DOS-49-15-00003-P Cemetery Annual Financial Reports; Commercial Crime Coverage; and Permanent Maintenance Fund Contributions

12/9/15 N.Y. St. Reg. DOS-49-15-00003-P

NEW YORK STATE REGISTER

VOLUME XXXVII, ISSUE 49

December 09, 2015

RULE MAKING ACTIVITIES

DEPARTMENT OF STATE

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. DOS-49-15-00003-P

Cemetery Annual Financial Reports; Commercial Crime Coverage; and Permanent Maintenance Fund Contributions

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Repeal of section 200.5; renumbering of section 200.6 to 200.7; addition of sections 200.1(e), 200.5, 200.6, 201.20; and amendment of sections 200.1(d), 200.3, 200.4 and 200.7 of Title 19 NYCRR.

Statutory authority:

Executive Law, section 91; Not-for-Profit Corporation Law, section 1504(c)

Subject:

Cemetery annual financial reports; commercial crime coverage; and permanent maintenance fund contributions.

Purpose:

To reduce the financial reporting burden and expense on cemeteries and ensure timely, accurate and complete reports are filed.

Text of proposed rule:

1. Subdivision (d) of Section 200.1 of Title 19 NYCRR is amended to read as follows:

(d) For purposes of administration and reporting requirements, cemeteries shall be classified as follows:

(1) The term small cemetery corporation means any cemetery corporation which had, at the end of the preceding calendar year, less than $[400,000]1,000,000 in total [funds]financial assets.

(2) The term medium cemetery corporation means any cemetery corporation which had, at the end of the preceding calendar year, at least $[400,000]1,000,000 but less than $[1,000,000]10,000,000 in total [funds]financial assets and which had under $1,000,000 in total receipts in the preceding calendar year.

(3) The term large cemetery corporation means: i) any cemetery corporation which had, at the end of the preceding calendar year, $[1,000,000]10,000,000 or more in total [funds]financial assets; or ii) any cemetery corporation which had $1,000,000 or more in total receipts in the preceding calendar year.

(4) The term [total funds includes all general funds, permanent maintenance funds, perpetual care funds, special trust funds and other funds under the control of the cemetery, including both restricted and unrestricted funds.]non-traditional cemetery corporation means any cemetery corporation which does not offer and has not in the past offered full body ground burials. A non-traditional cemetery corporation is excluded from the terms small, medium and large cemetery corporation.

2. A new subdivision (e) is added to Section 200.1 of Title 19 NYCRR as follows:

(e) The term total financial assets includes all general funds, permanent maintenance funds, perpetual care funds, special trust funds and other funds under the control of the cemetery, including both restricted and unrestricted funds, regardless of the form in which they are held.

3. Section 200.3 of Title 19 NYCRR is amended to read as follows:

§ 200.3 Filing of financial reports by cemeteries.

(a) Every [small ]cemetery corporation shall file an annual financial report with the division within [75]90 days following the close of the cemetery's fiscal year. [Such report shall be signed by at least two officers or directors of the cemetery corporation]The annual report shall be filed or submitted in the form and manner prescribed by the division, whether by mail, electronically, or otherwise.

(b) [Every medium and large cemetery corporation shall file a CPA financial report with the division within 75 days following the close of the cemetery's fiscal year.]The annual report shall be signed by at least two officers or directors of the cemetery corporation, shall include a completed division financial report, DOS-415, and shall include any Federal Form 990 filed by the cemetery for the preceding calendar or fiscal year. The Form 990 shall be filed or submitted in the manner prescribed by the division, whether by mail, electronically or otherwise.

(c) In addition, every medium, large and non-traditional cemetery corporation and any cemetery directed to do so pursuant to § 200.4(d) of this section shall also file a CPA financial report.

4. Section 200.4 of Title 19 NYCRR is amended to read as follows:

§ 200.4 [Cemetery]CPA financial reports.

