|November 4, 2008|
Office of Labor-Management Standards (OLMS)
Bonding Requirements Under the LMRDA and the CSRA
Statutory Requirements and Definitions
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.
Statutory Requirements and Definitions
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 isintended 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:
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.
Fundsinclude cash and, for example, bank accounts, checks, U.S. Treasury notes, government bonds, stocks, mutual funds, and certificates of deposit (CDs).
Other propertyincludes 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 isnot 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 dishonestacts in the handling of funds and other property of a union or trust. Fraudulent or dishonest actsinclude, 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.
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:
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.
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%
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.
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. See the Department of the Treasury’s listing of approved surety companies. 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.
Acceptable blanket bondsmay 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.
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
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.
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.
Additional information about the Labor-Management Reporting and Disclosure Act or the Civil Service Reform Act may be obtained from OLMS field offices.
Bonding Computation Worksheet
Bonding Requirements 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: