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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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Unclaimed Property Trends Shape Annual Conference Sessions

Posted By Administration, Monday, January 8, 2018

For better or worse, this is not a dull time to be an unclaimed property professional. In recent years, numerous state legislatures have considered (and often approved) updating their unclaimed property statutes. Courts continue to look at state unclaimed property practices, including controversial audit practices. And companies from coast to coast and border to border face the ongoing challenge of minimizing their unclaimed property risk.

 

Throughout 2017, UPPO helped members keep up with the trends affecting unclaimed property professionals. Many of these same trends shape the agenda for the 2018 UPPO Annual Conference, March 4-7, 2018, in Tampa, Florida.

 

Delaware

In February 2017, Delaware Gov. John Carney signed S.B. 13 into law, triggering significant changes to the state’s unclaimed property practices. Since then, the state has adopted new audit rules and encouraged holders currently under audit to convert to the state’s VDA program.

 

As we approach the one-year mark since S.B. 13, its effects continue to unfold. The Delaware Reforms: One Year Later session at the 2018 UPPO Annual Conference will examine the status of changes in Delaware and their ramifications. The Advocacy Efforts in the Age of Reform session will shine a light on UPPO’s work to promote fair unclaimed property requirements not only in Delaware, but in all states.

 

Audits

Fueled by activity in Delaware, controversy continues to swirl around state audit practices. The use of third-party auditors incentivized by contingency fees has been the focus of litigation and advocacy efforts. As states update their unclaimed property statutes, some, such as Michigan, are enacting new audit standards. Some states also help offer a fairer playing field for holders by providing the opportunity to appeal audit assessments. The examination process, particularly that of multi-state audits, often strains holder resources, as it stretches over several years.  

 

The Audit 101, Navigating Your Audit and Mock Trial sessions, along with several of the Industry Focus sessions, at the 2018 UPPO Annual Conference will provide attendees with insight into strategies holders can employ when facing examination.

 

Litigation

The courts have provided several favorable rulings for holders in recent months. Appeals court rulings in cases brought by Plains All American Pipeline, Bed Bath and Beyond, and Marathon Petroleum have yielded positive results. Similar cases, including those brought by Office Depot and the multi-state squabble over MoneyGram official checks, continue to proceed through the courts.

 

Attendees at the 2018 UPPO Annual Conference will learn about these and other relevant litigation trends during the Legislative and Litigation Update session.

 

Operational Practices

In addition to exploring unclaimed property trends, the 2018 UPPO Annual Conference agenda is packed with sessions to provide practical knowledge attendees can apply to be more effective at their jobs. Sessions will examine a wide range of topics, including: state reporting basics, managing due diligence, self-assessments, record retention, exemptions and deductions, fraud, policies and procedures, foreign jurisdictions and much more.

 

View complete details about educational sessions and other 2018 UPPO Annual Conference events. The early-bird registration deadline is Jan. 10, so register today for the best rate.

Tags:  audits  Delaware  litigation  trends 

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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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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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Unclaimed Property News Roundup

Posted By Administration, Thursday, September 21, 2017

Unclaimed property has been in the headlines lately with a variety of stories appearing in local and national media outlets. Following is a recap of some of the most noteworthy reports.

 

Delaware’s pro-business image slides, in part from aggressive unclaimed property enforcement

On Sept. 11, 2017, Delaware Online published an article about a U.S. Chamber of Commerce study that dropped Delaware from the top state for business litigation to 11th. Among the reasons noted was the state’s aggressive enforcement of unclaimed property laws.

 

Unclaimed property takes center stage in Louisiana treasurer election

On Sept. 9, The Advocate published a lengthy article discussing how Louisiana’s former treasurer and current senator John Kennedy raised the profile of unclaimed property in the state. As a result, candidates for the upcoming treasurer election have made unclaimed property central to their campaign platforms.

