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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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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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Tennessee Reduces Dormancy Period, Adds Requirements

Posted By Tim Dressen, UPPO, Thursday, August 10, 2017
Updated: Wednesday, January 9, 2019

Among the first states to pass a version of the Revised Uniform Unclaimed Property Act this year was Tennessee. On May 25, 2017, Tennessee Gov. Bill Haslam signed H.B. 420 into law, effective July 1, 2017. The new law includes several substantial changes to the state’s unclaimed property requirements. Noteworthy provisions include:

 

New property types: Among the new property types addressed in H.B. 420 are health savings accounts (HSAs) and stored value cards. HSAs are presumed abandoned if unclaimed three years after the earlier of either the date distributions must begin to avoid tax penalty or 30 years after the account was opened. Stored value cards (other than payroll or gift cards) are presumed abandoned five years after the later of: Dec. 31 of the year in which the card was issued or funds were last deposited; the most recent indication of owner interest in the card; or a verification of the balance by or on behalf of the owner. 

 

Due diligence: Holders must perform due diligence for property valued at $50 or more. Notices must be sent to apparent owners by first-class mail between 180 days and 60 days before the unclaimed property report is filed. Owners who have consented to receive electronic communications must be sent the notice by both first-class mail and email unless the holder believes the email address is invalid. 

 

DMF matching requirement: The new law specifies that life insurers must perform searches of the death master file and comply with the Unclaimed Life Insurance Benefits Act. 

 

Dormancy periods: Most property type dormancy periods have been reduced from five years to three years under H.B. 420.

  

Record retention: Holders are required to retain records for 10 years after the unclaimed property report was filed or was due to be filed. 

 

Promulgation of examination rules: The new law specifies that the state treasurer should develop rules for examinations, including procedures and standards for estimation, extrapolation and statistical sampling.

 

Sale of securities: H.B. 420 requires the treasurer to sell a security between eight months and one year after receiving it and giving the apparent owner notice. If the treasurer sells the security within five years, and a valid claim is filed before the five-year period expires, the owner will be entitled to receive a replacement of the security or its market value plus interest.

 

Informal conference provision: This law establishes provisions for an informal conference in situations where an examination results in a determination that a holder has failed to pay or deliver reportable property to the treasurer. It also allows for judicial review of the treasurer's decision. 

 

Exemptions: The law retains the state’s business to business and gift card exemptions. 

 

For the latest information about this and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website

 

Tags:  audits  DMF  dormancy periods  due diligence  record retention  RUUPA  securities  Tennessee  unclaimed property 

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Overcoming record retention hurdles

Posted By Administration, Thursday, December 8, 2016

When it comes to record retention practices, many companies assume that if they follow the seven year IRS guideline that applies to many record types, they are adequately protected. However, that is not the case with unclaimed property records. 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.

 

Many state unclaimed property statutes provide scant retention requirements and, when addressed, often refer only to actual unclaimed property reports but not the backup detail for what went into those reports.

 

“You need to keep records showing that what you reported was reported properly, but you also need to keep records to prove that what wasn’t reported wasn’t unclaimed property due to the states,” says Ann Fulmer, director of Keane’s consulting and advisory services team.

 

As with many aspects of unclaimed property management, well-established policies, procedures and practices are essential to ensure property records and maintained and accessible. Unfortunately, developing and implementing these systems presents a few challenges.

 

Internal policies

Some legal departments strictly limit the records that can be maintained for more than seven years, as keeping them longer can increase liability. In addition, record storage can be expensive. Consider just one common property type—outstanding checks. A large company may have thousands of uncashed checks annually. For each year those records are maintained, the volume multiplies, requiring greater storage capacity.

 

“The auditors can only go back as far as you have researchable records,” Fulmer says. “If you have a solid, well-established record retention policy, the auditors cannot force you to create records you don’t have. If you only have records for seven years per your record retention policy, that’s how far their audit goes. They may request older years, but you’re limited by your record availability.”

 

The most noteworthy exception is the holder’s state of incorporation, which may estimate unclaimed property liability based on projections. Having detailed proof of a consistent reporting history can help provide protection in those cases.

 

“Make sure you keep all the detail that went into your unclaimed property reports, demonstrating you were reporting everything that needed to be reported to the proper states, including proof of payment,” Fulmer says. “That history can go a long way toward providing evidence that you’ve been in compliance even beyond your record retention policy.”

 

System conversions

As technology evolves, every company inevitably goes through system conversions that affect record-keeping. Often, all of the data will be maintained and management assumes that’s adequate. Unfortunately, the data is often not maintained in an easily accessible format.

