nonprofit cemeteries that do not
                                                                                sell preneed goods and not-for-profit
                                                                                organizations created before 1900 are
                                                                                exempted from the Office’s jurisdiction. An
                                                                                Office of Cemetery Oversight official stated
                                                                                that the Office has jurisdiction over about 60
                                                                                for-profit cemeteries. In addition, this official
                                                                                estimated that there are approximately 300
                                                                                nonprofit cemeteries and 800 religious
                                                                                cemeteries in the state.
 Licensing requirements                                       X                 Cemetery operators must register with the
                                                                                Office and must renew registrations every 2
                                                                                years.
 Restrictions on what cemeteries can sell                                X
                                               a
 Perpetual or endowment care requirements                     X                 Maryland requires that, if the cemetery offers
                                                                                perpetual care, 10% of the selling price of
                                                                                each burial lot or 35 cents for each square
                                                                                foot of land burial space be placed in a trust
                                                                                fund for perpetual care.
Oversight
 Required inspections of all cemeteries                                  X      Although there is no requirement that all
                                                                                licensed cemeteries in the state be inspected
                                                                                on an annual basis, an Office of Cemetery
                                                                                Oversight official stated that these cemeteries
                                                                                are subject to inspection at any time.
Consumer Information
 Requirement that state regulatory office produce a consumer  X                 An Office of Cemetery Oversight official
 brochure for consumers who inquire about cemetery goods                        stated that the Office has produced a
 and services                                                                   consumer brochure, in collaboration with the
                                                                                State Board of Morticians that will be made
                                                                                available to cemeteries for distribution.
                                                                                However, this official stated that cemeteries
                                                                                are not required by law to hand out these
                                                                                brochures.
 Requirement that all cemetery contracts contain state        X
 regulatory information
                                            a
                                             The selected states have additional care requirements for items, including crypts and mausoleums
                                            as well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage




                                            Page 55                                            GAO/GGD-99-156 Funeral-Related Industries
                                           Appendix IV
                                           Information on Funeral Homes and Cemeteries in Selected States




                                           to states’ perpetual or endowment care deposit requirements for gravesites sold. According to a
                                           cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of
                                           maintenance regardless of available funding; under endowment care, a cemetery will provide a
                                           certain level of maintenance according to the level of funding.
                                           Source: Maryland Office of Cemetery Oversight, Division of Occupational and Professional Licensing,
                                           Department of Labor, Licensing, and Regulation.


New York                                   The Division of Cemeteries of the New York Department of State regulates
                                           the cemetery industry in New York. The Division is administered by a
                                           Director who carries out day-to-day operations. The Director is appointed
                                           by the State Cemetery Board, which comprises the Secretary of State, the
                                           Attorney General, and the Commissioner of Health. New York does not
                                           have jurisdiction over religious or municipal cemeteries. However, New
                                           York also requires that cemeteries under its jurisdiction be operated on a
                                           nonprofit basis. According to Division of Cemetery Officials, this restricts
                                           profit-making entities from taking advantage of consumers at a time of
                                           vulnerability. New York also prohibits joint ownership of funeral homes
                                           and cemeteries. Table IV.9 provides selected information on the regulation,
                                           oversight, and information available to consumers concerning cemeteries
                                           under New York’s jurisdiction.


Table IV.9: New York Cemeteries—Regulation, Oversight, and Consumer Information
Category                                                    Yes         No     Comments
Law or regulation
 Jurisdiction over all cemeteries within state                           X     The Division of Cemeteries does not have
                                                                               jurisdiction over religious or municipal
                                                                               cemeteries. Division of Cemeteries officials
                                                                               stated that the Division has jurisdiction over
                                                                               1,885 of the more than 6,000 cemeteries in
                                                                               the state.
 Licensing requirements                                                  X
 Restrictions on what cemeteries can sell                    X                 Officials stated that cemeteries are permitted
                                                                               to sell grave liners; but they are prohibited
                                                                               from selling caskets, burial vaults, and
                                                                               monuments.
                                               a
 Perpetual or endowment care requirements                    X                 Cemeteries must deposit 10% of the sale of a
                                                                               lot into a permanent maintenance fund and
                                                                               must deposit an additional 15% deposit into a
                                                                               current maintenance fund.
Oversight
 Required annual inspections of all cemeteries                           X     Inspections are largely complaint-driven.
                                                                               Cemeteries with assets of $400,000 or more
                                                                               are subject to an examination by an
                                                                               independent certified public accountant. The
                                                                               Division also conducts field and desk audits
                                                                               on the basis of financial reports resulting from
                                                                               these examinations.




