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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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Identifying Records for Unclaimed Property Review, Part II

Posted By Administration, Wednesday, August 5, 2020

When trying to identify outstanding unclaimed property obligations, property holders should conduct a periodic review of areas where potential exposure lies. Unclaimed property can result from property types other than the common areas discussed in last week’s blog post.

 

To help ensure that all potential property types and sources are being captured in the unclaimed property review process, following are several additional unclaimed property risk areas where to review.

 

Gift Cards

Sales of gift cards and gift certificate transactions may result in escheatable property. Review gift card or gift certificate reports that identify unredeemed gift card balances, whether generated internally or as part of services provided by a third-party administrator.

 

Holders should review the unredeemed gift card or gift certificate report to identify cards and certificates that have been inactive and are soon to become dormant. The dormancy period for unredeemed gift certificates and gift cards varies by state.

 

Dormant unredeemed gift cards and gift certificates may be escheatable. If the holder retains the owner or gift recipient’s address information, the unclaimed property laws for that address’s state will apply. If the holder does not retain address information, the laws of the holder’s state of incorporation or domicile will apply. 

 

Some states do not require the escheatment of unredeemed gift cards. A vast majority of those states simultaneously require that the cards and certificates do not expire. This allows an owner to redeem the gift certificate or gift card into perpetuity. The holder should identify the applicable state law to determine whether the transaction is escheatable and what limitations may be put on the redemption of the card or certificate.

 

Equity

When evaluating equity for potentially escheatable property, include in the review outstanding dividends, other payments that are owed and outstanding to the shareholder, as well as the underlying shares. Many states require that if a dividend check is dormant and escheatable, the holder also escheat the underlying share related to the dividend.

 

Most holders employ a transfer agent to oversee their equity. The transfer agent’s duties usually include escheat review and annual compliance filing. Holders should request and maintain copies of all annual unclaimed property reports filed by the transfer agent on the holder’s behalf. 

 

If the holder is conducting its own analysis of potentially escheatable equity transactions, review the report of shareholder activity. This report should include the date of the shareholder’s last account activity, as well as list the outstanding dividend check payments.

 

States vary on what information is considered sufficient contact to identify the shareholder’s last activity date, so check the applicable state provision for that determination.

 

Mineral Rights and Royalties

Some holders may hold potentially escheatable property in the form of mineral rights and royalties. If so, review the list of suspended accounts resulting from contact with the property owner. The determination of lost contact may vary depending on applicable state law, so the always verify what is considered lost contact.

 

Similar to the analysis of equity transactions, if the royalty is determined to be dormant and escheatable, be aware that some states require holders to remit all owed royalties with the outstanding payment. Some states have more stringent guidelines for reporting mineral rights and royalties, so be sure to research state statutes.

 

Insurance

Insurance companies have a number of unique transactions from other types of businesses that may become escheatable property. Besides the traditional unclaimed property scenario of uncashed checks resulting in unclaimed property, insurance companies need to conduct analysis on agent commission liability accounts to identify any dormant unpaid commission balances.

 

Also obtain and review records related to life insurance policies. The purpose is to identify policies that have matured but were not paid to the policy holder due to lost contact. These policies may be escheatable.

 

Obtain a listing of life insurance policies for which the death notice was received but the claim not paid. This often occurs because the beneficiaries cannot be found. Many states have enacted the Life Insurance Benefit Act, which requires companies to check policy inventory against the Death Master File on a regular basis.

 

Further, the holder should obtain and review a listing of unpaid annuities and inactive retained asset accounts to identify transactions that have become dormant and may be escheatable to the states. As with all property types, dormancy and escheat requirements vary by state, so holders should confirm the law with the applicable state.

 

 

Tags:  equity  gift cards  insurance  mineral rights  records  unclaimed property 

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Identifying Records for Unclaimed Property Review, Part I

Posted By Administration, Thursday, July 30, 2020

When trying to identify outstanding unclaimed property obligations, property holders should conduct a periodic review of areas where potential exposure lies. To help ensure that all potential property types and sources are being captured in the unclaimed property review process, examine trial balances, general ledger and bank statements.

 

Bank Accounts

The review should identify all open and closed bank accounts used to distribute checks and electronic payments. For open accounts, verify that outstanding checks associated with the accounts are being captured in the unclaimed property procedures. Review closed accounts to determine the resolution of outstanding items. Examine voids to ensure they are well-supported and not being issued to circumvent unclaimed property. 

  

General Ledger Accounts

Review general ledger accounts to identify accounts that have been established to capture unknown, unreconciled, write-off or suspense balances. If accounts are noted in the system, conduct additional research to verify whether the balances represent unclaimed property.

 

Uncashed and Voided Checks

Looking at uncashed checks is intrinsic to every unclaimed property review. Research checks outstanding more than 180 days to determine whether the funds remain due and payable to the payee. If the distribution is still owed, confirm payee name and address and conduct outreach to contact the payee about the status of the outstanding check. If the payee lost or destroyed the original check, void the original issuance and reissue payment. Always maintain notes pertaining to the reissuance in the accounting records, along with the date the reissued check cleared.

