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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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Deadline Approaches for Converting Delaware Audits to VDAs

Posted By Administration, Wednesday, November 22, 2017

Under Delaware Department of Finance regulations that became effective on Oct. 11, 2017, unclaimed property holders that received an examination notice from the department on or before July 22, 2015, have the option to convert the audit to the state’s Voluntary Disclosure Agreement Program. The deadline for submitting the Notice of Intent to Convert Audit to VDA form is Dec. 11, 2017. Holders undergoing a securities examination are not eligible to convert.

 

Converting from an existing audit to a VDA holds several potential benefits for holders.

 

Waived interest and penalties

Delaware officials have stated that waiving the mandatory 25 percent interest charge and other penalties is intended to be a significant incentive for holders to come into compliance via the state’s VDA program.

 

Limited carryover of audit work

“The only aspect of the audit that will have precedential impact on the VDA is the scope of the examination,” said Kendall Houghton, partner with Alston & Bird. “That includes any determination by the Department of Finance and its contract auditors about which entities will come under review, and the applicable property types and years. Other than that, holders that convert to a VDA have the option to incorporate other aspects of work performed during the audit, but are not required to do so.”

 

This limited carryover of audit work has two noteworthy advantages to holders:

  1. They don’t have to start over, redoing every aspect of the audit. Holders that qualify for the VDA conversion have been under examination for at least two years and have likely dedicated significant resources to the process. They can choose to use completed work as they prepare their VDA analysis, submission and quantification of liability.
  2. They are not required to use the audit firm’s work papers and determinations made during the examination.

Closing and release agreement

Upon completing the VDA program, holders have the opportunity to secure a closing and release agreement from the secretary of state. That can be quite valuable, as it protects holders from liability for the period covered under the VDA, as long as there was no willful misrepresentation or fraud, and they meet future reporting requirements.

 

Flexibility

Holders that elect to convert their examinations to VDAs are not required to complete the VDA program. If they are unable to reach acceptable terms or anticipate that the results of an unclaimed property lawsuit may deem Delaware’s estimation practices unconstitutional, for example, holders may choose to withdraw from the VDA program. This gives them the option to challenge their liability or litigate it later, which would not be an option once the VDA closing and release agreement is finalized.

 

Control

Undergoing a self-directed review under the VDA process gives holders greater control of the process than completing an audit. The self-directed review is typically more targeted, freeing holders from overly broad information requests from the auditor. They also have the ability to set their own timelines.

 

“If you’re engaged in yearend closing and need to put the VDA process aside for a few weeks, you can do that without the constant tension of having to fulfill the auditor’s record requests,” Houghton said.

 

Relaxed review standards

The VDA’s review standards are generally less stringent than those imposed during an audit. For example, under an audit, checks voided after 30 days need to be researched and remediated. Under the VDA process, the standard increases to 90 days for voided checks. This standard is more in line with common business practices and is likely to generate a lower error rate for liability estimation.

 

“The remediation standards employed in the VDA program are more appropriate because the holder knows its policies and procedure, and is in the best position to assess whether an item on the books has been proven not to be unclaimed property,” said Houghton. “There is effectively a presumption in the audit process that anything on the books is unclaimed property, and the level of documentation required to rebut that presumption is more rigid.”

 

Greater cooperation

The VDA program is designed to give holders the opportunity to complete the self-directed examination, secure a release and move forward with proactive compliance. As such, even when issues between holders and the VDA administrators are contested, they are generally able to discuss, vet and settle the differences. Everyone involved typically approaches challenges with the common goal of collaborating on a solution.

 

Potential downsides

Despite the advantages available to holders through the audit-to-VDA conversion, opting to convert is not a clear-cut decision for everyone. As mentioned previously, upon execution of a closing and release agreement, holders forfeit the right to challenge the liability or later litigate it. In the event of a significant lawsuit that changes the unclaimed property audit landscape, holders that completed the VDA would not have the right to file a refund claim or dispute the estimated liability they paid.

 

For some holders that have substantially completed the audit process, the VDA process may represent an additional burden. Although not starting from scratch because they can use material from the examination period when preparing their VDA analysis, the self-directed review process still requires dedication of resources. A holder may decide that completing the audit process is more prudent than dedicating additional consultant, outside counsel and staff resources to the VDA program.

 

Finally, if the holder is subject to a multi-state audit, converting to a VDA in Delaware would not affect the audit from the other states. So, entering into the VDA could effectively shift the holder from a single process to multiple processes, posing potential resource issues.

 

The third option

In addition to completing the examination or converting to a VDA, holders may instead elect to convert to an expedited audit. Much like the VDA, this option includes a waiver of interest and penalties. However, very little information regarding the expedited audit process has been published, and the waiver is subject to the escheator’s determination that a holder cooperated with the auditor.

