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Unclaimed Property Focus
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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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UPPO Advocacy Year in Review

Posted By Administration, Thursday, December 14, 2017

With state legislatures beginning to consider which, if any, parts of the Revised Uniform Unclaimed Property Act to enact, 2017 was an especially active year for UPPO’s Government Relations and Advocacy Committee (GRAC). Following is a review of highlights from the committee’s advocacy work during the past year.

 

February

Arkansas and South Dakota introduced bills that would require the liquidation prior to or shortly after the escheatment of securities property, respectfully. UPPO sent comments to both state legislatures expressing concerns with the bills and encouraging each state to adopt the applicable securities provisions of the Revised Uniform Unclaimed Property Act. 

 

Later in the month, Utah introduced Utah S.B. 175, a version of the Revised Uniform Unclaimed Property Act. On Friday, Feb. 24, UPPO submitted a letter to Senate leadership and bill sponsor Sen. Lyle Hillyard regarding the bill's approach to securities property, requesting Utah seriously consider reverting back to the RUUPA language. 

 

March

Delaware made headlines with its swift passage of S.B. 13 in February 2017. UPPO assembled a work group to thoroughly analyze the legislation and identify both practical and legal concerns with the S.B. 13 to raise to Delaware. UPPO compiled the concerns in a comment letter, submitted to Delaware on March 16, 2017, which pointed out issues UPPO believes Delaware should tackle in its administrative rules/guidance and also to consider amending in future legislative sessions.

 

Following introduction of Illinois H.B. 2603, a RUUPA-inspired bill, UPPO submitted comments to the Executive Committee regarding concerns with the bill, encouraging it to track RUUPA more closely and improve the language to provide more clear language. 

 

April

In response to two Tennessee RUUPA bills (H.B. 420 & S.B. 371) introduced in February, UPPO submitted comments to articulate the changes Tennessee should consider to improve the clarity and fairness of the bills.

 

Also in April, Texas unclaimed property officials responded to questions UPPO submitted in December 2016 regarding H.B. 1454. The law, which went into effect on Sept. 1, 2017, allows property owners to designate a “representative for notice,” which triggers a requirement that the holder must mail or email the required due diligence notice to both the representative and the owner.

 

May

On May 4, UPPO filed an amicus brief with the U.S. Court of Appeals for the Third Circuit in the case of Office Depot v. Cook. The amicus brief supported the arguments of the plaintiffs, retailer Office Depot and its gift card management company, North American Card and Coupon Services. Unfortunately, in July Third Circuit Court of Appeals Judge Joseph A. Greenway Jr. denied UPPO’s motion to file the amicus brief. The judge gave no reason for the denial.

 

July

In July, UPPO surveyed state unclaimed property administrators, requesting information about a variety of possible changes affecting holder reporting. Thirty-seven states responded.

 

August

The American Bar Association is in the process of drafting a revised version of its Model Unclaimed Property Act, an alternative to the Revised Uniform Unclaimed Property Act, approved by the Uniform Law Commission last year. On Aug. 4, UPPO submitted comments to ABA regarding the working draft of its model act. In September, ABA incorporated most of UPPO’s suggestions.

 

On Aug. 30, UPPO filed comments with the Delaware Department of Finance regarding its proposed unclaimed property regulations. UPPO had filed comments in May on the first set of proposed regulations and while the new version is similar to those posted earlier, UPPO wanted to go on record again regarding the most problematic sections.

 

November

On Nov. 10, UPPO sent comments to Nebraska Sen. Matt Williams regarding the L.B. 141, Nebraska’s Revised Uniform Unclaimed Property Act. UPPO’s comments discuss issues related to several Nebraska proposal deviations from the Uniform Law Commission’s Revised Uniform Unclaimed Property Act

 

On Nov. 14, Allen Mayer, deputy general counsel for the Illinois Treasurer’s Office, spoke to the Illinois Chamber of Commerce about the Illinois Revised Uniform Unclaimed Property Act. UPPO submitted several questions, most of which Mayer addressed during his presentation.

 

December

As the American Bar Association neared completion of adopting a revised version of its Model Unclaimed Property Act, UPPO submitted additional comments for consideration.

 

Let Your Voice Be Heard

As more and more legislatures and regulatory agencies take on issues affecting unclaimed property compliance, advocacy has become an increasingly important role for UPPO. Please take a few minutes to complete our Government Relations and Advocacy Survey to help us: 

  • Prioritize topics for the government relations and advocacy session at the 2018 Annual Conference.
  • Build our grassroots advocacy network. 

Responses will give us the ability to better provide you with the information you want and need, and will allow us to mobilize UPPO members when we are faced with legislative and regulatory challenges and opportunities. 


