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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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Understanding Delaware’s Verified Report Request and Compliance Review Process

Posted By Administration, Thursday, November 21, 2019

As part of the sweeping changes to Delaware’s unclaimed property law resulting from the passage of S.B. 13, the state created a new verified report and compliance review process. This process is intended to give both the state and holders the ability to review and correct any errors or oversights in annual filings without escalation to examination.

 

Unlike full-fledged unclaimed property examinations, the verified report and compliance review process does not require an invitation to participate in the voluntary disclosure program to proceed. 

 

“With the verified report and compliance review process, we are looking at holders who are already filing or who have filed reports in the past, reviewing their most recent report, making sure it’s accurate and giving them a chance to remedy any errors,” said Delaware State Escheator Brenda Mayrack. 

 

Verified Report Request

Delaware primarily sends verified report requests to holders who previously filed unclaimed property reports but did not do so in the most recent year, or holders who had a significant variance compared to previous filings. Variances may include property types dropping off or reappearing, significant changes in the amount reported, or noteworthy differences compared to other holders in the same industry. 

 

Holders receiving a verified report requests are asked to provide a copy of their unclaimed property policies and procedures and given the option to certify that the report was correct and complete, under penalty of perjury, or to identify and report/remit additional property and correct errors. 

 

“Because many [holders receiving a verified report request] are nonfilers, we want to know the determination that no liability was due to Delaware came after a deliberate process that was informed by robust policies and procedures,” Mayrack said. “Particularly for holders that have gone through a VDA or exam, it’s important for us to know they have implemented appropriate and robust policies and procedures for unclaimed property going forward.”

 

Compliance Review

Holders who fail to provide a sufficient response to Delaware’s verified report request, or who filed a negative or $0 report, may receive a compliance review request. 

 

“The verified report is not a prerequisite to a compliance review, but the compliance review does serve as the first step in escalation if there is a nonresponse or insufficient response to the verified report request,” Mayrack said.

 

Like the verified report request, a compliance review looks at variances compare to previous filings and compared to holders in the same industry. The compliance review also is not a prerequisite to a voluntary disclosure program invitation and subsequent exam notice.

 

Compliance reviews are a more abbreviated review of filings than unclaimed property examinations. Like verified report requests, they provide holders an opportunity to correct errors. Holders are given one year to complete the review, so the state expects a prompt response to compliance review notices.  

 

“The state is not going to have much patience for a nonresponse,” Mayrack said. “We do send follow-up reminders, but if we don’t seem to be getting the holder’s attention, it will be escalated.”

 

Compliance reviews include a more thorough request for documents supporting the most holder’s most recent unclaimed property filing than the verified report request. Information and document requests may include:

  • Supporting federal tax returns, financial statements, chart of accounts, trial balances.
  • Holder’s affiliated and related legal entities information.
  • General ledger reconciliations, check registers, voided check lists, aging/credit reports, etc., supporting Delaware annual report.
  • Third-party administrator information (if applicable) for securities, payroll, stored value cards, rebates, etc.
  • Proof of owner outreach (due diligence) efforts performed.
  • Unclaimed property policies and procedures.

If there is a finding of deficiency in the compliance review, the state can either collect and enforce that deficiency or, if the findings suggest a potentially larger compliance issue, refer the holder for a voluntary disclosure program invitation and subsequent exam (if the holder declines VDA participation).  

 

“If you receive a letter under this program, respond promptly,” Mayrack said. “A nonresponse is the quickest way to be escalated for additional enforcement measures, which means an invitation to the VDA program and, subsequent examination notice if the holder does not opt into the VDA program.”

Tags:  compliance  compliance review  Delaware  unclaimed property  verified report request 

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Texas Publishes Designation of Representative Form

Posted By Administration, Thursday, August 24, 2017

On Sept. 1, 2017, Texas law H.B. 1454, passed in June 2015, goes into effect. Among other things, the law allows property owners to designate a “representative for notice,” which triggers a requirement that the holder must mail or email the required due diligence notice to both the representative and the owner. 

 

Representatives may not claim or access the owner’s property, but can stop the dormancy period by communicating with the holder knowledge of the owner’s location and confirmation that the owner has not abandoned the property. The new requirements also require holders to include the name and last-known mailing or email address of the representative when reporting unclaimed property. 