(a) Every [large]medium cemetery corporation shall file a CPA financial review with the division within 90 days following the close of the cemetery's fiscal year. The review shall be [audited]conducted by an independent certified public accountant or an independent enrolled public accountant[ expressing an opinion in connection with the financial statement filed with the division, which opinion]. It shall be supplemented by the following data:

(1) a description of the extent of the physical examination of the cash and investments;

(2) a statement concerning the internal controls for safeguarding the cash and investments;

(3) a statement concerning compliance with N-PCL section 1507(c) and (d) indicating whether separate accounts are maintained for each perpetual care endowment, reflecting the principal amount, the income apportioned for the year, the cost of care charged for the year, and the excess of income credited to such account to be used in future years;

(4) a statement concerning the accountability for the permanent maintenance fund, indicating whether the cemetery's records separately identify cumulative principal reflecting allocations from the proceeds of the sales of lots and from supplemental sources, cumulative capital gains or losses from investments, and the retained income available for the maintenance and preservation of the cemetery; and

(5) a statement concerning the accountability for the perpetual care fund, indicating whether the cemetery's records separately identify cumulative principal for endowment, cumulative capital gains or losses, and the cumulative income retained for use in future years.

(b) Every [medium]large and non-traditional cemetery corporation shall file a CPA financial audit with the division within 90 days following the close of the cemetery’s fiscal year. The audit shall be [reviewed]conducted by an independent certified public accountant or an independent enrolled public accountant[. This review will be] expressing an opinion in connection with the financial statement filed with the division[ and ]. The opinion shall be supplemented by the following data if applicable to the filing cemetery:

(1) a description of the extent of the physical examination of the cash and investments;

(2) a statement concerning the internal controls for safeguarding the cash and investments;

(3) a statement concerning compliance with N-PCL section 1507(c) and (d) indicating whether separate accounts are maintained for each perpetual care endowment reflecting the principal amount, the income apportioned for the year, the cost of care charged for the year, and the excess of income credited to such account to be used in future years;

(4) a statement concerning the accountability for the permanent maintenance fund, indicating whether the cemetery's records separately identify cumulative principal reflecting allocations from the proceeds of the sales of lots and from supplemental sources, cumulative capital gains or losses from investments, and the retained income available for the maintenance and preservation of the cemetery; and

(5) a statement concerning the accountability for the perpetual care fund, indicating whether the cemetery's records separately identify cumulative principal for endowment, cumulative capital gains or losses, and the cumulative income retained for use in future years.

(c) [Every small cemetery corporation shall file either the annual financial report form provided by the division or the cemetery corporation's own financial report if it contains all the information required on the division's form.]For any non-traditional cemetery, the opinion shall also be supplemented by the following data if applicable to the filing cemetery:

(1) a statement indicating whether funds, accounts, assets, and liabilities of the cemetery corporation are kept separate and distinct from the funds, accounts, assets, and liabilities of any related for-profit entity;

(2) a statement indicating whether the income and expenses of the cemetery corporation are kept separate and distinct from the income and expenses of any related for-profit entity; and

(3) a statement indicating whether any transaction between the cemetery corporation and any related for-profit entity are arm’s length, fair and reasonable.

(d) The division may, upon application by a medium or large cemetery, modify the reporting requirements for such cemetery if the cemetery demonstrates to the satisfaction of the division that the requirements of this section and the cost of compliance are onerous and unreasonable and may, upon evidence of possible financial irregularity or non-compliance, order a small or medium cemetery to comply with the requirements of paragraph (b) of this section.

5. Sections 200.5 of Title 19 NYCRR is repealed and a new section 200.5 is added as follows:

§ 200.5 Additional information and reports.

Nothing herein limits or impairs the power and authority of the cemetery board pursuant to N-PCL section 1508(b) and other provisions of Article 15 of the N-PCL.

6. Section 200.6 of Title 19 NYCRR is renumbered as section 200.7 and a new Section 200.6 is added as follows:

§ 200.6 Commercial crime insurance coverage.

(a) Every cemetery corporation shall carry commercial crime insurance or similar insurance coverage for the acts or omissions of cemetery directors, officers, and employees as well as volunteers who handle money, accounts or securities for the cemetery.