 

“The VDA and audit processes have been around a long time, but the expedited audit process is new and has a lot of unknowns,” said Houghton. “The administrative comments and guidelines don’t exist yet. That creates a lot of questions that aren’t yet answerable.”

 

For more information about Delaware’s VDA conversion initiative, refer to Delaware’s Convert Audit to a VDA web page.

Tags:  audits  Delaware  VDAs 

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Litigation Update: New Jersey Court Issues Merchandise Certificate Decision

Posted By Administration, Thursday, November 16, 2017

BBB Value Services Inc. v. Treasurer, State of New Jersey, Department of the Treasury et al. and Bed Bath & Beyond Inc. v. Treasurer, State of New Jersey, Department of the Treasury et al.

 

On Sept. 21, 2017, the New Jersey Superior Court Appellate Division issued an important decision regarding merchandise certificates. The plaintiffs in the original cases under appeal were Bed Bath and Beyond and its subsidiary, BBB Value Services Inc. The respondents were unclaimed property officials with the state of New Jersey. Both plaintiff companies had filed for refunds with New Jersey for escheated amounts attributable to merchandise certificates and were denied.

 

The merchandise certificates in question resulted from a Bed Bath and Beyond policy that customers who returned merchandise without a receipt would be given a certificate for merchandise or services, but not cash. From 2004 to 2012, Bed Bath and Beyond reported and remitted these certificates to New Jersey’s unclaimed property administration. In 2014, the subsidiary reported a sum attributable to certificates issued between 2010 and 2011. When denying the refund claims from both entities, the state argued that the merchandise certificates were considered credit memoranda.

 

The court reversed the state’s denial of both entities. Bed Bath and Beyond successfully argued that the merchandise certificates weren’t covered under New Jersey’s unclaimed property act, in part because they weren’t redeemable for cash. The court agreed that they didn’t fit the definition of “property,” ruled in favor of Bed Bath and Beyond and said the company was entitled to a refund.

 

The subsidiary, BBB Value Services, argued that the items in questions were stored-value cards and not credit memoranda under a July 2010 amendment to New Jersey’s unclaimed property act. As such, they weren’t presumed abandoned until after five years of inactivity and, even then, they should have been reportable at only 60 percent.

 

The subsidiary said that if the certificates were indeed considered stored value cards, the five-year dormancy period had not run. If they were not considered stored value cards, then they wouldn’t be subject to New Jersey’s unclaimed property act because they weren’t redeemable for money. The court agreed with BBB Value Services that the certificates were stored value cards.

 

The court ruled the state had erred by not giving BBB Value Services a refund. Thus, the subsidiary was entitled to a refund, but because the five-year dormancy period had now run, some of the property must now be reported. So, BBB Value Services was directed to file a new report.

 

 

Special thanks to Sam Schaunaman, recently retired senior manager at Ryan AUP and longtime member of the UPPO Government Relations and Advocacy Committee, for his frequent contributions to UPPO’s litigation update blog posts.

 

Disclaimer: This case summary contains a general description of the case. It is not intended as business, financial, legal, tax, reporting or compliance or other professional advice or services. This summary blog is not a substitute for such professional advice.

 

Tags:  litigation  merchandise certificates  New Jersey 

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Changes Proposed to New Illinois Unclaimed Property Statutes

Posted By Administration, Monday, November 6, 2017

On Nov. 1, Illinois Rep. Michael J. Zalewski filed House Amendment 2 to Senate Bill 868, which would make significant changes to the unclaimed property statutes passed under S.B. 9 in July 2017 and scheduled to take effect on Jan. 1, 2018.

 

Following are some of the most noteworthy changes included in the amendment:

  • Gift Card Exemption: The amendment more clearly defines “stored value card” (redeemable upon presentation at multiple unaffiliated merchants for goods and services or usable at automated teller machines) and “gift card” (cards that do not expire and are not subject to inactivity or post-sale service fees and that are for goods or services issued on a prepaid basis primarily for personal, family, or household purposes). It also eliminates gift cards from the definition of “property.”
  • Official Checks: The amendment includes in the definition of “property” any instrument on which a financial organization or business association is directly liable and gives it a three-year dormancy period.
  • Report Deadlines: Under the amendment, the report must be filed before Nov. 1 of each year by financial organizations and insurance companies other than life insurance companies. All other business associations, utilities and life insurance companies must file the report before May 1 of each year for the immediately preceding calendar year.
  • State Treasurer Interest Requirement: The amendment specifies that if an interest-bearing demand, savings or time deposit is paid or delivered to the administrator on or after July 1, 2018, then the administrator shall pay interest to the owner at the lesser of: (i) the percentage increase, if any, in the Consumer Price Index for All Urban Consumers for all items published by the United States Department of Labor (CPI-U); or (ii) the rate the property earned while in the possession of the holder and reported to the administrator. Interest begins to accrue when the property is delivered to the administrator and ends on the earlier of the expiration of 10 years after its delivery or the date on which payment is made to the owner. The administrator may establish by administrative rule more detailed methodologies for calculating the amount of interest to be paid to an owner under this section using CPI-U or the rate the property earned while in the possession of the holder.
  • Escheat Fees: Under the amendment, an escheat fee is defined at "any charge imposed solely by virtue of property being reported as presumed abandoned." Section 15-602 expressly stipulates that a holder may deduct an escheat fee from reported property if certain conditions are met, and removes a clause forbidding a holder from deducting an escheat fee or other charges meeting the stated definition.

