|
Statutory Requirements and Definitions
Who Must Be Bonded
Amount of Bond
Obtaining a Bond
Reporting of Bonding Information
Enforcement
OLMS Assistance
Appendix A
- Bonding Computation Worksheet
Appendix B
- Bonding Requirements Checklist
This pamphlet provides general information about the bonding requirements established
by the Labor-Management Reporting and Disclosure Act of 1959, as amended (LMRDA), and the regulations
implementing the standards of conduct provisions of the Civil Service Reform
Act of 1978 (CSRA).
The LMRDA applies to labor organizations which represent private sector employees
and U.S. Postal Service employees while the CSRA applies to labor organizations
which represent employees in most agencies of the executive branch of the Federal
Government. The regulations implementing the standards of conduct provisions
of the CSRA incorporate many LMRDA requirements, including those related to
the bonding of union officers and employees. (Federal sector labor organizations
subject to the Foreign Service Act or the Congressional Accountability Act are
also subject to the bonding requirements in this pamphlet.)
One of the purposes of the LMRDA is to protect union funds and assets from
losses caused by improper uses. Section 502(a) requires union officers and employees
to be bonded to insure that unions will be protected against losses caused by
an act of fraud or dishonesty by a union officer or employee. Every union covered
by the LMRDA or the CSRA is subject to the bonding requirements except for unions
with property and annual receipts that do not exceed $5,000.
The bonding requirements of the LMRDA are not based on the belief that a particular
individual or organization is dishonest or incompetent. Bonding is required
because when people are entrusted with the money or property of another, some
individuals will misuse this trust and cause a loss through fraud or dishonesty.
This pamphlet was prepared by the Office of Labor-Management Standards (OLMS)
of the U.S. Department of Labor’s Employment Standards Administration to
assist the unions and individuals subject to the bonding provisions of the LMRDA
or CSRA. It presents general information about the bonding requirements and
should not be construed as an official interpretation of the laws or the regulations
implementing them.
back to top
Section 502(a) of the LMRDA states, “Every officer, agent, shop steward,
or other representative or employee of any labor organization (other than a
labor organization whose property and annual financial receipts do not exceed
$5,000 in value), or a trust in which a labor organization is interested, who
handles funds or other property thereof shall be bonded to provide protection
against loss by reason of acts of fraud or dishonesty on his part directly or
through connivance with others . . . .”
Section 7120 of the CSRA and the implementing regulations require officers
and employees to be bonded in accordance with the principles of section 502(a)
of the LMRDA. Therefore, the bonding requirements are essentially the same for
unions subject to the LMRDA or the CSRA.
The following definitions will help you understand the most important terms
pertaining to bonding requirements of the LMRDA.
Bonding is an insurance agreement guaranteeing repayment for financial loss
caused to the covered organization by the act or failure to act of a third
person. Bonding is used to protect the financial operations of companies and
unions. For purposes of the LMRDA, bonding is intended to protect unions
and trusts from losses caused by acts of fraud or dishonesty by officers,
employees, or other representatives.
A trust in which a labor organization is interested is defined as any trust
or other fund or organization which meets the following two conditions:
(1) One of its primary purposes is to provide benefits for union members
or their beneficiaries; and
(2) A union created it or selected one or more of its trustees or members
of its governing body.
This definition, for example, covers funds for accident insurance, vacations,
death benefits, apprenticeship and training, scholarships, childcare, and
legal services.
The definition of a trust also covers pension funds and health and welfare
funds. However, if these funds are subject to the bonding provisions of the
Employee Retirement Income Security Act of 1974 (ERISA), no additional bonding
is required under the LMRDA. If you have questions concerning ERISA bonding
requirements, contact the Department of Labor’s Employee Benefits Security
Administration (EBSA) at 200 Constitution Avenue, NW,
Washington, D.C. 20210.
Funds include cash and, for example, bank accounts, checks, U.S. Treasury
notes, government bonds, stocks, mutual funds, and certificates of deposit
(CDs).
Other property includes property held, not for use, but for possible
conversion into cash or for similar purposes making it comparable to funds,
such as mortgage investments. The term does not include property of a relatively
permanent nature used in the operation of a union or a trust such as land,
buildings, furniture, fixtures, and office equipment.
An individual is considered to be handling funds or other property of a union
if the union could suffer a loss if the individual performed his or her duties
fraudulently or dishonestly. The loss could be caused by the individual acting
alone or with others.
