This week’s Ftag of the Week on the CMSCG Blog is F570 Surety Bond – Security of Personal Funds, which is part of the Resident Rights regulatory group. The purpose of this regulation is to ensure that facilities purchase a surety bond to guarantee that the facility will pay residents (or the State on behalf of a resident) for any losses occurring from the facility’s failure to hold, safeguard, manage or account for the residents’ funds, such as through negligence or dishonesty. A surety bond is defined as an agreement between a facility, an insurance company, and the resident/State acting on behalf of the resident. The facility is considered the principal and the insurance company is the surety, and the resident is designated as the obligee.
What to Know About Surety Bonds
- The facility cannot be named as a beneficiary on the surety bond
- There are not many acceptable alternatives to a surety bond. Self-insurance is not acceptable, nor are funds that are deposited in FDIC-protected bank accounts (or that of a similar entity as FDIC).
- The surety bond, per the Interpretive Guidance, is meant to protect the residents, not the facility. Thus, the facility assumes responsibility for compensating the resident (or the State) for the amount of the loss up to the entire amount of a surety bond.
- Any resident funds – not just personal needs allowance funds – that are entrusted to the facility for a resident must be covered by the surety bond. This includes refundable deposit fees.
During the interview process with residents and/or their representatives, surveyors can identify if the resident was compensated for any losses that were the responsibility of the facility to safeguard.
- If the surveyor identifies a potential concern, then the facility’s records will be reviewed to determine if the concern is substantiated or not. The IG notes that if the State Survey Agency (SSA) cannot determine if the facility is in compliance with the requirements, then it can make a referral to the State’s fiscal department for further review.
- If the facility is part of a corporation that holds a surety bond to cover all of its facilities, then the corporate surety bond should be reviewed by the appropriate State agency to ensure that all residents in that State are covered against losses caused by either the corporation or any of its facilities.
How It’s Cited
F570 is not frequently cited, but when it has been identified as an issue by surveyors, one of the following scenarios typically occurred:
- The facility’s surety bond was compared to the amount of the residents’ personal funds deposited within the facility and the surety bond did not provide adequate coverage for all resident funds. This was identified with some additional frequency in 2020, with many facilities stating that residents’ stimulus checks were causing unanticipated volumes of funds in resident accounts and the surety bonds were not adequate compared to the increase in resident funds.
- The facility was unable to provide a surety bond that was in effect or could not produce the information at all upon request
This is just one additional item that Administration needs to ensure staff are paying attention to. Routine checks of the accounts with residents’ funds compared to the amount of the surety bond will identify whether the surety bond is adequate or not.