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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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New York reduces voluntary compliance program reach-back period

Posted By Administration, Thursday, February 9, 2017

Effective on Jan. 1, 2017, the state of New York implemented a reduced reach-back period for holders participating in the voluntary compliance program. The reach-back period is now 10 years plus dormancy on general ledger items, reduced from 20 years plus dormancy before the change.

 

“We’ve been talking to holders quite a bit about what works and doesn’t work,” says Kelly Kuracina, assistant bureau director for New York’s Office of Unclaimed Funds. “We heard over and over that the reach-back period was intimidating. It’s uncommon for companies to have records going back more than 20 years. We thought it would be a good-faith olive branch to set a more reasonable timeframe for when companies are likely to have records.”

 

The reduced reach-back period applies only to the voluntary compliance program—not to audits. Companies participating in the voluntary compliance program before Jan. 1, 2017, also fall under the previous reach-back period. However, if a holder joined the program near the end of 2016 and identifies issues related to the reach-back period, New York’s Voluntary Compliance Unit will review the circumstances and work with them on a case-by-case basis, according to Kuracina.

 

Holders are eligible to apply for the program if they have not been contacted about an audit in New York and would be first-time reporters or recently identified a property type that hasn’t been reported.

 

As part of its outreach efforts, New York’s Voluntary Compliance Unit has been sending letters to likely property holders, inviting participation. Whether they receive an invitation or initiate the process on their own, potential program participants can complete a self-audit checklist to help determine whether the company is holding unclaimed funds. Or, if the holder already knows it has past-due unclaimed property to report, it can complete a voluntary compliance agreement (VCA). Upon review of the survey or VCA and acceptance into the program, the holder has six months from the date of acceptance to conduct its review, complete its due diligence and file a report.

 

“We know there’s a population of companies that are either not aware or not in compliance,” Kuracina says. “We take responsibility for raising awareness and making sure they know there’s a requirement under the law to report unclaimed funds they hold. If it’s simply a case where they aren’t aware, we want them to become aware. If they weren’t in compliance because the reach-back period seemed too onerous, now they have the opportunity to come forward.”

 

Learn more about New York’s voluntary compliance program on the state’s unclaimed property website, or contact the Voluntary Compliance Unit at nysvcu@osc.state.ny.us with any questions about the program or unclaimed property compliance in the state.

 

 

Tags:  New York  unclaimed property  VDA  voluntary disclosure agreements 

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Delaware addresses Temple-Inland’s effect on VDA program

Posted By Administration, Tuesday, September 6, 2016

In response to the recent Temple-Inland opinion and subsequent settlement, Delaware Secretary of State Jeffrey Bullock issued a two-page statement, addressing their effect on the state’s voluntary disclosure agreement (VDA) program.

 

Highlights include:

  • Beginning immediately, VDAs will limit their look-back period to 10 years plus dormancy from the date a holder enrolled.
  • The secretary of state and Department of Finance will propose changes to the state’s unclaimed property laws, upon the Delaware General Assembly’s January return. Proposed changes will address a record revision provision for unclaimed property reports tied to the current statute of limitations and, possibly, a negative reporting requirement. 

Bullock’s statement also addresses the use of estimation:

“As outlined in our Implementing Guidelines, we expect holders to ‘reasonably estimate’ liabilities for periods in which the holder’s records are unavailable or insufficient to prepare a report of presumed past due unclaimed property liability. There is no estimation involved for non-Delaware domiciled entities, and all estimated unclaimed property for the period a holder determines it does not have available records would be reportable to the holder’s state of incorporation or formation. This rule is a bright line between what is owed to Delaware and what is owed to any other state to ensure that a holder does not pay twice for the same unclaimed property.”

 

UPPO will continue to monitor and report on the effects of the Temple-Inland decision. 

Tags:  audits  Delaware  unclaimed property  VDA 

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All VDA programs were not created equal

Posted By Administration, Thursday, July 14, 2016

Several states give unclaimed property holders the chance to come into compliance voluntarily, in exchange for waived fees and penalties. These Voluntary Disclosure Agreement (VDA) programs act as a symbolic olive branch from the states, encouraging holders to comply with applicable laws on their own, rather than under the potentially more daunting process of an audit.