                                           Page 56                                             GAO/GGD-99-156 Funeral-Related Industries
                                            Appendix IV
                                            Information on Funeral Homes and Cemeteries in Selected States




Category                                                            Yes             No       Comments
Consumer Information
 Requirement that state regulatory office produce a consumer                         X
 brochure for consumers who inquire about cemetery goods
 and services
 Requirement that all cemetery contracts contain state                               X
 regulatory information
                                             a
                                             The selected states have additional care requirements for items, including crypts and mausoleums
                                            as well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage
                                            to states’ perpetual or endowment care deposit requirements for gravesites sold. According to a
                                            cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of
                                            maintenance regardless of available funding; under endowment care, a cemetery will provide a
                                            certain level of maintenance according to the level of funding.
                                            Source: Division of Cemeteries, New York Department of State.


Texas                                       The Special Audits Division of the Texas Department of Banking regulates
                                            the cemetery industry in Texas. The Department does not have jurisdiction
                                            over certain religious, public, family, and non-profit cemeteries.

                                            Table IV.10 provides selected information on the regulation, oversight, and
                                            information available to consumers concerning cemeteries under Texas
                                            jurisdiction.


Table IV.10: Texas Cemeteries—Regulation, Oversight, and Consumer Information
Category                                                    Yes         No    Comments
Law or regulation
 Jurisdiction over all cemeteries within state                          X     Religious, family, fraternal, or community
                                                                              cemeteries not larger than 10 acres,
                                                                              unincorporated associations of plot owners not
                                                                              operated for profit, and nonprofit corporations
                                                                              organized by plot owners are not under the
                                                                              jurisdiction of the Department.
 Licensing requirements                                      X                Department of Banking officials stated that
                                                                              perpetual care cemeteries are required to be
                                                                              licensed and that these licenses must be
                                                                              renewed annually.
 Restrictions on what cemeteries can sell                               X
                                               a
 Perpetual or endowment care requirements                    X                Cemetery corporations must deposit the
                                                                              greater of $1.50 a square foot of ground area
                                                                              conveyed as perpetual care property or 10% of
                                                                              the total purchase price of that ground area.
Oversight and Consumer Information
 Required annual inspections of all cemeteries               X                The books and records of cemetery
                                                                              corporations relating to their perpetual care
                                                                              trust funds are required to be examined by the
                                                                              Department on annual basis, or as often as
                                                                              necessary.




                                            Page 57                                             GAO/GGD-99-156 Funeral-Related Industries
                                            Appendix IV
                                            Information on Funeral Homes and Cemeteries in Selected States




Category                                                           Yes            No       Comments
Consumer Information
 Requirement that state regulatory office produce a consumer                       X
 brochure for consumers who inquire about cemetery goods
 and services
 Requirement that all cemetery contracts contain state               X
 regulatory information
                                            a
                                             The selected states have additional care requirements for items, including crypts and mausoleums as
                                            well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage to
                                            states’ perpetual or endowment care deposit requirements for gravesites sold. According to a
                                            cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of
                                            maintenance regardless of available funding; under endowment care, a cemetery will provide a
                                            certain level of maintenance according to the level of funding.
                                            Source: The Special Audits Division of the Texas Department of Banking.




