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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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Litigation Update: Univar Takes on Delaware

Posted By Administration, Thursday, January 24, 2019

Univar Inc. v. Geisenberger, et al.

 

On Dec. 3, 2018, Univar Inc. filed a lawsuit against Delaware Department of Finance officials, alleging that several aspects of an unclaimed property audit initiated by third-party auditor Kelmar in 2015 on Delaware’s behalf are unconstitutional. Among the issues at play in the Univar case are:

  • Delaware’s retroactive application of amendments to the Delaware Abandoned and Unclaimed Property Law (DUPL), amended on Feb. 2, 2017. 
  • The state’s estimation methodology.
  • The state’s use of a third-party auditor that simultaneously represents other states in a multi-state audit.
  • The state’s contingent-fee arrangement with its third-party auditor.

 

On Dec. 11, 2015, Delaware notified Univar it would be subject to an unclaimed property examination, conducted by Kelmar. Upon receiving document requests from Kelmar, Univar objected, citing confidentiality concerns, Kelmar’s self-interest, the estimation process and other aspects of the audit. According to Univar’s complaint, Delaware rejected or ignored the objections and continued to do so for more than two years. On Oct. 30, 2018, the state issued a subpoena for the records Kelmar had previously requested. 

 

The Univar case includes several issues that have been part of other recent cases, including Temple-Inland v. CookPlains All American v. Cook and Marathon Petroleum v. Cook. However, unlike those lawsuits, the Univarcase was filed after the February 2017 DUPL amendments and, thus, questions the state’s ability to retroactively apply those amendments to audits that were initiated earlier.  

 

“The subpoena power that Delaware is relying on to force production of records from Univar was not effective until February 2017,” said Jameel Turner, one of the attorneys with Bailey Cavalieri who is representing Univar in this case. “The February 2017 amendments also created a 10-year record retention requirement for unclaimed property records. Prior to that time there was no record retention requirement. Delaware is using estimation for holders that did not comply with a record retention requirement that did not exist until February of 2017. So, they are using estimation when holders do not have records for periods when the law did not require records to be kept. It simply does not make sense.”

 

Univar also picks up the challenge to Delaware’s estimation methodology where Temple-Inland left off. The Temple-Inland court ruled that the state’s estimation methodology was unconstitutional. Univar argues that Delaware merely added a 10-year look-back period but otherwise continues to rely on estimation practices already declared invalid.

 

Delaware and Kelmar also allegedly responded to Temple-Inland by rescinding its requests to holders for prior unclaimed property filings for all states because the court took issue with the practice. However, after the case was settled, these requests were reinstated and the state incorporated the right to request such prior filings into the 2017 DUPL amendments. 

 

“Delaware and Kelmar use prior unclaimed property filings for states not participating in the audit to increase the potential liability due and payable to Delaware,” Turner said. “Univar is asking a judge to confirm that the way they are using those prior filings is unconstitutional and that prior filings in nonparticipating states are not relevant to whether a holder has liability due and payable to any participating state.”

 

One of the issues in the Univar case that was also a factor in other recent litigation is the concept of ripeness. The Plains All American case also questioned Delaware’s use of estimation. The court said Plains may have valid complaints, but because the state had not yet formally taken steps to request records or force Plains to comply with the audit, the case was not yet ripe. 

 

“One of the reasons the Plains All American case was dismissed was because Delaware had not made a formal demand for compliance with the audit request,” Turner said. “Univar has been served with a subpoena, so Delaware has taken steps to formally compel Univar to provide records. That’s a significant factor that distinguishes Univar’s situation from that of Plains All American.”

 

Ultimately, a decision in the Univar case may provide clarity for unclaimed property holders regarding the state’s audit and estimation practices. 

 

UPPO will continue to monitor and report on the progress of the Univarcase as noteworthy developments occur.  

Tags:  audits  Delaware  estimation  litigation  Plains All American  Temple Inland  Univar 

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Practical Insights and Deeper Dives Highlight Annual Conference Sessions

Posted By Administration, Wednesday, January 9, 2019

 

 

Unclaimed property continues to provide a maze of compliance challenges for the professionals charged with managing their companies’ escheatment responsibilities. This year’s UPPO Annual Conference agenda offers a wide variety of sessions designed to help navigate that maze and keep up with the latest trends.

 

Managing Relationships

If your company is using third-party agents for employee benefits, payroll, equity or other services, understanding the roles of each party and ensuring everyone is properly fulfilling their responsibilities is essential to the unclaimed property reporting process. The Managing Your Third-Party Administrator session will offer tips for managing this important relationship.