 

Many of the various state VDA programs have similar features. They typically include stipulations that holders can’t enter into VDAs if they are already under audit or have previously gone through the VDA process, for example. However, the requirements of each VDA are different, and some of them have quirks completely unique from other states’ programs. Thus, thoroughly reading VDA documentation and guidance before signing on is essential. Failing to fully understand what a VDA requires could cause more problems than it solves. Following are some of the interesting nuances found in some state VDA programs.

 

Compliance with other laws

A major reason why states offer VDAs is to encourage compliance with unclaimed property laws. So it makes sense that most of them stipulate that the holder agrees to comply with these laws after it completes the VDA process. However, Texas reportedly takes things a step further than most by requiring companies to certify they are in compliance with all of the state’s tax laws before formalizing the VDA.

 

Additional documentation

While most VDAs simply require holders to agree to comply with applicable laws via a stipulation within the VDA application form, some require additional assurances. Both Nevada and Tennessee specify that holder must submit their written policies and procedures regarding unclaimed property compliance.

 

Required pre-audit option

Most VDA programs are designed for holders to approach the state and request approval to participate. In Delaware, however, VDA participation is now proactively offered to holders by the state before an audit can begin. This requirement became effective on July 1, 2015, when the state’s previously temporary VDA program was made permanent.

 

Look-back period

One of the advantages of entering into many of the VDAs is a substantially shorter look-back period than holders face under audit. Although the VDA look-back periods vary by state, many of them are around 10 years. Delaware, however, has a lengthy, 19-year VDA look-back period (for holders that enroll on or after Jan. 1, 2017), and New York has a pinned look-back start date of Jan. 1, 1992, for general ledger items, such as payroll, accounts payable and accounts receivable credits, and gift certificates.

 

Repeat filer eligibility

In most VDA programs, participation is limited to first-time filers, except when a holder has merged, acquired another company or become responsible for reporting a new property type. Pennsylvania, however, has a provision allowing a holder to reenter the VDA program if it has not participated in the past 10 years.

 

Others?

Have you encountered any unique or unusual VDA provisions? Share them in this article’s comment section.

 

Additional Resources

Voluntary Disclosure Agreements: Weighing the Pros and Cons

Can’t We All Just Get Along?

Tags:  unclaimed property  VDA  voluntary disclosure agreements 

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Evaluating and Completing a Voluntary Disclosure Agreement Program

Posted By Administration, Tuesday, July 12, 2016

In an effort to encourage companies to examine their unclaimed property practices and become compliant with applicable laws, several states offer holders the opportunity to enter into voluntary disclosure agreements (VDAs). By taking this step, a holder can follow a state’s guidelines and perform a self-audit, resolving noncompliance issues without the added pressure of a state-driven audit.

 

Although VDAs give holders more control than audits while achieving similar outcomes, they still require a significant commitment of time and resources. During a recent UPPO webinar, Ricardo Garcia, director of unclaimed property for BDO USA LLP, provided insight into the VDA process and considerations for participating.

 

Considerations

A voluntary disclosure program is a thorough process and review. Successful completion requires a holder to follow specific guidelines and steps outlined by the state. Before entering into a VDA, a holder should review the state’s VDA documentation, understand what the state expects to receive at the end of the process and evaluate whether meeting those expectations is realistic.  

 

“Often when a company enters into a voluntary disclosure process—at least the ones that fail—they neglect to understand the expectation of what the deliverable was,” Garcia says. “In those instances, it becomes very difficult and, in some cases, impossible to come to a settlement agreement with the state because certain procedures weren’t followed.”

 

Understanding how historical exposure will be calculated is essential before signing up. The process requires a review of available records to determine amounts by state. A holder needs to consider whether necessary records are readily available. When they aren’t, estimation may be necessary for some states.

 

Because multiple departments participate in the VDA process, evaluating the availability of key personnel is important as well. Can accounts payable, legal, and treasury commit necessary time to the process in addition to their day-to-day responsibilities?

 

Holders considering entering into a VDA also should determine whether they qualify. Although qualifications vary by state, participants typically cannot already be under audit. In some states, holders can’t file a VDA if they have done so previously.

 

Once a holder determines it is willing and able to proceed, notifying the state of the intent to enter into a VDA officially kicks of the process. This usually requires filing a simple form that includes the company’s name, allowing the state to verify the company is not already under audit.

 

Conducting the self-audit

After signing up, work on the voluntary disclosure officially begins. The process length varies by company, but most fall within the six- to 24-month range, according to Garcia. If a company has all records easily available and dedicates all available resources, it may happen quicker. Likewise, if records are decentralized and difficult to compile, and available personnel time is minimal, the process may exceed two years.