(b) The annual financial report filed with the division shall set forth the amount of commercial crime coverage, the classes of persons included, the name of the carrier/issuer, the policy number, and the expiration date of coverage.

(c) The amount of coverage required is $15,000 or 10% of total financial assets, whichever is greater, up to a maximum of $500,000. Notwithstanding the foregoing:

(1) the division may, at its discretion, order a cemetery to obtain commercial crime coverage in excess of $500,000 if it determines that an increase in coverage is appropriate and that such coverage is readily available in the marketplace. A cemetery subject to such order may file a protest with the Cemetery Board pursuant to section 200.2(b); and

(2) Upon application as prescribed by the division showing good cause for such relief, a cemetery may request that the division reduce, waive or modify the requirements under this section. Good cause may include proof that the cemetery is unable to obtain commercial crime insurance or similar coverage despite diligent effort, or that the cost of such coverage at the level required by this section is onerous and unreasonable.

7. Former section 200.6 of Title 19 NYCRR, which has been renumbered as Section 200.7 pursuant to these amendments, is amended to read as follows:

§ 200.7. Location of offices.

(a) The principal office of the State Cemetery Board is located at 123 William Street, New York, NY 10038-3804.

(b) All communications, papers, maps or copies thereof, reports or documents shall be addressed to or filed in the principal office of the State Cemetery Board unless otherwise directed by the division.

(c) [All orders]Orders by the State Cemetery Board [shall]may be filed in its principal office or its Albany, New York branch.

(d) There are branch offices at One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231-0001; State Office Building, 207 Genesee Street, Utica, NY 13501-3744; Hughes State Office Building, 333 E. Washington Street, Syracuse, NY 13202-1418; 44 Hawley Street, Binghamton NY 13901 and 65 Court Street, Buffalo, NY 14202-3471.

8. A new section 201.20 is added to Title 19 NYCRR as follows:

§ 201.20 Permanent maintenance fund collections and contributions.

(a) All permanent maintenance fund deposits required by N-PCL section 1507 shall be made at least quarterly.

(b) A cemetery that receives payment in installments or over time for a lot, plot or part thereof, shall deposit to the permanent maintenance fund the full amount required by N-PCL section 1507 on the entire sale either:

(1) in lump sum at the time the contract is signed and any initial payment is received; or

(2) by depositing at least ten percent (10%) of any initial payment and each installment payment to the permanent maintenance fund as such payments are received until the full amount required by N-PCL section 1507 on the entire sale has been deposited to the fund.

Text of proposed rule and any required statements and analyses may be obtained from:

Antonio Milillo, Department of State, Office of General Counsel, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

45 days after publication of this notice.

Regulatory Impact Statement

1. Statutory Authority: Executive Law section 91 authorizes the secretary of state to adopt rules which shall regulate and control the exercise of the powers of the department of state, and Not-For-Profit Corporation Law (N-PCL) section 1504 (c) authorizes the cemetery board to adopt rules and regulations it deems necessary for the proper administration of N-PCL Article 15 (Public Cemetery Corporations).

2. Legislative Objectives: The legislative intent of N-PCL Article 15 is, among other things, to promote the state’s interest in the establishment, maintenance and preservation of cemeteries and the proper operation of the corporations which own and manage them; to protect the well-being of citizens, to promote the public welfare and to prevent cemeteries from falling into disrepair and dilapidation and becoming a burden upon the community; and to ensure that cemeteries are conducted on a non-profit basis for the mutual benefit of the public. Section 1504 of the Not-for-Profit Corporation Law authorizes the division of cemeteries to inspect cemeteries and their business records and to ensure compliance with Article 15.