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Managing Multi-State Audits

Posted By Administration, Thursday, December 7, 2017

In today’s unclaimed property environment, the constant threat of a multi-state audit is very real for holders. Those who find themselves under examination face a daunting process that will likely last three to five years and will most certainly result in a significant resource strain across many departments.

 

Multi-state audit liability can be quite costly. The third-party firm conducting the audit works on a contingency fee basis, providing an incentive to discover a large liability in every state for which it is working. If one of those states is the holder’s state of incorporation, estimated liability with a lookback period of 10-15 years is in play, depending on the specific state.

 

Company-wide engagement in the audit process is essential. Several departments, including accounts payable, payroll, accounts receivable. finance, IT and legal, will likely be called on to commit their time and effort to the audit process – all while continuing to carry out their regular day-to-day responsibilities.

 

So, with this looming threat, what should a holder do to manage the multi-state audit process?

 

First, be proactive. If a multi-state audit has not yet been initiated, conduct a risk assessment to understand potential exposure. Identify holes in existing procedures that could lead to potential unclaimed property issues – small dollar balance write-offs, stale-date check write-offs and lack of documentation to support voided checks, for example. Evaluate the level of risk so you can address areas likely to cause significant problems. Consider signing up for states’ voluntary disclosure agreement (VDA) programs to come into compliance voluntarily, rather than waiting for an audit notice.

 

If it’s too late for proactive measures and you’ve already received a multi-state examination notice, get organized. Appoint a lead person to manage the audit process, serve as the point of contact for the auditors, compile documentation and review materials before submission to the auditors. Evaluate whether to hire an experienced advocate to help manage the process.

 

Get legal counsel involved early. Because a significant amount of litigation surrounding unclaimed property audits has occurred, legal counsel may be able to identify industry-specific legal defense issues to help mitigate the audit.

 

The first 12-18 months of a multi-state audit are especially critical. Expect frequent document requests from the auditors, each with a 30-60-day timeline. The initial requests will be used to establish the audit scope – which entities and property types will be included. Auditors will then likely review trial balance and general ledgers, disbursement bank account information, accounts receivable reports and aging reports.

 

Depending on the holder’s industry, record requests may fall outside of the accounts payable, payroll and accounts receivable departments. For example, retailers may need to supply gift card records, or manufacturing companies may be asked for customer rebate records.

 

It is critical for the person managing the audit process to review all information before submitting it to the auditors, ensuring they receive exactly what they need but nothing more that could complicate the process.

 

As the audit proceeds, the holder should recognize its exposure in additional states not covered as part of the audit. If a company doing business in 40 states undergoes an audit covering 10 of them, there may be existing exposure in the other 30. The audit provides an opportunity to manage that additional risk, enter into VDA programs and enact processes to prevent the problem from spreading.

 

Undergoing a multi-state audit is never pleasant, but it provides an incentive for holders to improve their practices. Through the hard work required to complete the audit, best practices can be implemented to ensure better procedures and controls in the future. Executives are more likely to remain aware of unclaimed property issues following an audit, increasing the likelihood of increased support to prevent another such audit in five, six or 10 years.

 

To get a more in-depth look at navigating the challenges of a multi-state audit, join UPPO for the Multi-State Audits webinar on Dec. 12, 2017, at 1 p.m. EST. Matt Hedstrom from Alston & Bird LLP and Heela Popal from PricewaterhouseCoopers LLP will provide insight into managing the process, tackling business continuity challenges and preparing for a potential audit. 

Tags:  audits  VDAs 

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Delaware Makes a Case for Converting Audits to VDAs

Posted By Contribution from Carla McGlynn, 2017/18 UPPO president, Thursday, November 30, 2017

With Delaware’s Dec. 11, 2017, deadline for converting existing audits to state’s Voluntary Disclosure Agreement Program fast approaching, the Secretary of State’s Office recently held a webinar for eligible unclaimed property holders. Alison Iavarone, Delaware’s unclaimed property VDA administrator provided background on the VDA Program and addressed frequently asked questions about the conversion option.

 

The VDA conversion option originates from S.B. 13, legislation intended to shift the state’s unclaimed property compliance efforts away from audits, while promoting voluntary and continued compliance, according to Iavarone. Holders that received an examination notice before July 22, 2015, are eligible. Those that were under audit as Feb. 2, 2017, also have the option to choose a fast-track audit, administered by state’s Department of Finance.

 

Why Convert?

Iavarone suggested several reasons why eligible holders should consider converting their audits to VDAs:

  • The VDA Program is intended to be a more business-friendly method than an audit for holders to come into compliance.
  • The VDA Program is designed to be faster and less expensive than an audit.
  • The holder manages the VDA process and presents its findings to the state for validation. After completion, holders that meet future reporting obligations are protected from audit for historic liabilities for the property types and entities reviewed under the VDA.
  • The state waives interest and penalties for holders participating in the VDA Program.
  • Holders are not expected to begin their internal VDA review from scratch. They can use any review information gathered before converting to the VDA to ensure greater efficiency.
  • Work papers from the audit will not transfer to the Department of State as part of the conversion. The only shared information pertains to the scope of the audit – a summary of entities, property types and audit population periods.