Handling funds is not limited to physical contact with money but is
based on various factors such as custody, access, actual authority, responsibilities,
supervision, fiscal controls, and the nature of the funds or other property.
For example, a person who receives dues, fees, etc., from members clearly
handles union funds. Also, however, any officer or employee who has authority
to sign checks on the union’s account or redeem shares from a mutual
fund is “handling” union funds even if he or she has no physical
contact with the funds. Individuals who typically handle funds include union
officers (both elected and non-elected), employees such as business agents,
trustees, key administrative and professional staff, and clerical personnel.
Bonding coverage required by the LMRDA and the regulations is limited to
protection against financial loss arising from fraudulent or dishonest
acts in the handling of funds and other property of a union or trust.
Fraudulent or dishonest acts include, for example, larceny, theft,
embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion,
and willful misapplication. Bonds must allow recovery for losses as a result
of these acts by bonded persons directly or through a scheme with others.
back to top
Every union covered by the LMRDA is subject to the bonding requirements except
for unions with property and annual receipts that do not exceed $5,000 in
value. Every trust in which a labor organization is interested is covered
by the bonding requirements regardless of the value of its property and annual
receipts.
Every officer, agent, shop steward, and other representative and employee
who handles funds or other property of a covered union or trust must be bonded,
including:
- elected union officers;
- key administrative personnel, whether elected or appointed (such as business
agents, heads of departments or major units, and organizers who exercise
substantial independent authority);
- trustees and key administrative personnel of trusts;
- salaried nonsupervisory professional staff of unions and trusts; and
- secretarial, clerical, and service personnel of unions and trusts.
Before any new employees or officers may handle funds, they must be bonded
for an amount based upon the funds handled by their predecessors during the
last fiscal year. No additional bonding is required if a bond, which meets
the requirements of the LMRDA, is already in force to cover them.
If a person who is not bonded handles union funds, he or she is violating
the law. The person who assigns him or her those functions is also violating
the law.
back to top
The minimum bonding amount for each covered officer or employee is 10 percent
of the funds handled by the official and his or her predecessor, if any, during
the preceding fiscal year. For a new union, the bond must be at least $1,000
for a local union and not less than $10,000 for other unions or for a trust.
The maximum bond required for any one person in any one union or trust is
$500,000. However, a person who handles funds for more than one union or trust
may be required to be bonded for up to $500,000 for each union or trust.
A quick formula for computing the approximate amount of required bonding
coverage is:
| Liquid Assets +
Total Receipts x 10% |
| equals |
| Amount of Coverage
Required |
Appendix A is a worksheet that may be used to compute the amount of the bond
required for an officer or employee who handles the funds of a union or trust.
The amount of bonding coverage must be computed at the start of each fiscal
year and any necessary increase in coverage should be promptly obtained. Any
lapse of adequate coverage is a violation of the LMRDA. To prevent a lapse
in coverage, national and international unions that purchase bonding coverage
for their affiliates should examine the timetables established for affiliates
to report the funds handled during the fiscal year.
back to top
A union may purchase a bond only from a surety company that holds a grant
of authority from the Secretary of the Treasury as an acceptable surety on
Federal bonds. A list of approved companies is published annually in the Federal
Register, usually in July, and additions, changes, and removals are
published as they occur. The Department of the Treasury’s listing of
approved surety companies may also be found on the Internet at http://www.fms.treas.gov/c570/c570.html.
Surety companies know whether they are approved. In addition, your national
or international union may be able to assist you. When a company is removed
from the approved list, a union or trust bonded by the company must secure
a new bond from an approved company as soon as it learns of the removal.
A bond may not be placed through any agent or broker or with any surety company
in which any union or any officer, agent, shop steward, or other
union representative has a direct or indirect interest. For example, Union
A is prohibited from placing bonds through an agent or broker or with a surety
company in which Union B or its officers or agents have more than a nominal
interest.
A bond may not be obtained from a foreign surety company or from an unincorporated
United States company unless an exemption has been obtained from the Secretary
of Labor. The Secretary may exempt a union from placing a bond through a surety
company holding a grant of authority from the Secretary of the Treasury if
the union can establish that its alternate arrangements would provide the
required protection at comparable cost or less.
If a union or trust chooses to have additional bonding coverage beyond the
requirements of the LMRDA, the coverage may be placed with any company, including
foreign companies, unincorporated companies, or companies which are set up
by a union.