                                            Page 58                                            GAO/GGD-99-156 Funeral-Related Industries
Appendix V

Information on Preneed Arrangements in the
Selected States

                       This appendix contains information on preplanned, prepaid funeral
                       transactions, which are commonly called preneed arrangements. In
                       addition, the appendix provides information on the regulation of preneed
                       arrangements in the five selected states.

Preneed                In purchasing a preneed arrangement, a consumer typically makes an
PreneedArrangemen
        Arrangements   agreement with a preneed seller to pay for funeral goods and services that
                       will be provided at a later time—that is, following the death of the
                       consumer or another designated person. In many cases, the consumer has
                       the option of selecting a guaranteed price contract, which fixes the price of
                       goods and services selected, regardless of price inflation that may occur
                       after the contract is signed.

                       According to death care industry studies, the most commonly used options
                       for funding preneed arrangements are trust accounts and insurance or
                       annuity policies. Conning & Company, an insurance research and
                       publication firm, describes the trust option as a state-regulated trust
                       account that is established in connection with the preneed contract and
                                              1
                       managed by a trustee. According to Conning & Company, the rationale
                       behind this funding method is that interest earned on the trust account will
                       accumulate over time so that future increases in funeral prices can be
                       accounted for. The funeral provider receives the funds held in trust after
                       the funeral. According to a 1996 law journal article, under state law, a
                       consumer also typically has the option of creating an irrevocable trust
                       contract, which allows the consumer to maintain his or her eligibility for
                                         2
                       public assistance.

                       According to the article, under the insurance option, the consumer
                       purchases, either in a lump sum or by installments, an insurance policy
                                                                             3
                       and names the seller as the beneficiary of the policy. Following the
                       consumer’s death the benefit is paid out to the seller. According to
                       Conning & Company, these preneed insurance products typically have an
                       increasing death benefit to cover future increases in the prices of funeral
                       goods and services. Conning & Company states that another option for
                       consumers who would face difficulty obtaining life insurance is to
                       purchase annuities. Following the death of the purchaser, the annuity is to

                       1
                           Preneed Insurance: A Business to Die For? 1998, Conning & Company (Hartford: 1998).
                       2
                        Judith A. Frank, “Preneed Funeral Plans: The Case for Uniformity,” The Elder Law Journal, Spring
                       (1996).
                       3
                        The designation of who may be the beneficiary depends on the state where the insurance policy is
                       sold. For example, a Maryland Insurance Administration official stated that in Maryland the funeral
                       director could not be named the beneficiary.




                       Page 59                                              GAO/GGD-99-156 Funeral-Related Industries
                                             Appendix V
                                             Information on Preneed Arrangements in the Selected States




                                             be paid out by the insurer to the funeral provider to cover funeral
                                             expenses.

                                             Conning & Company states that preneed insurance typically is sold in
                                             conjunction with a funeral home, either by a funeral director who holds an
                                             insurance license or an independent insurance agent. A spokesman for the
                                             preneed insurance industry said that preneed insurance is actuarially
                                             based and has less underwriting than other whole life policies. This
                                             spokesman described a typical 10-year installment premium plan as one
                                             that would pay a death benefit of 35 percent of face value during the first
                                             year, 70 percent during the second year, and 100 percent the third year and
                                             thereafter. According to death care industry observers, an advantage of
                                             preneed insurance policies over trusts is that unlike trust accounts, the
                                             purchaser is not taxed for interest income earned. However, an insurance
                                             industry spokesman also noted that the rate of return for preneed
                                             insurance is typically lower than that of trusts.

                                             The following tables provide information on the regulation of preneed
Regulation of Preneed                        arrangements in California, Florida, Maryland, New York, and Texas.
Arrangements in the
Five Selected States
California                                   The Cemetery and Funeral Programs (CFP) of the California Department
                                             of Consumer Affairs has jurisdiction over preneed funeral trusts in
                                             California, and the California Department of Insurance has jurisdiction
                                             over preneed insurance.

                                             Table V.1 contains information on the regulation of preneed arrangements
                                             in California.