 

Early in the process, management will likely be anxious to know what the company’s exposure is. Set expectations so they understand that data must be gathered and compiled before developing an estimate of liability.

 

Begin by establishing the legal entities, property types, years and accounts to be reviewed.

 

“Initial scoping should be documented clearly,” Garcia says. “It’s one of the key items in a voluntary disclosure, allowing you to answer the question from the state, ‘How do you know you didn’t miss something.’ If you properly document your scoping and follow the guidelines and procedures expected by the state, scoping will set the standard for the rest of the review.”

 

Next, gather necessary source records to develop populations of potentially reportable transactions in accordance with state requirements. Source records may include:

        Bank records and outstanding check listings

        Void check listings

        A/R aging reports

        GL detail for write-off accounts

        Detail of transactions in unclaimed property liability account

        Trial balances

        Chart of accounts

        Organizational charts

        Tax returns

        State apportionment work papers

        Employee benefit information

After scoping and gathering records, compile a list of potentially reportable transactions. Make sure the list is complete. Document the approach used to arrive at population of potentially reportable transactions with two considerations in mind: Is it complete and is it researchable? Can the population be reconciled back to the accounting books and records? Does the population include all transactions required under VDA guidelines? Can the holder research the transactions included in the population to determine whether the amounts represent unclaimed property? If the answer is no, consider adjusting your review period, which may require additional estimation years.

 

“Ask yourself whether you can trace back the population to the source records,” Garcia says. “If you select a voided check, for example, can you prove why it was voided? If you cannot because of lack of records or record retention policies, then that period is not complete and researchable.”

 

Wrapping up the process

After completing these steps, quantify the exposure due to the state in which you filed the VDA. In some states, holders present their findings to the VDA administrator in person. In others, they submit a report via email or another method specified by the administrator. Once findings have been presented and an agreement has been reached between the holder and the VDA administrator, execute closing agreements and make the payment.

 

When the VDA process is complete, establish and implement procedures for ongoing compliance with unclaimed property laws.

 

“After completing the VDA, you’re at the best time to put new processes in place,” Garcia says. “You’ve learned so much in the process, and even though at that point you may be fatigued, it is the best time to implement procedures to ensure you don’t have to go through the voluntary disclosure process again in the future.”

 

Tags:  compliance  unclaimed property  VDA  voluntary disclosure 

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Attend "The VDA Update: DE Opens the Doors for Holders" at the Holders Seminar

Posted By Joe Carr & Kendall Houghton, presenters at the Holders Seminar, Wednesday, July 24, 2013
Updated: Tuesday, July 23, 2013

Delaware opened its doors to holders last year with its revamped Voluntary Disclosure Agreement (VDA) program. In the past, participating in Delaware’s VDA program meant entering into what some holders have described as an unpredictable, lengthy process that could potentially result in an audit. As is widely known, many holders that had filed VDAs were audited for various reasons. Reverting back to its business-friendly mantra, Delaware has thrown out its old VDA program, in favor of a clearer, more predictable model. 

To conclude the Holders Seminar on Aug. 15, Kendall Houghton, partner with Alston & Bird LLP, and Joe Carr tax partner at BDO, will present "The VDA Update: DE Opens the Doors for Holders.” This session is relevant and open to all attendees, regardless of experience level.

Both Houghton and Carr are experienced practitioners and have extensive knowledge of Delaware's VDA program. During the presentation, Houghton and Carr will push the published guidelines aside and share the realities of Delaware's VDA program. We want to pull attendees toward how things are actually working and give them the nitty-gritty of the opportunity areas and issues they will face.

Highlights of Delaware's VDA Program

  • Expectations and guidelines are clear and guaranteed
  • Maximum duration of VDA program is two years
  • The Secretary of State is the administrator of the VDA
  • Completing the VDA program releases responsibility of all past due unclaimed property liability
  • Certainty that all liability for historic unclaimed property is released

"The VDA Update: DE Opens the Doors for Holders" will be a great learning opportunity for all attendees. If you haven't yet registered for the Holders Seminar, there is still time!

More Resources
Delaware's Secretary of State's post on the VDA program

Join UPPO today and receive an exclusive member discount at the Holders Seminar!


Tags:  Delaware  education  Holders  Holders Seminar  Members  news  UPPO  VDA 

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