3. Needs and Benefits: The proposed revision of 19 NYCRR Part 200 is needed to reduce the financial reporting burden and expense on cemeteries while simultaneously ensuring that the Division of Cemeteries (the division) and the Cemetery Board (the board) are provided with complete, accurate, and timely financial reports to allow proper oversight of cemeteries. The current regulation defines a small cemetery as having less than $400,000 in total funds; defines a medium cemetery as having at least $400,000 and less than $1 million in total funds and defines a large cemetery as having at least $1 million in funds. Small cemeteries may file annual financial reports with no Certified Public Accountant (CPA) review; medium cemeteries are required to file a CPA review; and large cemeteries must file CPA audits. The proposed revision would change the definition of small cemetery to those with less than $1 million in funds; medium cemeteries to those with at least $1 million but less than $10 million in funds; and large cemeteries to those with $10 million or more. This will significantly reduce the administrative burden and expense of those cemeteries that move from the large to medium category and from the medium to small category. The proposed revision also creates a new class of cemeteries - non-traditional cemetery – for cemeteries that do not offer full body burial. This change will allow the division to more closely review the financial operation of these cemeteries which are often closely related to for-profit businesses. The proposed revision also gives cemeteries more time to file their annual reports with the division, allows cemeteries to seek a further reduction in their financial reporting requirements and allows the division to increase reporting requirements if it finds evidence of possible financial irregularity or non-compliance with cemetery law. The proposed revision would also require all cemeteries to file a standard department of state form as part of their annual financial reports which will provide significant uniformity in the way cemeteries report their finances and financial operations. This in turn will assist review of cemetery operations by the division and the board. The proposed revision also makes it clear that the promulgation of these regulations in no way limits the power and authority of the cemetery board under section 1508(b) and other provisions of the N-PCL to require cemeteries to provide additional reports and information beyond what is required by the regulation. The revision also replaces a requirement that cemeteries carry fidelity bond coverage – a type of insurance that is no longer generally available – with a requirement that they obtain commercial crime coverage – a type of insurance that is generally available. The proposed regulation sets a cap on the amount of coverage that would be required but allows cemeteries to seek waivers or modifications upon a showing of good cause and gives the division the flexibility to require greater coverage when it is available and would be appropriate. The addition of new section 201.20 will require cemeteries to make their required permanent maintenance fund payments at least quarterly. Some cemeteries have been waiting until the end of the year to make their fund payments which causes those cemeteries to lose potential interest and gains. The new section would also give cemeteries that engage in installment sales two methods of making their permanent maintenance fund deposits for those sales. Currently there is no regulation of how and when those deposits are made.

4. Costs:

a. Regulated Parties. Cemeteries that are moved from the large to medium or from the medium to small categories will experience decreased costs related to their annual financial reports; decreased costs will be most significant for newly categorized small cemeteries since they will no longer be required to file CPA reviewed reports. Non-traditional cemeteries that have not been submitting CPA financial audits will see their costs rise. With regard to commercial crime insurance coverage, insurance representatives and regulated entities have indicated that such coverage is widely available and relatively inexpensive when the amount of coverage does not exceed $500,000 – the amount of the cap in the proposed regulation. The annual premium for that maximum coverage is expected to be between $500 and $750.

b. The agency, the State and local governments. No increase or decrease in costs is anticipated.

5. Local Government Mandates: The proposed amendment does not impose any new programs, services, duties or responsibilities upon any county, city, town, village, school district, fire district or other special district.

6. Paperwork: For those cemeteries that have not been filing the Department of State annual report form, making this form mandatory will increase their paperwork. Cemeteries that have been filing the report will not see an increase in paperwork from this requirement. Cemeteries that move from the medium category to the small category and from the large to the medium category with see their paperwork decrease. Non-traditional cemeteries that have not been filing CPA financial audits will see an increase in paperwork.

7. Duplication: These regulations would not duplicate existing State or Federal regulations.

8. Alternatives: These proposed regulations are the result of lengthy meetings with interested parties that spanned over more than a year. Most of the discussions and changes related to small details, such as the appropriate cap for commercial crime coverage and the appropriate way for cemeteries that engage in installment sales to make their permanent maintenance fund deposits related to those sales. The interested parties did not suggest broad alternatives to these proposed regulations.

9. Federal Standards: At this time there are no federal standards with regard to the filing of cemetery financial reports.