 

With the Sept. 1 effective date just a week away, Texas posted a form that holders may provide to owners to designate a representative. The form requests the designated representative’s name, address, phone and email information and allows the owner to choose multiple accounts (checking, savings, IRA, etc.), for which the representative is the designee. It also specifies, “This form is to be maintained on file with the account owner’s bank or financial institution. Do not submit with the holder’s unclaimed property report.” 

 

In April 2017, Texas unclaimed property officials responded to a December 2016 inquiry from UPPO about implementation of H.B. 1454. In its response, Texas indicated it would be providing the designated representative form, but other methods of collecting the information would also be acceptable. 

 


Tags:  compliance  due diligence  Texas  unclaimed property 

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UPPO Asks: How do you raise the profile of unclaimed property compliance in your company?

Posted By Administration, Thursday, August 3, 2017

Periodically, UPPO asks members to respond to a question, sharing their ideas, insights, and experience. The recurring UPPO Asks feature is a compilation of their responses. 

 

We recently asked several members: How do you raise the profile of unclaimed property compliance in your company?

 

“I met with leaders and staff in departments that produce unclaimed property items. I explained the importance of keeping good records and following up on unresolved items as soon as possible. Through these meetings, we identified areas for improvement and implemented process changes to reduce the number of items from becoming unclaimed property. I ask other groups to include me when establishing new programs and processes to make sure potential unclaimed property issues are addressed and become part of the new plan. The high rate of retirements is causing a higher than normal turnover in staff. As a result, I set up short meetings with new leaders in departments that produce unclaimed property to make sure they understand the process. I also contact the leader when I hear of something in the works that may affect unclaimed property to make sure I am included from that point forward. I do my best to be proactive, and that takes good communication.”—Jeannie Matthews, unclaimed property administrator, Idaho Power Company

 

 

“We have monthly meetings with our corporate director of finance to review internal processes and to discuss state regulatory updates. Our director of finance also holds meetings with our controllers to review UCP processes and ensure compliance. Our audit team sends an annual compliance questionnaire that requires our business areas to provide proof of UCP compliance and their sign-off. In the past, we sent out quarterly newsletters to provide UCP updates and processes.”—anonymous

 

 

“Our most effective approach to raising the profile of UP compliance is to raise the profile of the entire area of unclaimed property. Early on, we enlisted a ‘sponsor’ (actually the vp of tax) to assist us with projects to initiate compliance. This has evolved into a steering committee (essentially C level executives), which can help us remove obstacles and handle escalations as needed.

 

“Beyond the power of the C-suite, communication and education are key. I tap into every internal newsletter with articles—since there is always a need for content. I arrange training sessions and webinars for a variety of audiences—from educating the steering committee on new requirements to training operational groups on to how to better meet the requirements for compliance. It is impossible to overeducate/overcommunicate! We talk about audit potential and audit defense to be built into our processes. Working in a company where ethics and compliance are both deep in the culture helps to validate our efforts.

 

“We are actively embedding processes to move potential escheatable items into a pre-escheat account and out of the hands of the operational groups. This greatly reduces the complexity of compliance (at least for the supporting teams) and gives the UP team greater visibility and control.

 

“I think the final piece of raising visibility is the same networking that helps in every area of business. There is nothing that can replace having relationships with solid contacts. These folks become ambassadors within their own organizations. My contacts range from internal audit to controllers to AP/AR analysts, and everyone in-between. It becomes much easier to get results when people know you!”—Charlotte S. Kirk, manager, unclaimed property, ABB Inc.

 

 

“Raising the profile of unclaimed property is always a challenge. Audit notices and the need to file a VDA definitely gets attention, though not in a preferred manner. I find that quantifying the potential exposure of accounting methods and procedures is the best means of focusing user groups on the UCP process. It all boils down to dollars and cents, and persistence.”—Pam Runkel, CPA, indirect tax manager, ADT LLC

 

 

“I’ve worked at several (11) different companies over the last 30 years, and have been involved in unclaimed property for 20+ of those years. I’ve started the process in two companies, and enhanced the process in three companies. One company didn’t want anything to do with UCP at all.

 

“I think the best way to get the message across of the importance of UCP compliance is to have an ally in your department that has access to the C-suite. But to get that audience, you must have supporting documentation to show the potential audit exposure, which is a moving target at best. If you can show that this compliance is a value-added proposition, i.e. refunds from the states, limiting audit exposure, then this will help as well.