Table V.1: California Regulation of Preneed Arrangements
Category                                                          Yes          No     Comments
Trusts
 Trusting requirements                                             X                  Trusting requirements are 100% for funeral
                                                                                      goods and services.
 Administrative fees permitted                                     X                  Trustees may withdraw an annual fee for
                                                                                      administering a funeral trust from the current
                                                                                      trust income. CFP officials stated that the total
                                                                                      withdrawal in any year shall not exceed 4% of
                                                                                      the trust balance.
 Both revocable and irrevocable contracts offered                  X
 Consumer receives refund if trust is revoked                      X                  The consumer would receive 100% plus
                                                                                      interest less administration fees and a
                                                                                                      a
                                                                                      revocation fee.




                                             Page 60                                      GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix V
                                               Information on Preneed Arrangements in the Selected States




Category                                                               Yes            No       Comments
 Contracts directly transferable to another state                                     X        CFP officials stated that the law does not
                                                                                               specifically address this issue, and the terms of
                                                                                               the individual contract would determine
                                                                                               whether the contract may be transferred to
                                                                                               another state.
 Restrictions on where trust funds may be deposited                     X                      CFP officials stated that California law provides
                                                                                               various options for depositing funeral trust
                                                                                               funds, such as in bonds or securities
                                                                                               guaranteed by the U.S. government or agency;
                                                                                               bonds or securities guaranteed by the state, or
                                                                                               any city or county within the state, or
                                                                                               certificates of deposit or other interest-bearing
                                                                                               accounts in any bank in the state insured by
                                                                                               the Federal Deposit Insurance Corporation
                                                                                               (FDIC). CFP officials stated that California law
                                                                                               also allows the funds to be deposited in any
                                                                                               investment deemed prudent by a prudent
                                                                                               person as allowed under the California Uniform
                                                                                               Prudent Investor Act.
 Restrictions on where deposits may be invested                         X                      CFP officials stated that California law provides
                                                                                               various options for investing funeral trust funds,
                                                                                               such as in bonds or securities guaranteed by
                                                                                               the U.S. government or agency; bonds or
                                                                                               securities guaranteed by the state, or any city
                                                                                               or county within the state, or certificates of
                                                                                               deposit or other interest-bearing accounts in
                                                                                               any bank in the state insured by FDIC. CFP
                                                                                               officials stated that California law also allows
                                                                                               the funds to be invested in any investment
                                                                                               deemed prudent by a prudent person as
                                                                                               allowed under the California Uniform Prudent
                                                                                               Investor Act.
  State consumer protection trust fund                                                 X
Insurance
  Sale of preneed insurance permitted within state                      X
                                               a
                                                The revocation fee shall not exceed 10 percent of the principal and is chargeable against earned
                                               income only.
                                               Source: CFP, California Department of Consumer Affairs.


Florida                                        The Board of Funeral and Cemetery Services, Department of Banking and
                                               Finance, Office of the Comptroller, has regulatory responsibility for
                                               preneed funeral trusts, and the Department of Insurance regulates preneed
                                               insurance policies.




                                               Page 61                                             GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix V
                                               Information on Preneed Arrangements in the Selected States




                                               Table V.2 contains information on the regulation of preneed arrangements
                                               in Florida.


