In planning for the FY2022-23 budget, one of the issues county legislative bodies will need to consider is whether to require bonds or insurance for their elected and appointed officials, as well as their employees. Following a 2016 amendment to T.C.A. § 8-19-101, counties are authorized to purchase insurance policies in place of bonds for both officials and employees. Using insurance instead of bonds is an option, not a requirement. Furthermore, it is not an "all or nothing" decision -- the decision to continue to require a bond or to purchase an insurance policy can be made for employees and individual officials.
Each county should review its options before deciding to change from bonds to insurance, including a thorough review of the coverage of any proposed policy of insurance that would substitute for official bonds. A few things counties should consider include: (1) the amount of the trustee's bond and whether the amount of insurance proposed as a substitution is adequate; (2) whether the coverage under the insurance policy is as broad as the existing bond coverage; (3) whether the insurance policy will cover claims made after the term of office ends, as a bond would do; and (4) the relative cost for each.
For many county trustees, the minimum amount of insurance coverage will be less than the amount required under the statutory calculation for their surety bond. These calculations are based on the county's revenues handled by the county trustee's office, and only provide the minimum coverage for the county trustee. As you are all aware, the amount of funds handled by county trustees has increased due to COVID-19 relief packages and grants disbursed over the last year. This increased funding is likely to continue, with the second tranche of American Rescue Plan Act (ARPA) funds scheduled for disbursement in the coming year. Accounting standards dictate that grant proceeds, such as those from the ARPA, are not recognized as revenue until the funding has been expensed in an allowable manner. Therefore, it is likely that any ARPA funding received during FY2020-2021 was not recorded as revenue on the financial statements produced by the Division of Local Government Audit and therefore would not be considered in the surety bond calculations. However, since the county has received the funds, we believe those funds should be considered at risk and therefore warrant consideration for additional coverage. We wanted to make you aware of this in case the county wanted to increase the surety bond coverage beyond the minimum calculation to account for the ARPA funds the county will receive. Under T.C.A. § 8-11-103, county legislative bodies may require additional securities for the county trustee if they believe the minimum coverage is insufficient.
If insurance is used, each official to be covered must be listed by name in the insurance policy. The policy must provide government crime coverage, employee dishonesty coverage, or equivalent coverage that ensures the lawful performance by officials and their employees of their fiduciary duties and responsibilities. A certificate of insurance evidencing the officials and offices covered, the amount of coverage, and the type of coverage must be filed in the office of the register of deeds. The certificate of insurance satisfies the requirement for filing an official bond for the named officials. The minimum amount of coverage required is $400,000. Check with your insurance provider about available coverage and cost options.
See the CTAS InfoByte – Bonds or Insurance for more information on this topic.
If you have questions, please contact your CTAS County Government Consultant.