 

Review transactions voided greater than 90 days from issuance to verify that the reason for the void is documented in the accounting records and not simply because it was outstanding and not cashed.

 

Checks issued by third parties on behalf of the holder can create unclaimed property exposure for a company if responsibilities are not well-defined. Review third-party contracts to verify the duties are clearly outlined and documented, and those responsibilities are executed based on the contract terms. If the third party is reporting on the company’s behalf, request and maintain copies of the unclaimed property reports, detail of the reported property, and all associated payments and remittances to the state. Ultimate responsibility for the outstanding checks tends to fall back on the company unless adequate supporting documentation can be produced.

 

Credit Balances

Accounts receivable credit balances tend to be one of the most complicated accounting types in unclaimed property as a result of states holding various positions regarding when or if property is deemed reportable. In some states, accounts receivable credit balances are not reportable while there is an active relationship with the customer, but the state may not provide a thorough explanation of what constitutes an active relationship. Other states consider all credits as potential unclaimed property, no matter the account relationship, and want the holder to confirm that the customer is aware of the credit and has the opportunity to use it.   

 

Most states also allow credits owed to a customer to be offset by balances owed to the company, but they have to be for the same customer. For example, a company cannot take Jim’s credit balance to pay Mary’s bad debt. Debits due from the customer that were written off to bad debt during the same time period can be used to offset the credit balance write-offs. 

 

When conducting an analysis of the accounts receivable transactions that are potentially escheatable, look at transactions that may no longer be included in the receivables account. For example, such transactions may include credits that were reclassed out of accounts receivable and into accounts payable because they were refunded to the payee. The process should include reviewing reports that contain any unresolved credits that were reclassified out of the receivables account. 

 

The holder should review the general ledger detail to identify any credit balances that were reclassified because these transactions may represent unclaimed property. The states do not accept write-offs to income as sufficient to remove the credit balance and, therefore, prevent the credit balance from being escheated to the state as unclaimed property.

 

Unapplied Cash Detail

Review the unapplied cash detail, also commonly referenced as an unidentified remittance, to identify any receipts that are stale-dated and have not yet been applied to a customer’s invoice to offset the credit. The determination of when the transaction is stale-dated may vary by state. The unapplied cash detail analysis may not be applicable if the holder maintains unapplied cash on the accounts receivable aging reports. In that case, review the aging reports on a regular basis.

 

Next week’s UPPO Unclaimed Property Focus blog post will discuss additional records to examine for potential unclaimed property.

Tags:  records  unclaimed property 

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Chancery Court Voids Overreaching Delaware Subpoena

Posted By Administration, Thursday, July 23, 2020

In a July 10, 2020, decision in Delaware Department of Finance v. AT&T Inc., a Delaware Chancery Court ruled in favor of AT&T, voiding a Delaware subpoena for information requested during an unclaimed property examination.

 

History

In 2012, the Delaware Department of Finance began an unclaimed property examination of AT&T via its third-part auditor, Kelmar. AT&T provided most of the information requested but declined to provide two categories of documents. 

 

Among the information sought by Kelmar was identification of all general ledger accounts used by AT&T since 1992 – a 20-year lookback – to track its rebate accrual and expense activity, along with the time period each account was used for that activity. This request also asked AT&T to identify each third-party administrator used to issue rebates. 

 

Another request sought information for every check AT&T had issued from 27 accounts since 1992. The request required AT&T to identify each check issued, the general ledger account to which it was recorded, the disposition status, the payee name and address, and the amount. It also sought information regarding checks marked void, cleared, stopped, or void and reissued.

 

AT&T initially worked to provide the requested information, including the rebate and disbursement requests. However, the state notified AT&T beginning in May 2019 that of requests that had not been fulfilled and warned that the company’s participation in an expedited examination, initiated by AT&T after Delaware updated its escheat law following the Temple-Inland decision, could be terminated. 

 

In November 2019, Delaware issued an administrative subpoena. AT&T refused to comply and filed action in U.S. District Court. Delaware responded by filing action to enforce the subpoena. AT&T asked the court for relief. 

 

Decision

The court granted one of three requests for relief requested by AT&T – that the subpoena be quashed or modified because the Department of Finance exceeded the authority granted to the escheator in the state’s escheat law. Although the state’s law gives the escheator subpoena power, AT&T successfully argued that the subpoena was so expansive that enforcement would be an abuse of power. The court quashed the subpoena in its current form.

 

In its 63-page decision, the court noted multiple concerns, including the state’s lack of meaningful involvement in the information request and the contingency nature of Delaware’s relationship with Kelmar.

 

“The Department appears to have lent the State Escheator’s investigatory authority to Kelmar to use as it sees fit. Kelmar is compensated contingently,” the court wrote. “That arrangement benefits the State by minimizing fixed costs, but it gives Kelmar an incentive to engage in aggressive enforcement tactics. It potentially creates a pernicious incentive for Kelmar to serve broad information requests and engage in expansive audits that impose substantial burdens on companies, thereby inducing settlements that generate income for Kelmar. The breadth of the Subpoena in this case is suggestive of such tactics.”