Table V.2: Florida Regulation of Preneed Arrangements
Category                                                              Yes             No       Comments
Trusts
 Trusting requirements                                                 X                       Sellers of preneed contracts are permitted to
                                                                                               choose between trusting 30% of the purchase
                                                                                               price or 110% of the wholesale price of
                                                                                               funeral goods. For funeral services, the
                                                                                               trusting requirement is 70% of the purchase
                                                                                               price.
 Administrative fees permitted                                         X                       An official with the Office of the Comptroller
                                                                                               stated that administrative fees are permitted
                                                                                               to be withdrawn from trust income and there is
                                                                                               no limit on these fees.
 Both revocable and irrevocable contracts offered                      X
 Consumer receives refund if trust is revoked                          X                       The consumer is entitled to receive a full
                                                                                               refund of the purchase price if the contract is
                                                                                               revoked within 30 days of purchase. After 30
                                                                                               days, services remain fully refundable, but
                                                                                               goods are refundable if they cannot be
                                                                                               delivered within 24 hours of need. An official
                                                                                               with the Office of the Comptroller stated that
                                                                                               any accumulated interest earnings are paid to
                                                                                               the seller.
 Contracts directly transferable to another state                                      X       An official with the Office of the Comptroller
                                                                                               stated that a transfer could be accomplished
                                                                                               only by canceling the contract and entering
                                                                                               into a new contract in a different location.
 Restrictions on where trust funds may be deposited                    X                       Trusts must be deposited with either a
                                                                                               national or state bank or savings and loan
                                                                                               association having trust powers or a trust
                                                                                               company in the state.
 Restrictions on where deposits may be invested                        X                       Florida provides the opportunity to invest in
                                                                                               numerous types of investments. These
                                                                                               include, for example, bonds, notes, and other
                                                                                               obligations of the United States; Florida state
                                                                                               and county bonds pledging the full faith and
                                                                                               credit of the state or county; savings accounts
                                                                                               or certificates of deposit insured by FDIC; and
                                                                                               investments in real property.
 State consumer protection trust fund                                  X                       Use of the fund for an individual case is
                                                                                               restricted to 50% of the fund’s current
                                                                                               balance. Preneed sellers must contribute
                                                                                               $1.00 to the fund for all contracts.
Insurance
  Sale of preneed insurance permitted within state                     X
                                               Source: Bureau of Funeral and Cemetery Services, Division of Finance, Office of the Comptroller.




                                               Page 62                                            GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix V
                                               Information on Preneed Arrangements in the Selected States




Maryland                                       The State Board of Morticians, Department of Health & Mental Hygiene
                                               has regulatory responsibility over preneed funeral arrangements in
                                               Maryland. In May 1999, Maryland’s Governor signed legislation to
                                               authorize a preneed contract or preneed burial contract to be funded by
                                               life insurance. The Maryland Insurance Administration has jurisdiction
                                               over insurance contracts in Maryland.

                                               Table V.3 contains information on the regulation of preneed arrangements
                                               in Maryland.


Table V.3: Maryland Regulation of Preneed Arrangements
Category                                                             Yes            No       Comments
Trusts
 Trusting requirements                                                 X                     Sellers of preneed contracts are required to
                                                                                             place 100% of funds received for both goods
                                                                                             and services into trust, with the exception of
                                                                                             caskets, for which they are required to trust
                                                                                             80%.
 Administrative fees permitted                                                       X
 Both revocable and irrevocable contracts offered                      X
 Consumer receives refund if trust is revoked                          X                     Board of Morticians officials stated that the
                                                                                             consumer would receive a refund of the full
                                                                                             purchase price plus interest.
 Contracts directly transferable to another state                      X                     Board of Morticians officials stated that
                                                                                             irrevocable preneed funeral contracts can be
                                                                                             transferred to another state. For revocable
                                                                                             contracts, consumers would have to cancel the
                                                                                             contract and enter into a new contract in the
                                                                                             new location.
 Restrictions on where trust funds may be deposited                    X                     Funds shall be deposited into an interest-
                                                                                             bearing escrow or trust account with a federally
                                                                                             insured banking or savings and loan institution.
 Restrictions on where deposits may be invested                        X                     A Board of Morticians official stated that there
                                                                                             are no further requirements in Maryland law
                                                                                             regarding investments. This official stated that
                                                                                             all investments must be made with a federally
                                                                                             insured bank or savings and loan institution.
  State consumer protection trust fund                                               X
Insurance
  Sale of preneed insurance permitted within state                     X
                                               Source: State Board of Morticians, Department of Health & Mental Hygiene.




                                               Page 63                                           GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix V
                                               Information on Preneed Arrangements in the Selected States




New York                                       The Bureau of Funeral Directing of the State of New York’s Department of
                                               Health has jurisdiction over preneed funeral trusts. New York State does
                                               not allow the sale of preneed insurance.