 

Even celebrities appear on state unclaimed property lists

Reports in numerous media outlets, including WCVB TV, in the past few weeks have reported on members of pop group New Kids on the Block appearing on the Massachusetts unclaimed property list. Although celebrity unclaimed property reports are often a little hokey, they receive a lot of media and online attention, raising awareness of unclaimed property nationwide.

 

Texas unclaimed property rule changes receive coverage

On Aug. 30, Ignites, a Financial Times company, published an article discussing Texas unclaimed property rules that subsequently went into effect on Sept. 1. Commenting on behalf of UPPO, Kendall Houghton addressed the new Texas Designation of Representative form: “While there appears to be a maintenance requirement, there doesn’t appear to be a record retention period established through the form or, to my knowledge, by the comptroller’s office.”

 

Wall Street Journal looks at the JLI Invest unclaimed property case against Delaware

On Aug. 18, The Wall Street Journal published an article about the lawsuit brought by two French scientists against Delaware for seizing and selling their stock, considered by Delaware as unclaimed property. The value of the stock increased significantly after Delaware sold it but before the scientists learned their stock had been seized, causing them to lose millions of dollars, according to their complaint. The author of the WSJ article subsequently appeared on CNBC’s Closing Bell, discussing the article and the issues raised by the JLI case.

 

Bloomberg looks at issues with Delaware’s proposed unclaimed property rules

On Aug 14, Bloomberg BNA’s Salt Talk Blog published an article about Delaware’s work to develop new unclaimed property rules, required by S.B. 13. The article notes that many of the issues raised after Delaware released its previous version of the proposed rules remain present in the new version.

 

Tags:  Delaware  Louisiana  Texas  unclaimed property 

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2017 Unclaimed Property Legislative Roundup

Posted By Administration with contribution by Marcella Easly, senior compliance advisor at UPCR, Thursday, July 13, 2017

Across the nation, unclaimed property has been a popular topic for state legislatures this year. Although a handful of state legislatures are still in session, most have completed their work. Following is a brief summary of some of the most noteworthy unclaimed property bills that became law during the 2017 session. 

 

Delaware

Effective on Feb. 2, 2017, S.B. 13 adopts in substance many provisions from the 2016 Revised Uniform Unclaimed Property Act promulgated by the Uniform Law Commission. In addition, it adopts certain recommendations from the Delaware Unclaimed Property Task Force formed under Senate Concurrent Resolution No. 59 of the 147th General Assembly, and makes significant changes to the state's unclaimed property reporting process and compliance initiatives. More specifically, these changes include reducing the look-back period of all voluntary disclosure agreements and audits to 10 report years, and creating a 10-year statute of limitations for the state to seek payment of unclaimed property due to the state. In addition, this legislation aligns the state’s record retention requirement for companies with the statute of limitations and look back period, which brings State law into conformity with a majority of other states. This bill also offers any company currently under audit prior to July 22, 2015, the opportunity to convert their audit into a voluntary disclosure agreement by entering into the Secretary of State Voluntary Disclosure Agreement program. All companies who received a notice of examination and are currently under audit as of the effective date of this Act will have the opportunity to engage in an expedited audit review process. Finally, the bill mandates that interest be assessed on any late-filed unclaimed property, as a means to incentivize voluntary compliance. See previous UPPO’s May 4 blog post for more information about S.B. 13. 

 

Effective on June 29, 2017, S.B. 79 makes changes and corrections to SB 13. Among these changes, the amended bill ensures holders have sufficient time to comply with SB 13’s due diligence requirements with owners. It further clarifies that the state will indemnify and defend a holder against claims made by a foreign jurisdiction for property paid or delivered to the state escheator in good faith.

 

Idaho

Effective on July 1, 2017, H.B. 152 establishes an exemption from Unclaimed Property law for nonprofit corporations providing telecommunications service and delivery of electric power.