 

In quashing the subpoena, the court gave Delaware the ability to issue a subpoena with a narrowed scope or appeal the decision, so this saga may continue. UPPO will continue to monitor and report on developments. 

 

Additional Resources

Tags:  AT&T  Delaware  Kelmar  litigation  subpoena 

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Considering and Evaluating Third-Party Administrators

Posted By Administration, Thursday, July 16, 2020

Third-party administrators provide useful services to businesses who may not have the capabilities or desire to handle their own unclaimed property responsibilities. TPAs provide a broad variety of services, including:

  • Compliance services, such as assisting with policies and procedures and preparing holder reports.
  • Reporting services, including due diligence and record keeping, full-service reporting for all property types, or reporting for select property types.
  • Accounting services, such as issuing checks and administration of voided and reissued checks.
  • Audit services, including assistance with unclaimed property audits or voluntary disclosure agreement programs.

Deciding whether to hire a third-party administrator begins with assessing your company’s current unclaimed property compliance capabilities. Consider the areas where you need the most help. Do you need assistance only with due diligence, or reporting as well? Do you need help with all property types or just a few? What budget is available? Does working with a third-party fit your company’s strategies and capabilities better than hiring one or more employees to fill the same role?

 

When interviewing potential partners, ask important questions regarding the TPA’s services, such as:

  • Does the TPA track, implement and share legislative, regulatory and legal changes?
  • Will the TPA indemnify your company for late or erroneous reports?
  • What is the TPA’s experience with companies similar in size and in the same industry?
  • What is the TPA’s experience tracking dormancy triggers?
  • What is the TPA’s experience defending its reporting in an audit?
  • What relationship does the TPA have with state administrators?
  • How does the TPA keep your data secure and will it indemnify your company in the event of a breach?
  • What reports will the TPA provide to ensure standards are being met?
  • Does the TPA use address verification services in advance of due diligence outreach?
  • What is the fee structure and total annual cost?

When evaluating whether working with a TPA makes sense, it’s especially important to understand that hiring a TPA does not absolve a company of its reporting responsibilities. Even with contracts requiring the TPA to handle unclaimed property, states still consider the company the unclaimed property holder. Responsibility ultimately falls on the unclaimed property holder.

 

If the TPA fails to fulfill the obligation, states will hold the holder accountable to fulfill outstanding obligations. As such, setting clear expectations when contracting with a TPA is essential at the outset. Identify who owns reporting-related functions internally and externally and ensure roles and responsibilities are clearly defined in the contract.

 

Because many companies have limited internal resources for unclaimed property management, third-party administrators play a vital role in the compliance process. Taking proactive steps during the evaluation process helps ensure a positive, long-term relationship between the holder and TPA.

 

To learn about UPPO members offering TPA services, visit our Service Provider & Vendor Directory. 

Tags:  servi  third party administrators  TPAs  unclaimed property 

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Overstock Triumphs in Appeal of Delaware Qui Tam Decision

Posted By Administration, Thursday, July 9, 2020

On June 24, 2020, the Supreme Court of Delaware ruled on behalf of Overstock.com in a reversal of a 2018 Superior Court decision that awarded the state of Delaware more than $7 million in treble damages for Delaware False Claims and Reporting Act violations.

 

At issue in The State of Delaware ex. rel. William Sean French v. Overstock.com Inc. was Overstock’s relationship with Card Compliant LLC (previously CardFact), a third-party Ohio-based company used to issue gift cards and assume certain gift card responsibilities. The case came about when a former Card Compliant employee filed a qui tam (whistleblower) lawsuit, alleging fraud against the government. Dozens of other defendants were dismissed from the lawsuit or settled, leaving Overstock as the only defendant.  

 

Among the various allegations, the plaintiffs claimed that some defendants didn’t account for the transfer of liability in the manner their contracts specified. According to the state, the liability wasn’t truly transferred and, thus, defendants had the obligation to remit unclaimed property to Delaware but didn’t do so.

 

Overstock raised multiple claims on appeal. The court addressed only one – that the Superior Court misinterpreted the Delaware False Claims and Reporting Act and improperly instructed the jury that the knowing failure to file escheat reports when required to do so was no different than actively making a false statement.

 

Overstock argued that the failure to file escheat reports does not satisfy the Act’s requirement that a false record or statement be made or used to avoid, conceal or decrease an obligation to the government. The company also argued that it did not make or use any false record or statement in connection with gift cards that violated the Act.

 

The court agreed with Overstock on this point and reversed the Superior Court decision.

 

“In order for Overstock to be found liable for making a reverse false claim under the applicable 2009 statute, it must have submitted a false record or statement that gave the state the impression that Overstock either did not owe the state money or owed the state less money than Overstock was required to pay,” the Delaware Supreme Court wrote in its decision. “The absence of a record or statement cannot form the basis of a reverse false claim under 6 Del. C. § 1201(a)(7) (2009).”

 

Read the complete decision.  

Tags:  Delaware  False Claims Act  Litigation  Overstock  Unclaimed Property 

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