                                               Table V.4 contains information on the regulation of preneed arrangements
                                               in New York.


Table V.4: New York Regulation of Preneed Arrangements
Category                                                              Yes             No       Comments
Trusts
 Trusting requirements                                                  X                      Trusting requirements are 100% for funeral
                                                                                               goods and services.
 Administrative fees permitted                                          X                      The administrative fee may not exceed 0.75 of
                                                                                               1% of the trust fund. If a preneed seller
                                                                                               charges this fee, this must be disclosed to the
                                                                                               consumer in writing.
 Both revocable and irrevocable contracts offered                       X
 Consumer receives refund if trust is revoked                           X                      The consumer would receive a refund of the
                                                                                               purchase price plus accrued interest.
 Contracts directly transferable to another state                       X                      A Bureau of Funeral Directing official stated
                                                                                               that irrevocable contracts are directly
                                                                                               transferable. For revocable contracts,
                                                                                               consumers would have to cancel the contract
                                                                                               and enter into a new contract in a different
                                                                                               location.
 Restrictions on where trust funds may be deposited                     X                      Funds must be deposited in an interest-
                                                                                               bearing account in a bank or savings and loan
                                                                                               association that shall earn interest at a rate
                                                                                               not less than the prevailing rate of interest
                                                                                               earned by other such deposits in such banks
                                                                                               and savings and loan associations; or a trust
                                                                                               company in an investment backed by the U.S.
                                                                                               government.
 Restrictions on where deposits may be invested                         X                      No further investments may be made with
                                                                                               deposited funds.
  State consumer protection trust fund                                                X
Insurance
  Sale of preneed insurance permitted within state                                    X
                                               Source: Bureau of Funeral Directing, State of New York Department of Health.


Texas                                          Preneed funeral trust contracts are regulated by the Special Audits
                                               Division of the Texas Department of Banking. Preneed insurance
                                               contracts are regulated by both the Texas Department of Insurance and
                                               the Texas Department of Banking.

                                               Table V.5 contains information on the regulation of preneed arrangements
                                               in Texas.




                                               Page 64                                           GAO/GGD-99-156 Funeral-Related Industries
                                               Appendix V
                                               Information on Preneed Arrangements in the Selected States




Table V.5: Texas Regulation of Preneed Arrangements
Category                                                            Yes          No       Comments
Trusts
 Trusting requirements                                               X                    For funeral goods and services, the preneed
                                                                                          seller has the option of trusting either 90% or
                                                                                          100% of sales proceeds. However, the seller
                                                                                          must disclose to the consumer which option
                                                                                          has been selected.
 Administrative fees permitted                                       X                    The seller may withdraw money from earnings
                                                                                          to pay (1) reasonable and necessary trustee’s
                                                                                          fees or depository fees, (2) the examination
                                                                                          fee for one examination by the Texas
                                                                                          Department of Banking each calendar year, or
                                                                                          (3) the expense of preparation of financial
                                                                                          statements. With the Texas Department of
                                                                                          Banking’s approval, the seller also may
                                                                                          withdraw money from earnings on an account
                                                                                          to pay for (1) any tax incurred or (2) an
                                                                                          assessment.
 Both revocable and irrevocable contracts offered                    X
 Consumer receives refund if trust is revoked                        X                    The purchaser is entitled to a refund of the
                                                                                          amount paid minus the amount that the seller
                                                                                          is permitted to retain for expenses. This
                                                                                          amount is not to exceed one-half of all money
                                                                                          collected or paid until the seller has received
                                                                                          an amount equal to 10% of the total amount
                                                                                          the purchaser agreed to pay under the
                                                                                          contract.
 Contracts directly transferable to another state                                 X       Department of Banking officials stated that
                                                                                          there is no statutory requirement for contracts
                                                                                          to be transferable.
 Restrictions on where trust funds may be deposited                  X                    Funds must be deposited in a bank or savings
                                                                                          and loan association in the state in a federally
                                                                                          insured interest-bearing account, or a trust
                                                                                          department in a bank or trust company
                                                                                          authorized to do business in the state.
 Restrictions on where deposits may be invested                      X                    Texas law provides the opportunity to invest in
                                                                                          numerous types of investments. Some of
                                                                                          these include federally insured banks or
                                                                                          savings and loan associations, U.S.
                                                                                          government bonds, certain state or local
                                                                                          bonds, and the common stock of a U.S.
                                                                                          corporation with a net worth of at least $1
                                                                                          million.
 State consumer protection trust fund                                X                    This fund is termed the Guaranty Fund and its
                                                                                          stated purpose is to guarantee performance
                                                                                          by sellers of trust funded prepaid funeral
                                                                                          contracts. The Department of Banking
                                                                                          collects $1 from sellers of trust funded
                                                                                          preneed contracts for each contract sold, to
                                                                                          be deposited in this fund.




