Purpose

Requires funeral establishments that offer prearranged funeral trusts to provide certified public accountant (CPA) audited financial statements each year to the State Banking Department.

Background

Current law requires the Board of Funeral Directors and Embalmers (Board) and the State Banking Department (Department) to enter into an intergovernmental agreement to examine and report on prearranged funeral trust accounts of funeral establishments and to review prearranged funeral trust sales and trust account forms and procedures used by funeral establishments (A.R.S. 32-1391.01). The examination requires the Department to establish certain facts, such as the status of monies received under prearranged funeral trust agreements, names and addresses of persons purchasing such trusts and whether a funeral establishment is following recognized accounting procedures for such trusts. Once the examination is completed, the Department is responsible for forwarding a report to the Board.

Since funeral establishments are not currently required to provide audited financial statements to either the Board or the Department, the Department has expressed concern that it cannot assess whether recognized accounting procedures are followed, nor can it assess the financial condition of the funeral establishment in order to determine its ability to meet future obligations under prearranged funeral trusts. In addition, the Department has expressed concern over the lack of enforcement with respect to investigations and examinations of prearranged funeral trust accounts in violation.

The strike everything amendment to S.B. 1289 addresses these concerns by requiring an annual CPA audited financial statement from a funeral establishment that offers prearranged funeral trusts be provided to the Department and incorporated into the examination report. This requirement, according to the Department, will allow it to receive assurance as to the accounting practices employed by the establishment and to evaluate the financial condition of the entity in order to make better recommendations to the Board regarding possible corrective or enforcement actions, as authorized under the strike everything amendment to S.B. 1289.

There is no anticipated fiscal impact to the state general fund associated with this measure. If enacted, funeral establishments would be required to pay the costs of the CPA audit and opinion under this measure.

Provisions

1. Requires a funeral establishment that offers prearranged funeral trusts to provide annually, within 120 days of its fiscal year end, an audited financial statement prepared by a CPA for the establishment.

2. Requires the audited financial statement to include the following:

· an examination of the establishment’s internal control structure over the financial reporting and accounting of the prearranged funeral trust business.

· any reportable conditions of establishment’s internal control structure. Defines “reportable conditions.”

· the accountant’s opinion as to the statements’ accordance with generally accepted accounting principles.

3. Stipulates that the audited financial statement will become part of the examination report.

4. Requires the funeral establishment to pay for the costs of the audit and opinion.

5. Requires the Department, if applicable, to recommend specific corrective or enforcement action the Board should require of the licensee to cure any deficiencies or violations noted within the examination.

6. Makes a technical change.

7. Provides for a general effective date.

Amendments Adopted by Committee

Adopted the strike everything amendment.

Senate Action

COM 2/21/01 DPA 6-0-0-0

JS/ac

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