 

The Bridging the Gap session looks at another key relationship – the one between holders and the states. This session will help attendees gain insight into building positive relationships with state administrators and maintaining a compliance program that is mutually beneficial to the holder, the state and property owners.

 

Emerging Property and Account Types

Unclaimed property compliance involves much more than uncashed payroll checks and customer credits. Dive into the specific requirements and considerations for unique account types in the unclaimed property process during the Unique Accounts with Unique Requirements session. Attendees with explore developments related to traditional and nontraditional retirement/IRA accounts, beneficiary accounts, HSAs and FSAs, and the effects of linking activity between customer accounts. 

 

Another rapidly evolving area of unclaimed property compliance is the world of virtual currencies. The Virtual Reality, Real Unclaimed Property session will look at issues arising from virtual currencies, blockchain technologies and modern incentive programs. Attendees will get insight into regulatory changes and practical considerations related to cryptocurrencies, virtual wallets and customer loyalty programs. 

 

Audits and VDAs

Always hot topics, unclaimed property audits and voluntary disclosure agreements will take center stage in several sessions. 

 

Unclaimed property professionals who haven’t yet been fully exposed to the audit process can gain an understanding of the concepts, timelines and expectations at the Audit 101 session. This introduction to audits will explore the scope and methodologies used by states and their third-party auditors. 

 

Holders under examination or participating in a VDA may be subject to estimated liability. The Estimation Under Audits and VDAs session will explore estimation methodologies and considerations and examine how states differ in their estimation practices. 

 

With so many companies incorporated in Delaware, that state spends a lot of time in the unclaimed property spotlight, but other states can’t be neglected. The Non-Delaware Voluntary Compliance session will look at VDAs in other states and when an informal approach may be more beneficial than a formal VDA. 

 

Not all third-party auditors were created alike. In fact, their processes and procedures vary greatly. The Third-Party Auditor Differences session will walk through the many different document requests that holders can expect throughout the audit process and will examine conflicting auditor requests when under audit by multiple states using different firms. 

 

View complete details about educational sessions and other 2019 UPPO Annual Conference events. The early-bird registration deadline is Jan. 28, so register today for the best rate.

 

 

 

 

 

Tags:  audits  cryptocurrency  IRAs  state administrators  TPAs  UPPO Annual Conference  VDAs  virtual currency 

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HIPAA and Unclaimed Property

Posted By Administration, Thursday, December 6, 2018

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is intended, in part, to protect patients’ privacy. The law establishes standards for handling and securing potentially sensitive protected health information (PHI).

 

HIPAA is not typically associated with unclaimed property. However, for property holders in the health care field or that work with the health care field, it’s important to understand HIPAA implications. Considerations related to HIPAA most often come into play when dealing with an audit or a voluntary disclosure agreement. Auditors or VDA administrators may ask for information that, when shared, could violate HIPAA provisions.

 

HIPAA precludes covered entities, such as health plans, insurers and providers from disclosing PHI to third parties, with a few narrow exceptions. According to the Department of Health and Human Services, PHI includes demographic information relating to:

  • An individual’s past, present or future physical or mental health or condition.
  • The provision of health care to the individual.
  • Payment for health care that may identify the individual.

 

PHI includes common identifiers, such as name, address, birth date and Social Security number, when they can be associated with health information. It can also include identifiers that could be used to trace an account to a specific medical issue, such as internal account numbers.

 

“There is a general prohibition on disclosure of records dealing with mental health, substance abuse treatment, genetic testing and HIV/AIDS under HIPAA and various federal and state laws, absent patient consent,” said Scott Heyman, partner with Sidley Austin LLP. “Those laws are very strict and without exception. Even if exceptions are available for providing other PHI to third parties, they are not available for those conditions.”

 

HIPAA violations are subject to civil and criminal penalties, so great care needs to be taken to ensure compliance.

 

Three exceptions to PHI disclosure without patient consent exist under HIPAA:

  • Disclosure to public health authorities.
  • Disclosure in health oversight activities.
  • Disclosure for law enforcement purposes.

 

State treasurers and controllers conducting unclaimed property audits are not public health authorities and are not engaged in health oversight activities, so the first two exceptions do not apply. 

 

The “disclosure for law enforcement purposes” exception is broad enough to cover unclaimed property audits. In order to disclose information under the law enforcement exception: 

  • PHI sought must be “relevant and necessary to a legitimate law enforcement inquiry.”
  • The request must be ”specific and limited in scope to the extent reasonably practicable in light of the purpose for which the information is sought.” 
  • “Deidentified information could not be reasonably be used.” 