10. Compliance Schedule: The regulatory amendments will be effective immediately upon the publication of a Notice of Adoption in the State Register.

Regulatory Flexibility Analysis

1. Effect of Rule: There are 1771 cemeteries throughout the State that are under the jurisdiction of the Division of Cemeteries and which will be affected by this rule. This rule would not affect any local governments.

2. Compliance Requirements: This proposed rule modifies existing financial filing and reporting requirements for cemeteries. In many cases requirements and costs are lessened, but in some cases they are increased. An insurance requirement is modified to reflect the type of coverage now available, and uniform requirements for the deposit of permanent maintenance funds are added.

3. Professional Services: Many cemeteries will no longer be required to engage a Certified Public Accountant (CPA) in order to comply with the regulations modified by this proposed rule, but some will now have to engage a CPA.

4. Compliance Costs: Many cemeteries will experience decreased costs related to their annual financial reports; cemeteries that will no longer be required to file reports prepared by a CPA will realize the most significant decreased costs. Non-traditional cemeteries that have not been submitting CPA financial audits will see their costs rise. With regard to commercial crime insurance coverage, insurance representatives and regulated entities have indicated that such coverage is widely available and relatively inexpensive when the amount of coverage does not exceed $500,000 – the amount of the cap in the proposed regulation. The annual premium for such maximum coverage is expected to be between $500 and $750.

5. Economic and Technological Feasibility: It is economically and technologically feasible for cemeteries to comply with the regulation.

6. Minimizing Adverse Impact: This regulation generally decreases the cost of compliance with the financial reporting requirements of the existing regulation, and also adds flexibility so that cemeteries may request further reduced requirements.

7. Small Business and Local Government Participation: The regulation was presented to the New York State Association of Cemeteries (NYSAC), the New York State Funeral Directors Association (NYSFDA) and individual cemeteries. Copies of the proposed regulation were also made available to persons in attendance at meetings of the New York State Cemetery Board. NYSFDA had no comments or objections to the proposed regulation. NYSAC and individual cemeteries did comment on and offer modifications to the proposed regulation, many of which have been incorporated into the proposed text.

Rural Area Flexibility Analysis

1. Types and Estimated Number of Rural Areas: A majority of the 1771 cemeteries regulated by the Division of Cemeteries are located in rural areas.

2. Reporting, Recordkeeping, and other Compliance Requirements and Professional Services: All 1771 cemeteries would be required to comply with these modified regulations and conform their reporting and recordkeeping methods to them. The Department of State financial reporting form which had been voluntary for cemeteries to file will now be mandatory.

3. Costs: Many cemeteries will experience decreased costs related to their annual financial reports; the most significant decreased costs will be realized by the cemeteries that will no longer be required to file reports prepared by a certified public accountant (CPA). This is especially true for rural cemeteries that previously were categorized as medium cemeteries but now will be categorized as small. Non-traditional cemeteries that have not been submitting CPA financial audits will see their costs rise. With regard to commercial crime insurance coverage, insurance representatives and regulated entities have indicated that such coverage is widely available and relatively inexpensive when the amount of coverage does not exceed $500,000 – the amount of the cap in the proposed regulation. The annual premium for that maximum coverage is expected to be between $500 and $750.

4. Minimizing Adverse Impact: The proposed regulation adds flexibility, it permits cemeteries to seek modification of the financial reporting requirement, and modification or waiver of the commercial crime insurance coverage requirement. Also, the proposed regulation generally reduces existing burdens.

5. Rural Area Participation: The process of drafting this regulation has been an open process. The regulation was presented to the New York State Association of Cemeteries (NYSAC), the New York State Funeral Directors Association (NYSFDA) and individual cemeteries. Copies of the proposed regulation also have been made available to persons in attendance at meetings of the New York State Cemetery Board.

Job Impact Statement

A Job Impact Statement is not required because it is evident from the nature and purpose of this regulation that it would neither create nor eliminate employment positions and/or opportunities and therefore would have no adverse impact on jobs or employment opportunities in New York State.