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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 News Roundup

Posted By Administration, Thursday, March 29, 2018

Unclaimed property continues to make headlines. Following is a recap of some recent stories getting news coverage from local and national media outlets.

 

Illinois bill raises debate about contingency fee audits

On March 12, The State Journal-Register discussed arguments for and against Illinois S.B. 2901, a bill that would, among other things, prohibit the state from hiring auditors on a contingency fee basis.

 

Minnesota Supreme Court tackles the state’s efforts to find owners and treatment of interest-bearing property

On March 7, 2018, Minnesota Public Radio’s NewsCut blog covered a Minnesota Supreme Court decision regarding the state’s handling of unclaimed funds. The court ruled that the state takes adequate steps to reunite owners with their property, but that it owes owners the interest they would have earned from property originating from interest-bearing accounts.

 

Bitcoin lawsuit raises issues about virtual currency as unclaimed property

In early March, numerous online publications, including Ars Technica, covered a series of lawsuits against cryptocurrency exchange Coinbase. One of the cases claims the company pocketed unclaimed virtual funds rather than escheating them to California.

 

New PBGC program provides new option for sponsors of terminating 401(k) plan

On Jan. 31, 2018, Bloomberg discussed a new program from the Pension Benefit Guaranty Corporation aimed at reuniting property owners with funds from terminated 401(k) plans.

 

Looking for your missing Donovan McNabb jersey?

Spurred by state treasurers’ efforts, local news outlets often remind readers to search unclaimed property lists for funds they may be owed. Using this year’s Super Bowl as an angle for drawing attention to unclaimed property, Pennsylvania’s treasurer received coverage in The Inquirer by focusing on unclaimed Philadelphia Eagles memorabilia, presumably from abandoned safe deposit boxes.  

 

Tags:  audits  cryptocurrency  retirement accounts  safe deposit boxes 

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Record Retention Strategies

Posted By Administration, Thursday, January 25, 2018

Proper record retention is an essential part of any unclaimed property compliance program. Not only do state laws require holders to retain appropriate records, but doing so also provides an audit defense and can help avoid the use of estimation for determining unclaimed property liability.

 

“All states have some kind of requirement as it relates to the retention of unclaimed property records,” said Laurie Andrews, CFE, senior manager for Keane. “Failure to maintain those records can cause problems. In the event you are audited, it will make the audit much more burdensome and lead to extrapolations for periods where your records are unavailable. It’s far easier to keep and maintain records than to try to find them or recreate them when faced with an audit.”

 

Retained records are intended to demonstrate a holder’s historical compliance efforts. Records created at the time of reporting and properly maintained meet the burden of proof when being audited and provide a more powerful audit defense.

 

As with all areas of unclaimed property compliance, requirements for record retention vary from state to state. The Revised Uniform Unclaimed Property Act, which provides model requirements for states to consider, calls for holders to retain:

  • Information required to be included on the report by state law.
  • The date, place and nature of circumstances giving rise to the owner’s property right.
  • The value of the property.
  • The last address of the owner, if known.
  • For traveler’s checks, money orders, or similar instruments, the record of the state and date of issue.

In the event of an audit, unclaimed property holders need records to demonstrate compliance for a lookback period that often spans the dormancy period plus 10 years—sometimes longer, depending on the state conducting the audit.

 

Holders can take several steps to maintain effective record retention practices. In addition to generating and maintaining good records, indexing them effectively helps ensure you or future employees can locate them when needed.

 

“It can be tough understanding and recreating records from a period when you weren’t involved in the process,” Andrews said. “When you’re creating, filing or indexing records, think of the people who will be reviewing them many years from now. If you maintain records with no supporting documentation or explanation, it’s going to be difficult for your successor to understand the historical data.”

 

Include record retention documentation within company policies and procedures. The unclaimed property compliance team may understand the need for maintaining specific records, but others may not. This could lead to record destruction practices that unintentionally increase unclaimed property risk.

 

Develop and enforce policies that protect records from destruction and alteration. If information needs to be added to records, it should be done in the same location where the records are stored. If the record exists in both a hard copy and electronic copy, added information should be attached to both.

 

If a third-party administrator manages the escheatment process, request and maintain copies of unclaimed property reports filed on your behalf. The holder is ultimately responsible for compliance and needs to ensure such records are properly retained.

 

Annually review record retention policies and periodically communicate them to anyone involved. Doing so helps ensure procedures stay current with changing requirements and that employees don’t forget about the importance of unclaimed property records. Occasionally verify that proper record backup processes are in place, reducing the threat of losing valuable data.

 

While all of this effort to retain records may seem daunting, evaluate the cost of retention versus the audit exposure created by not retaining records. Developing, following and monitoring record retention procedures may seem daunting, and storing records for long periods of time can be costly. However, the potential liability created when records are unavailable, and the effort required to recreate them when an audit occurs, likely make the cost and effort worthwhile.

 

For additional insight into record retention, attend the Technology & Record Retention and Developing Your Policies & Procedures sessions at the UPPO Annual Conference, March 4-7, 2018, in Tampa, Florida.

 

 

 

 

Tags:  audits  record retention 

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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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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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