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Insights from the NAST Symposium, Part 4

Posted By Administration, Thursday, October 31, 2019
Updated: Thursday, October 31, 2019

The National Association of State Treasurers’ (NAST) Annual Treasury Management Training Symposium held during May 2019 in Providence, Rhode Island, was engaging and enlightening. The National Association of Unclaimed Property Administrators (NAUPA) is affiliated with NAST and led the well-attended unclaimed property track of educational workshops and sessions. This blog post is part four in a series about the topics discussed in the symposium sessions. Read part one hereRead part two hereRead part three here.

 

RUUPA

The session related to the 2016 Revised Uniform Unclaimed Property Act – RUUPA in the States – was insightful. Presenters, including state and Uniform Law Commission (ULC) representatives, said they had hoped for more adoptions. The ULC indicated there were three or four more good years of momentum, after which new adoptions of the Act could lose its legs.

 

Presenters also expressed frustration and disappointment about the American Bar Association (ABA) moving forward with its own version in the form of the ABA Model Unclaimed Property Act. The ULC disagrees with assertions that certain provisions in RUUPA are unconstitutional.

 

According to the ULC, states that adopt RUUPA, or a variant of the Act, must adopt certain provisions for them to consider it truly a RUUPA-inspired adoption. Examples of requirements include lookback limitations and holding periods before liquidation for securities.

 

There was debate on whether or not lookback limitations make sense. The argument was made that life insurance, property or other newly found areas of unclaimed property that were previously not being reported and remitted may never be enforceable with shortened lookbacks. Also, based on the dialogue, the life insurance industry and its associated trade organizations were not discussed in favorable terms during this discussion.

 

Presenters discussed different RUUPA versions, including those in Illinois and Tennessee, being proposed and enacted were examined. State representatives explained why they departed on certain provisions. Consideration was given to the states adding the provision related to estimation as a penalty that may be used by first priority states, rather than for estimation of a liability for second priority states (the classic reason given for why estimations are used). Based on the discussion, it seemed that a few people strongly advocated for this provision.

 

Mind the Noncompliance Gap

The Mind the Gap: Focusing a State’s Compliance Regime on Gaps in Reporting session focused on increasing annual compliance through making past due compliance meaningful. Questions this session intended to answer included: 

  • How do you increase compliance with limited resources? 
  • How do you increase compliance levels without creating a substantial burden on the holder community? 
  • How do you confirm that holders are reporting properly?

Panelists promoted the advantages of a multi-pronged approach, including offering meaningful and diverse voluntary compliance options for holders to catch up on past due unclaimed property liability, and maintaining a robust audit program. Further, annual report compliance reviews, traditional VDA program and voluntary self-examinations were included as a means to support this.

 

The benefits of maintaining a healthy audit program were highlighted. In short, the threat of enforcement drives compliance for both current and past due property. Panelists promoted a robust audit program indispensable to identify significant underreporting and to ensure that other voluntary and mandatory compliance initiatives are conducted efficiently and in good faith. They also discussed the value of creating a diverse package of compliance options, with some being voluntary and some being mandatory, both with varying degrees of rigor.

 

Using a compliance study results chart based on a sample analysis of holders with an annual revenue of greater than $100M, panelists noted that:

  • 44% of the companies in the sample had no prior reporting history. 
  • 37% of the sample companies reported less than $1,000 of general ledger property each year. 
  • 23% of public companies only report securities. 
  • 45% did not report securities at all.

In the last few years, there have been periods where patterns in compliance gaps emerged, relative to specific property types, such as accounts receivable credits, royalties and gift cards. A current area of concern where there seems to be common underreporting compliance gaps are in the mergers and acquisitions arena. Challenges with mergers and acquisitions include the availability of pre-M&A records and the timing in relation to closing of the deal. 

 

The session endorsed the prospect of devising efficient methods to capture the material past due unclaimed property before or even contemporaneously with deal closings. States continue to collect and analyze data from annual reporting, audits and compliance initiatives to target areas with known historic gaps while looking for new emerging patterns.

 

The session also covered audit candidate selection. This process begins with identifying candidates that are likely to have unreported unclaimed property. The next step is to identify and obtain broad available information from government, commercial and public sources and developing an understanding of the entities using company information obtained from different sources. Additionally, states are analyzing candidates’ previous reporting history and comparing it to others in the same industry with a similar size and year of incorporation. After this analytical process, final determinations depend on many factors, which differ based on each state or industry specifics.

 

There were reports on Delaware noting $800M has been taken in through Drinker Biddle & Reath’s administration of the secretary of state’s voluntary disclosure agreement process. DBR reported that over 580 total VDAs had been concluded in the prior years, with around 60% of collections being related to securities. This has resulted in increased compliance. Also, it was reported that very few VDA seekers had been transferred to the Delaware escheator for audit.

 

Legal Issues in Unclaimed Property Audits

On the final day, a session titled Committee of Legal Practices Deep Dive into the Recurring Legal Issues in Unclaimed Property Audits was scheduled. According to the description, it was intended to discuss strategies for addressing recurring issues and legal arguments raised by holder advocates. Participants were to include state unclaimed property officials and third-party auditor representatives. 

 

This session was intended to have restricted attendance. Unfortunately, it had not been published or otherwise publicly known in advance that attendance was restricted. Therefore, the session was changed into an open forum, and the slide deck for the session was not presented. 

 

Discourse in the open forum session included:

  • Various “gamesmanship” seen from holders, attorneys and holder advocates.
  • Attorneys allegedly slowing down the process for fees, such as protracting the NDA process.
  • States considering the use of audit fees and subpoena power in reaction to slowed audits.
  • Gamesmanship around GDPR, HIPAA, and other data security concerns; exceptions and ways to skirt such arguments.
  • Increased use of “come on site” tactic.
  • Concept of record availability and completeness.
  • Due process nexus, derivative rights and “ripeness” rebuttals.
  • What constitutes a “reason to believe” for an audit to be initiated.

The educational workshops and sessions at the unclaimed property track of the recent NAST Symposium covered important insights on RUUPA and audits. While the topics covered may not directly or indirectly impact all property type holders, it is worthwhile to remain aware of NAUPA developments. It is also important to be informed of opportunities to work together with states, where our expertise and needs are aligned, and we can share our respective unique expertise and insights, and related unclaimed property challenges or issues.  

 

Christa DeOliveira is chief compliance officer with Linking Assets Inc. Michael Unger is a senior manager with Crowe LLP’s unclaimed property practice. 

 

 

Tags:  audits  NAST  RUUPA 

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