Self-insurance by the union, in whole or in part, fails to meet the bonding
requirements of the LMRDA. A union may not deposit its own funds with a surety
company to pay for losses or to compensate a surety company for losses sustained
under a bond. A bond may also not have a deductible since that is a form of
self-insurance.
A bond may be either individual, schedule, or blanket.
- An individual bond is a single bond that covers one named person
for a designated amount.
- A schedule bond covers either named individuals or specific positions
or offices. Typically, a name schedule bond lists named individuals
and covers them separately for a designated amount, while a position schedule
bond lists specific positions, covers each for a designated amount, and
covers any persons who may occupy any such position during the term of the
bond.
- A blanket bond covers all officers and employees of an insured union or
trust, but without a schedule or list of those covered; all new officers
and employees are covered automatically as well as officers and employees
whose duties change to include handling funds.
Acceptable blanket bonds may operate on either an aggregate or multiple
penalty basis. A blanket bond on an aggregate penalty basis provides for recovering
the same amount regardless of whether a loss is caused by one person or by
several persons acting together. For example, if a union has a blanket bond
for $10,000 on an aggregate penalty basis and two officers or employees are
involved jointly in the embezzlement of $20,000, only $10,000 could be recovered
from the surety company for the embezzlement.
A blanket bond on a multiple penalty basis provides separate coverage for
each person. For example, if a union has a blanket bond on a multiple penalty
basis and two officers or employees are involved jointly in the embezzlement
of $20,000, the full $20,000 could be recovered because $10,000 could be recovered
for each individual.
More than one union may be named on a bond, or be bonded together by the
same bond, as long as the bond allows for recovery by each union in an amount
at least equal to that for which it would be covered on a separate bond. For
example, many national and international unions obtain a bond covering both
their organization and their affiliated unions. Contact your national or international
union if you have any questions about whether your union is covered by such
a bond.
The LMRDA does not prohibit adding to or changing the terms of an existing
bond through riders or amendments as long as they comply with applicable bonding
requirements. A rider or amendment may be used to add to or change the scope
or form of the bond, the persons or positions covered, or the amount of coverage.
The LMRDA does not regulate the payment of bonding premiums. Bonding costs
may be paid either by the bonded union or trust or by some other organization
or person.
back to top
Unions subject to the LMRDA must indicate on their annual financial report
(Form LM-2, LM-3, or LM-4) filed with OLMS within 90 days after the end of
the organization’s fiscal year, whether they were insured by a fidelity
bond during the annual reporting period and, if so, the maximum amount recoverable
for loss caused by any person. Unions also must indicate whether any loss
or shortage of funds or other property was discovered during the reporting
period. If so, the union must describe the loss or shortage in detail by explaining
what was lost, how it was lost, and to what extent, if any, there has been
any recovery through restitution, surety bond, insurance, or other means.
All bonding and surety companies which have bonds in force under the LMRDA
or ERISA must file an annual report (Form S-1) with OLMS 150 days after the
end of the surety company’s fiscal year to disclose their bonding experience
during the reporting period.
Required reports from unions and surety companies may be filed on computer-generated
forms if in overall appearance and content they are virtually indistinguishable
from the printed OLMS forms and their readability is equivalent to the readability
of OLMS forms.
All reports must be filed with the Department of Labor at the following address:
U.S. Department of Labor
Employment Standards Administration
Office of Labor-Management Standards
200 Constitution Avenue, NW
Washington, DC 20210
All LMRDA required reports are public information. The Secretary of Labor
may publish any information or data obtained from reports submitted under
the bonding provisions of the LMRDA.
Any person may examine these reports or may purchase copies for 15 cents
per page. All reports filed with OLMS are available at its national office
at the above address in Washington, DC. Each OLMS field office has duplicate
reports for all reporting organizations within its geographic jurisdiction.
See the list of OLMS field offices in the OLMS Assistance
section of this pamphlet.
Every person who is required to file a report under the LMRDA is responsible
for maintaining records which will provide in sufficient detail the information
and data necessary to verify the accuracy and completeness of the report.
These records must be kept for 5 years after the date the report is filed.
Any record necessary to verify, explain, or clarify the report must be retained,
including, but not limited to, vouchers, worksheets, receipts, and applicable
resolutions.
back to top
Section 502(b) of the LMRDA provides criminal penalties for willful violations
of the bonding requirements. Any person who willfully violates section 502(a)
may be fined and/or imprisoned.