 

"This is only the beginning of the journey. Once you get the C-suite buy in, then you must get the other players on board to help with gathering the documents, payroll, A/P, A/R, benefits, accounting, etc.”—Mike Marion, CMI, senior manager indirect tax, Fruit of the Loom Inc.

 

 

Now it’s your turn. What do you think are the most important personality traits for an unclaimed property professional? Add a comment to this post to share your response.

 

 

Tags:  Compliance  unclaimed property  UPPO Asks 

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Due Diligence: Beyond the Minimum

Posted By Administration, Thursday, July 6, 2017
Updated: Monday, July 10, 2017

State unclaimed property statutes require holders to conduct due diligence, generally consisting of a first-class letter sent 30 to 90 days before the property’s report date. Some property types, such as life insurance, may require additional due diligence efforts, but more commonly the last-ditch letter is all that is required. However, going beyond the minimum statutory requirements offers some significant advantages.

 

“Going above and beyond the last-ditch mailing effort at the end of the dormancy period, holders can drive down the total amount of reportable unclaimed property and thereby reduce their associated unclaimed property risks,” said Will King, senior manager, SALT, unclaimed property at KMPG LLP. “It’s also a good customer service practice, demonstrating that the company is proactively trying to reunite owners with their property.”

 

By the time holders send required due diligence letters, property has been aging for three to five years, in most cases. One proactive step holders can take is reaching out to customers, vendors and other payees who have credit balances or uncashed checks much earlier than required. Putting processes in place that call for outreach after six or 12 months of inactivity, for example, encourages owners to claim their property before it is officially classified as unclaimed. 

 

Another proactive step can be taken as soon as the holder believes a property owner’s address is no longer current. State requirements typically specify that the due diligence letter must be sent to the apparent owner’s last known address. If the holder receives returned post office (RPO) mail and believes that a due diligence letter will not be received, performing a search using a publicly available source or a third-party vendor may produce an accurate, current address.

 

Although the due diligence letter typically must be sent by first-class mail, that constraint isn’t present for efforts above and beyond the requirements. If holders have a phone number, email address or other method of authorized contact, they may be able to reach out using those methods, increasing the likelihood of a response.

 

If proactive measures are unsuccessful, there are still some things holders can do beyond the statutory minimum requirements to improve due diligence efforts. States generally mandate the inclusion of specific disclosures and language. Holders may want to add additional language—perhaps marking envelopes as “urgent” and including a “reply by” date to encourage higher open and response rates. 

 

As with so many aspects of unclaimed property, due diligence requirements change often. Keeping up with these changes and the nuances from state to state and property type to property type is essential to ensuring compliance. 

 

“Often due diligence gets lumped into a single bucket,” King said. “Holders know they need to send a letter by first-class mail, for example, but there are special considerations in many states. Some require due diligence letters to be sent by certified return receipt requested. Some require a secondary letter to be mailed if the dollar value is over a minimum threshold and the first mailing is RPO. For some property types, due diligence takes on a publication requirement. So, there is nuance, and things are always changing.”

 

One of the most significant recent changes is the expansion of due diligence by electronic means. The Revised Uniform Unclaimed Property Act includes such a provision, and some states are beginning to include it in their statutes. Tennessee H.B. 420, for example specifies that if the apparent owner has consented to receive electronic mail from the holder, the holder will send the due diligence notice by both first-class mail and email unless there is a reason to believe the email address is not valid. 

 

Failing to comply with due diligence requirements opens up holders to potential risks:

  • Some states impose penalties for noncompliance.
  • Holders jeopardize the indemnification granted for reporting property in good faith. 
  • An inordinate number of claims to the state compared to the amount of property reported could signal that proper due diligence isn’t occurring and could raise an audit red flag. 

“Developing processes for conducting early and recurring outreach makes the unclaimed property compliance process easier,” King said. “Taking such steps, you have a greater degree of certainty about what needs to be reported, and you can honestly say you’ve done everything possible to reach out to property owners.”

 

To learn more about due diligence requirements beyond the minimum requirements, join Will King and co-presenter Michelle Graf from Disney Worldwide Shared Services for UPPO’s Advanced Due Diligence webinar on July 26. Topics will include increasing responses, locating lost owners, developing an efficient due diligence process and staying in compliance with statutory requirements, outside of the normal basic concepts. They will also discuss recent and pending legislation affecting due diligence requirements. 