Frequently Asked Questions

Iavarone addressed several key questions related to the state’s VDAs.

 

What is the look-back period?

The look-back period is 10 report years (15 transaction years) from the date the original examination notice was sent to the holder.

 

What is the scope of the VDA from a converted audit?

The scope, for most eligible holders, was determined by the auditor. At a minimum, holders are expected to use the same scope as the audit for the VDA. If they choose, holders may expand the scope.

 

How is the state handling bifurcated audits, covering securities and general ledger items?

Under Delaware law, only the general ledger portion of the audit may be converted to a VDA. Securities are not eligible.

 

What if a holder already settled part of an examination?

If holders have settled and closed portions of the audit before conversion, only the remaining entities and property types will be covered under the VDA.

 

What is the statute of limitations?

S.B. 13 includes a 10-year statute of limitations from when the reporting duty arose. It will not be applied retroactively, as the previous six-year statute of limitations applied before S.B. 13 was effective.

 

How is estimation applied?

The estimation process continues to use second-priority or gross estimation, as it has in the past.

 

What if a settlement cannot be reached?

The audit will refer back to the Department of Finance if a settlement cannot be reached for a particular property type or some other aspect of the VDA.

 

Who is managing the VDA process for Delaware?

Drinker Biddle continues to manage the VDA Program on behalf of the Delaware VDA administrator, who ultimately has final review and approval responsibilities. 

 

Eligible holders must file Form NOI CONV with the Department of State by Dec. 11, 2017, to participate. For more information, visit http://vda.delaware.gov

Tags:  audits  Delaware  VDAs 

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Illinois Official Addresses Unclaimed Property Legislation Questions

Posted By Administration, Tuesday, November 28, 2017
Updated: Tuesday, November 28, 2017

On Nov. 14, 2017, Allen Mayer, deputy general counsel for the Illinois Treasurer’s Office, spoke to the Illinois Chamber of Commerce about the Illinois Revised Uniform Unclaimed Property Act. UPPO submitted several questions, most of which Mayer addressed during his presentation. Sara Lima and Freda Pepper, members of UPPO’s Government Relations and Advocacy Committee, attended the event.

 

According to Lima, Mayer’s attitude toward the state’s new law was exceedingly positive, as would be expected given that the law “favors the state’s position on many ambiguous legal issues.” Of particular note, Mayer described Illinois’ prior unclaimed property law as an “antiquated mess” and characterized the prior business-to-business exemption as a “loophole” that has now been closed.  

 

Has the legislature considered the constitutionality issues raised by the transitional provision? Requiring Holders to look back 10 years (five-year requirement plus five-year dormancy period) to report otherwise exempted property raises due process issues. 

Mayer said that, although he cannot speak for the Illinois General Assembly, he considers the lookback period to be eight years (five-year requirement plus three-year dormancy period under the new Illinois unclaimed property statues). He noted that he personally researched the constitutionality issue and believes the exemption can be retroactively revoked, citing Riggs Nat. Bank v. District of Columbia (581 A.2d 1229) in particular.

 

In attempting to comply with the transitional provision, records dating back to that period of time will most likely not exist, particularly because there has been no record retention requirement contained in Illinois’ unclaimed property law. What will be the consequences of not being able to “catch up” report when these records are no longer available?

Mayer responded that there has always has been a record-retention provision, although it was hard to find before the new Illinois unclaimed property legislation. He cited Section 11(h)(ii), which proscribes a five-year retention from when property is reportable. According to Mayer, holders who report “catch up” property on the 2018 report will not be subject to interest and penalties. He also invited feedback and suggestions on how the state should otherwise deal with the issue.

 

Has there has been any study of the impact of the transitional provision on the business community?

Mayer did not directly respond to this question.

 

Has there has been any study of the impact of the removal of the B2B exemption on the business community?

Mayer said there were some fiscal projections and that the exemption was not as significant as he believes many expected. He noted that he believes companies may not have been fully using the exemption in practice.

 

What specifically will the administrative rules be addressing?

Mayer did not provide any specific topics, but noted Illinois will be considering pay cards (possibly in new legislation) and is open to informal discussion about this topic.

 

Could you please provide clarification of when reports are expected to be filed by investment companies? Are they considered “business associations” that are required to file by May 1?

Mayer specified that investment companies are business associations, required to file by May 1. He said he would be open to including clarification in future legislation.

 

Tags:  Illinois  RUUPA 

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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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