The amendment was assigned to the House Revenue and Finance Committee and is scheduled for a hearing on Nov. 7, 2017. Because this is the last week the Illinois legislature is scheduled to convene this year, this amendment represents the last chance for changes to the law before its effective date.

UPPO will continue to monitor and report on the progress of this legislation.

 

Update: UPPO has received reports that Illinois unclaimed property officials plan to submit administrative rules to the Joint Committee on Administrative Rules by the end of December 2017, with the goal of making the rules effective in late spring of 2018.  



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Celebrate the End of Fall Reporting Season

Posted By Administration, Thursday, October 26, 2017

As October winds down, unclaimed property professionals deserve a pat on the back for surviving another fall reporting season. To help UPPO members who are searching for appropriate ways to let their hair down, blow off some steam and celebrate, we are pleased to offer a few suggestions. 

 

Put the fallen leaves in your yard to good use.

 

 

Find how your favorite football team has been doing.

 

 

Get some exercise.

 

 

Enjoy a nice bonfire with friends but, remember, safety first. 

 

 

Finally figure out what the pumpkin spice latte craze is all about. 

 

 

Dance like nobody’s watching.


 

 

Catch up on sleep.

 

All images from giphy.com

Tags:  fall reporting 

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Serving on the UPPO Board Opens Doors

Posted By Administration, Thursday, October 19, 2017

Serving on the Unclaimed Property Professionals Organization Board of Directors opens doors to new experiences, connections and opportunities. It offers the chance for members to influence the priorities of the organization and give back to others in their profession. 

 

UPPO is currently accepting nominations for the 2018 board election. Four positions – second vice president, secretary, Eastern vice president and Midwestern vice president – are open for nominations by Nov. 20. 

 

“I strongly encourage interested members to run,” said Heather Steffans, UPPO’s Midwestern vice president. “Serving on the board greatly enhances your involvement with the organization. You make connections with many more individuals across the organization, and increase your awareness of what’s happening in the industry. It allows you to provide feedback and ideas on how we can advance the organization’s three-pronged mission of advocacy, membership growth and education. I am continually amazed at the fantastic volunteer efforts that members put into the committees; seeing it first-hand participating as a board liaison. The discussions that occur during the committee and board meetings are efficient and productive.”

 

Serving on the board offers many benefits. As a board member, you can:

  • Lead your profession: Demonstrate and share your skills as a leader and influencer in the unclaimed property profession. 
  • Help guide your organization: Play an essential role in the setting the direction the organization will take. Represent fellow members, ensuring their voices are heard. 
  • Give back: Many UPPO members credit their active participation in the association as a key factor for their professional development, network depth and career growth. Serving on a board is a way to give back to the organization. 
  • Gain 501(c)(6) nonprofit experience: Expand your skills in and knowledge of a nonprofit organization’s operations. 
  • Grow your network: Board members develop new and deeper relationships with fellow directors and association members.
  • Expand your resume: Whether you desire to move up your current company or anticipate seeking new opportunities elsewhere, board experience demonstrates your leadership skills and involvement beyond the workplace. 
  • New expertise: As a board member, you’ll gain greater insight into the unclaimed property world and experience with issues you may not otherwise encounter.

Board members are often surprised by how rewarding their participation is – and by how many ways their dedicated time and energy pay off. 

 

“Overall, it’s been a great experience,” said Michelle Graf, UPPO’s Southern vice president. “I’ve learned a lot about the in-depth issues within UPPO and the unclaimed property arena. It also opens the door to new personal and professional connections. Serving on the board is unlike anything I’ve done before.”

 

Consider sharing your ideas, talents and skills by applying to become a board member today, or nominate a fellow UPPO member by Nov. 20, 2017. Learn more

 

Tags:  board of directors  election  nominations  UPPO 

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