                                               Page 65                                      GAO/GGD-99-156 Funeral-Related Industries
                                              Appendix V
                                              Information on Preneed Arrangements in the Selected States




Category                                                               Yes             No        Comments
Insurance
  Sale of preneed insurance permitted within state                      X
                                              Source: Special Audits Division, Texas Department of Banking.


                                              Consumers can also make preneed arrangements with cemeteries in the
                                              five states. In Florida and New York, cemeteries and funeral homes are
                                                                                                        4
                                              included under the same sections of state preneed law; in Texas, a
                                              Department of Banking official stated that with the exception of perpetual
                                              care funds, cemetery trusts are not regulated; and in California and
                                                                                                               5
                                              Maryland, different laws apply to cemetery and funeral trusts. For
                                              example, although California law restricts the amount of administrative
                                              fees that can be withdrawn from current funeral trust income, a CFP
                                              official told us that California law does not place any limitation on the total
                                              amount of administrative fees that may be withdrawn from preneed
                                              cemetery trusts, which in California are called special care funds. Under
                                              Maryland law, sellers of preneed funeral contracts are required to place
                                              100 percent of funds received for both goods and services into trust (with
                                              the exception of caskets). Sellers of preneed cemetery contracts are
                                              required to place 55 percent of funds received for goods and services into
                                              trust (with the exception of caskets, for which, as with funeral trusts, they
                                              are required to trust 80 percent).




                                              4
                                               In New York, however, an exception is made for cemetery sales of lots or graves, which are not
                                              covered by the state’s preneed law.
                                              5
                                               In three states--California, Florida, and Texas—the same state agency that has responsibility for the
                                              regulation of preneed funeral contracts also has responsibility for regulation of preneed cemetery
                                              contracts. In Maryland, the Office of Cemetery Oversight has jurisdiction over preneed cemetery
                                              contracts. In New York, the Division of Cemeteries has such jurisdiction.




                                              Page 66                                               GAO/GGD-99-156 Funeral-Related Industries
Appendix VI

Agency Comments




              Page 67   GAO/GGD-99-156 Funeral-Related Industries
Appendix VI
Agency Comments




Page 68           GAO/GGD-99-156 Funeral-Related Industries
Appendix VI
Agency Comments




Page 69           GAO/GGD-99-156 Funeral-Related Industries
Appendix VI
Agency Comments




Page 70           GAO/GGD-99-156 Funeral-Related Industries
Appendix VI
Agency Comments




Page 71           GAO/GGD-99-156 Funeral-Related Industries
Appendix VII

GAO Contacts and Staff Acknowledgments


                   Laurie E. Ekstrand, (202) 512-8676
GAO Contacts       John F. Mortin, (202) 512-8676
                   Jeanne M. Barger, (214) 777-5600


                   Jeremy Latimer, Susan Michal-Smith, Jan B. Montgomery, Kiki
Acknowledgements   Theodoropoulos, and Gregory H. Wilmoth made key contributions to this
                   report.




                   Page 72                              GAO/GGD-99-156 Funeral-Related Industries
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