 

Illinois

Effective on Jan. 1, 2018, S.B. 9 creates the Revised Uniform Unclaimed Property Act. It adds language concerning definitions, applicability, rulemaking, and presumptively abandoned property. The bill also includes rules for taking custody of property that is presumed abandoned, reporting requirements, and required notice to property owners, among other provisions. The bill expressly excludes gift cards, loyalty cards and game-related digital content from property subject to escheat. However, it does not exclude gift cards from the definition of “stored-value cards,” which are subject to escheat, creating a potential conflict. The bill also specifies that virtual currency is subject to escheat. The state’s business-to-business exemption is not retained under the new bill.

 

New Hampshire 

Effective on Jan. 1, 2018, H.B. 473 increases the threshold above which merchants can sell gift cards with expiration dates from $100 to $250. The bill further clarifies that gift certificates of $250 or less shall not be considered abandoned property, and it revises the definition of gift certificate by removing the requirement that a gift certificate be in writing. The bill also provides that gift certificates and store credits remitted to the state prior to Jan. 1, 2018, must remain in the custody of the state until returned to the owner.

 

South Dakota

Effective on March 10, 2017, S.B. 34 revises provisions related to securities held as unclaimed property. It requires the state treasurer to sell all stocks, bonds, and other negotiable instruments within 90 days of confirmed receipt, unless the property is on an open claim.

 

Effective on July 1, 2017, H.B. 1081 revises provisions for establishing a trust for a mineral owner who cannot be located. It provides that a person or entity holding interest in a tract of land may petition a county court to create a trust in favor of an undetermined owner of a mineral interest in that tract of land. It further provides conditions for the creation and administration of such a trust.

 

Tennessee

Effective on July 1, 2017, H.B. 420 repeals and reenacts the Uniform Unclaimed Property Act. It includes dormancy periods, reporting and due diligence requirements, and abandoned life insurance provisions, among other measures. The bill requires the treasurer to sell or liquidate securities between eight months and one year after receiving the security. 

 

Texas 

Effective on Sept. 1, 2017, S.B. 561 relates to unclaimed life insurance and annuity contract proceeds. Among its provisions, the bill requires an insurer to periodically compare its applicable in-force life insurance policies, annuity contracts, and retained asset accounts against a Death Master File. In the event of a match, insurers are required to complete a good faith review of the situation, and if proceeds may be due, to conduct outreach to beneficiaries within 90 days and provide assistance in making a claim. The bill further requires an insurer to report and deliver unclaimed proceeds to the comptroller of public accounts.

 

Effective on Sept. 1, 2017, H.B. 2964 adopts a Senate amendment and provides that a holder of mutual fund shares must notify an owner at initial purchase that the owner may designate a representative to receive a notice of abandonment.

 

Utah

Effective on May 8, 2017, H.B. 175 repeals and reenacts the Revised Uniform Unclaimed Property Act. Among its provisions, the bill revises presumptions of abandonment, amends reporting procedures, and addresses the duties of a holder of abandoned or unclaimed property.

 

Effective on May 8, 2017, H.B. 42 makes comprehensive revisions to insurance law. Among other changes, the bill amends definitions under the Unclaimed Life Insurance and Annuity Benefits Act by removing the definition of "Knowledge of death."

 

For the latest information about these and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website. 

 

About the contributor 

Marcella Easly, senior compliance advisor at Unclaimed Property Consulting & Reporting (UPCR), contributes to UPPO’s regular legislative update blog posts. Easly has more than 30 years of unclaimed property experience with special focus in state legislative tracking and resolving client-state advocacy issues. She was Unclaimed Property Manager for the State of Oregon for 14 years.  She was active in the National Association of Unclaimed Property Administrators (NAUPA), serving as president, and regional vice president.  She was instrumental in the creation of the NAUPA property type reporting codes.  She has been with UPCR for 11 years, and has been active in UPPO for more than 13 years.   

 

 

Tags:  Delaware  Idaho  Illinois  legislation  New Hampshire  South Dakota  Tennessee  Texas  unclaimed property  Utah 

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