 

Disclosure is permitted only to law enforcement officials, defined as “an officer or employee” of an eligible agency. Thus, PHI may not be disclosed to private government contractors without patient consent. In contrast, the public health and health oversight exceptions expressly permit disclosure of information to government contractors. 

 

PHI should be retracted from items provided to auditors. 

 

“If they insist that they need PHI for audit purposes, providing the information directly to the state and letting the state decide what to do with it may be a reasonable response,” Heyman said.

 

Redaction can be very time-consuming and one of the more burdensome aspects of an unclaimed property audit in the health care industry. 

 

“Often the information at issue includes things like explanations of benefits, where you’re proving out voids and reissuances,” said Heyman. “Those tend to be copies of paper documents. It means reading those documents and crossing out PHI with a black marker. It’s an intensively manual process, and knowing which boxes contain PHI and which don’t, and blacking them out appropriately, is essential.”  

 

Holders should refer to information from HHS for guidance on de-identifying PHI.

 

Unclaimed property compliance and audits are rarely simple. For holders in the health care space, HIPAA adds yet another compliance layer. 

 

The 2019 UPPO Annual Conference, March 24-27 in New Orleans, will include industry breakouts and an industry focus session for holders in the health care industry to discuss audit trends and compliance issues affecting them. Learn more and register today.

 

 

Tags:  audits  health care  HIPAA  unclaimed property 

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Five Emerging Securities Audit Trends

Posted By Administration, Thursday, November 15, 2018

Unclaimed property holders in any industry may be subject to audit, but the nuances of the audit will vary depending on the property types involved. For holders working with securities, several audit practices are becoming more common. 

 

Transfer Agent Record Requests 

Auditors examining transfer agents are increasingly requesting documentation about their issuer clients. Those records belong to the securities issuer, so the transfer agent should not provide such records without their clients’ authority.  

 

Overreaching Requests

Auditors often ask for information that is not necessary to determine which shareholder accounts could be considered unclaimed property. For example, requests for contracts with transfer agents or search firms retained to locate share owners, account open dates and shareholder Social Security numbers are not relevant to establishing whether accounts represent unclaimed property. 

 

“Holders can push back on overreaching requests,” said Freda Pepper, counsel for Reed Smith LLP. “Just because an auditor is requesting information doesn’t mean it’s relevant and that it’s appropriate to be provided.” 

 

Long Silences

After providing large amounts of information to auditors, holders may not hear from them again for months. In some cases, such “radio silence” may continue for years. Some holders may choose to “let sleeping dogs lie,” while others prefer to seek confirmation that the audit has ended. 

 

Follow-up Requests

When following up on information the holder submitted, auditors often seek: 

  • Proof of contact, including system-generated reports or screenshots.
  • Proof that contact is actually “owner generated,” demonstrating that it was sufficient to restart the dormancy period. 
  • Cash transaction history. 
  • Date of last first-class mailing, proven with a screenshot.
  • Additional escheat filing detail. Auditors often ask for unclaimed property reports that have been filed within the past two years, which is unusual since the states they are representing already have this information. Increasingly, they are also requesting a preview reports before the next escheat report deadline. 

    “From a practical and logistical standpoint, doing a one-off preview report early in the cycle may be costly or not feasible, so holders may wish to push back on such requests,” Pepper said. 

 

Death Master File Use

As a result of success in the life insurance industry, auditors are increasingly using the Social Security Administration’s Death Master File as an audit tool for securities audits as well. Comparing records to the DMF, they seek to determine holders who may be deceased and accounts that are overdue to the state as unclaimed property. States and their auditors argue that the dormancy period for unclaimed property begins upon the date of death rather than the triggers established by state law. 

 

After identifying potentially deceased property owners, auditors claim the burden shifts to the holder to prove an account is active. Holders may choose to remove Social Security numbers from information provided to the state and its auditors for this reason. However, providing only names may result in even more work. Auditors may run account owner names against the DMF, receive false positive hits for common names and insist the holder prove such account owners with matching names are still alive. 

 

The 2019 UPPO Annual Conference will feature industry-specific breakout and educational sessions that offer attendees the chance to discuss and learn about trends facing the industries in which they work. Multiple educational sessions, including Audit 101, Third-Party Auditor Differences, and Estimation Under Audits and VDA, will also focus on audit trends. Visit UPPO’s Annual Conference website for details and registration. 

Tags:  Audits  securities 

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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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