Enforcement of the CSRA bonding requirements is through administrative action
involving the filing of a complaint by OLMS, a hearing before a Labor Department
administrative law judge, the judge’s report and recommendation, and a
decision and order by the Assistant Secretary for Employment Standards.
In addition, officials who make false statements on reports required to be
filed with OLMS, including statements relating to the bonding requirements of
the LMRDA, are subject to criminal penalties. If the reports were submitted
under the CSRA, penalties may be imposed pursuant to 18 U.S.C. 1001.
back to top
Additional information about the Labor-Management Reporting and Disclosure Act or the Civil Service Reform Act may be obtained from
OLMS field offices.
back to top
click here for a printable
worksheet. If the table appears misaligned, try
this.
| 1. Liquid Assets as of start of
fiscal year (date) _______________: |
|
| |
A. Cash on hand and in banks |
$___________ |
|
| |
B. Accounts receivable |
$___________ |
|
| |
C. Loans receivable |
$___________ |
|
| |
D. U.S. Treasury securities (market
value) |
$___________ |
|
| |
E. Other investments (market value) |
$___________ |
|
| |
F. Other liquid assets |
$___________ |
|
| 2. Total Liquid Assets (Total
of Lines A through F) |
$___________ |
| 3. Receipts during the fiscal year
ended (date) _____________ |
$___________ |
| 4. Total Liquid Assets plus Receipts
(Line 2 plus Line 3) |
$___________ |
| 5. Deduct: |
|
|
Receipts included in Line 3 which resulted from converting
Liquid Assets held at the beginning of the year into cash and from additional
rollovers of securities:
|
| |
A. Payments on accounts receivable |
$___________ |
|
| |
B. Payments on loans receivable |
$___________ |
|
| |
C. Sales of U.S. Treasury securities |
$___________ |
|
| |
D. Payments on mortgage investments |
$___________ |
|
| |
E. Sales of other investments |
$___________ |
|
| |
F. Sales of other assets |
$___________ |
|
| |
G. Additional rollovers of securities |
$___________ |
|
| 6. Total Deductions (Total of
Lines A through G) |
$___________ |
| 7. Total Funds Handled During Last
Completed Fiscal Year (Line 4 minus Line 6) |
$___________ |
| 8. Amount of Bonding Required:
|
|
|
| |
A. For each person having access to
receipts only:
10 percent of Line 3 |
$___________ |
| |
B. For each person having access to
receipts and liquid assets:
10 percent of Line 7 |
$___________ |
(click here for a printable
checklist)
To comply with the bonding requirements of the LMRDA and the CSRA, a union
with property and annual receipts that exceed $5,000 in value, or a trust, must
be able to answer yes to each of the following questions:
| Yes |
No |
|
| ___ |
___ |
Are all officers, agents, shop stewards, representatives,
or employees who handle funds or other property of your union or trust bonded?
|
| ___ |
___ |
Does the bond insure for losses caused by fraud or dishonesty
on the part of each bonded person directly or through a scheme with others?
|
| ___ |
___ |
Does the bond provide for recovery of lost funds by the union
or trust whose funds are covered?
|
| ___ |
___ |
If the bond covers more than one union or trust, is recovery
from the surety company provided for each to the same extent as if it were
bonded separately?
|
| ___ |
___ |
Is the amount of the bond for each covered person at least
10 percent of the funds handled by that person during the preceding fiscal
year? (The amount of the bond for any one person with any one organization
is not required to be over $500,000, no matter what amount of funds that
person handles.)
|
| ___ |
___ |
Was the bond obtained from a surety company which is on the
Secretary of the Treasury’s list of acceptable sureties for Federal
bonds?
|
| ___ |
___ |
Was the bond obtained from a surety company in which no union
and no officers, agents, shop stewards, or other representatives of any
union have a direct or indirect interest, and with a broker or agent (if
used) in which none of those officials have such an interest?
|
| ___ |
___ |
Are all persons who are not properly bonded excluded from
handling funds or other property of your union or trust?
|
| ___ |
___ |
If your union’s bonding requirements have increased from
last year’s coverage, have you obtained amended coverage?
|
| ___ |
___ |
Does the bond provide for recovery of all funds lost without
a deductible or other form of self-insurance?
|
|