To help with compliance efforts, UPPO members can access the Jurisdiction Resource Guide, which provides reporting deadlines, dormancy periods by property type, due diligence letter requirements, exemptions and deductions, and other helpful information for U.S. and Canadian jurisdictions.

 

Tags:  compliance  due diligence  unclaimed property 

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Title: A look at Delaware’s statute recognizing first priority states’ exemptions under S.B. 13, part 2

Posted By Mark Watters, Thursday, June 29, 2017

Part 1 of this article provided an overview of Delaware’s prior application of the priority rules and an in-depth explanation of what constitutes an exemption under §1141(b).

 

How should holders manage these “exemptions” under §1141(b)?

Until holders gain greater clarity through statements of policy, regulations and common law, application to the previous examples will remain a business decision for holders seeking to balance aggressive and conservative practices. Too aggressive, and holders face potential audit exposure; too conservative, and holders may be remitting properties it need not immediately forfeit. 

 

Each holder needs to review its own practices under its unclaimed property policies, determine a logical and supportable position, and memorialize that position for support and reference years into the future. 

 

Delaware may—in the interest of clarity, certainty, better holder compliance and the resulting ease of auditing for holders and state agents—provide answers to these questions; in the previous examples there need not be any lack of clarity, at least in the general application. Such leadership would be welcomed by auditors and holders alike, and would create an open dialogue should disagreements arise. Such policy would allow holders greater ability to manage their risks and create an environment for better compliance.

 

Absent these answers, holders will need to take a common sense approach to these issues as they arise. Holders should have knowledge and understanding of its facts and the “exemption” it contemplates taking, record that for future reference, and review its policies periodically to determine if they are still valid. Failing to do so in the context of unclaimed property compliance compounds the issues and potential exposure or complexity of the holder’s redemption. 

 

Some considerations:

  • Risk/benefit. Holding properties under a dubious or questionable “exemption” or factual basis may not be worth any benefit over that of the risk involved. This risk is not only a financial one, but one which impacts good relations with customers, suppliers, and the public perception and image of the holder.
  • Costs of property maintenance and preservation. Some properties are just not worth the costs of maintenance and preservation. Escheatment provides an answer. By way of example, some states have a business-to-business exemption (b2b) that provides an exemption by deferral, whereby once the relationship between the holder and owner ends, the property must be escheated. Under such circumstances, the holder might do well to try settling the obligation with the owner, but thereafter, forego the deferral exemption and report the property at first opportunity. An “exemption” need not be taken and there are generally no penalties for early reporting of such properties. 
  • Costs of retaining records. Increasingly, states are reviewing records of unreported properties and documentation as to why they were not reported. This has created a greater burden on holders to maintain, preserve and index records for future reference and audit support. For exempt properties, holders have a greater burden to monitor laws to ascertain changes or eliminations of such “exemptions,” which need not be so closely reviewed if such properties are escheated. Many would agree that growing unclaimed property record maintenance has made the task more onerous and the costs of software and means for individual property record retrieval more costly and time-consumptive. Escheatment and passive record retention may be a better business decision than active maintenance of an extensive pool of active property records. 
  • The “sleep at night” test. Related to the risk/benefit analysis, does it make sense to create additional stress by holding properties at risk of audit? Escheating “at risk” properties helps to limit that stress and frees up company resources and personnel for value added pursuits.

Conclusion

The Delaware exemption and its application will be developed as time and opportunities allow. This recognition of other jurisdictions’ exemption is a welcome change to unclaimed property compliance. Let’s hope other states follow Delaware’s example as they review and enact their own updates from the current uniform act. 

 

There remain certain areas that would benefit from clarification and cleanup, some of which are discussed in this article. As compliance practitioners, we must carefully analyze each circumstance and determine whether we should apply the “exemption” to each factual pattern and each jurisdiction’s laws, regulations, and policies as we understand them. 

 

Remember that taking unclaimed property “exemptions” of any nature is not required; they are discretionary. Decisions about such require careful consideration of holder legal responsibility, and business purposes and goals.

 

About the Contributor

Mark Watters is technical director, unclaimed property, for DuCharme, McMillen & Associates Inc.

 

Disclaimer: Neither UPPO nor DMA, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services. This blog post is not a substitute for such professional advice.

Tags:  compliance  Delaware  priority rules  unclaimed property 

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