 

“You may think you have sufficient records but don’t actually have access to what you need because of a system conversion,” says Jennifer Waryjas, associate with Reed Smith LLP’s state tax group. “When you need to access it, you may find that the people who know how to access it are no longer with the company, or the information is inaccessible because it exists in a system for which the company no longer has an interface.”

 

Record retention policies should specify not only that records are maintained when a system conversion occurs, but also the format and instructions for accessing them. Documentation is essential to ensure accessibility regardless of employee turnover.

 

Mergers and acquisitions

When a company merges with or acquires another business, unclaimed property issues are often low on the list of due diligence considerations. Unfortunately, neglecting the importance of unclaimed property during an acquisition can create significant challenges in the event of an audit. What records exist to prove the other entity properly reported its unclaimed property? Are those records easily accessible? A holder risks discovering in the midst of an audit that it doesn’t have substantial data and, thus, faces significant liability.

 

“As part of the due diligence process when acquiring another company, companies should consider potential unclaimed property exposure from the start,” Fulmer says. “You need to know what unclaimed property information is coming over with the new company and whether you’ll be able to easily access it.”

 

If a company addresses unclaimed property issues upfront and finds the acquisition doesn’t have adequate records or hasn’t been properly reporting, it can address how potential liability will be handled before the transaction is finalized. This can help limit related audit headaches down the road.

 

Proactive efforts

Developing and implementing record retention policies, procedures and practices takes a lot of effort and requires support and enforcement throughout the company. However, the immediate pain of going through the process can prevent much greater pain during an audit if you don’t.

 

“Address record retention issues now and you’ll be in a much healthier position down the road a few years when you get an audit notice,” Waryjas says. “It seems like a nonissue until you’re going through it. Then you realize what a huge issue it really is.”

 

To learn more about unclaimed property record retention, join Fulmer and Waryjas, as they lead the Living in the Past, Technology in the Present session at the 2017 UPPO Annual Conference. They will explore in greater detail the issues presented in this article along with related topics, including privacy issues and dealing with destroyed or lost data.

 

 

Tags:  audits  compliance  record retention  unclaimed property 

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Holder Responsibility Part IV: Record Retention Nightmares

Posted By Dana Terry, UPPO 2nd vice president and member , Wednesday, October 30, 2013
Updated: Wednesday, October 30, 2013

Throughout October, we’ll be posting a series on the four tenants of holder responsibilities – reviewing records, due diligence, reporting and remitting and retaining records.

Part IV

Are you keeping your unclaimed property records for the appropriate amount of time? What is the appropriate length of time? And exactly what records should you keep? Do questions like these keep you up at night? If so, it may be time to review your company’s record retention policy.

The 1995 Uniform Unclaimed Property Act states: "A holder required to file a report under section 18, as to any property for which it has obtained the last known address of the owner, shall maintain a record of the name and last known address of the owner for 10 years, or, for the holder of records of transactions between 2 or more associations as defined under section 37(a)(2), for 5 years, after the property becomes reportable, except to the extent that a shorter time is provided in subsection (2) or by rule of the administrator.” (567.252 Section 32 (1))

In practice, this is best translated to a retention period of 10 years plus the dormancy period of the property type you are reporting. All states are different but many holders have reported some state auditors have looked back as many as 20 years during an audit. Many states don’t include record retention periods in their statute of limitations but instead require record retention periods longer than their tax statutes!

When looking at various state retention requirements, I found that some states gave time frames from when the property was reported while others gave the time frames from when the property was reportable or filed. This makes it challenging to compare state record retention periods. I referenced the 1995 Uniform Act above as a standard but it is also important to note states do have a wide range in retention periods; some as low as three years (Hawaii and Oregon) and the majority as high as 10 years. But there are also a number of states with a range from four – seven years.

Here are a few unique cases

  • Minnesota, Mississippi, and Puerto Rico are silent on record retention.
  • Kentucky requires five years for property reported in the aggregate, and is silent for all other property.
  • Maryland’s statute indicates five years but its policy states eight years.

Now if that isn’t enough to scare you into having nightmares, keep in mind that state laws are often silent on which records to keep. Holders should consider which records are necessary to protect your company in an audit. Make sure all your record retention polices are clearly documented in your policies and procedures. And most importantly, make sure you are following your own policies to prevent an even bigger nightmare in the future!

Dana Terry is a senior regulatory compliance analyst at DST Systems, Inc. She also serves as the 2nd vice president and is a long-standing UPPO member. For questions, contact Dana at 816-843-8367.

More Resources

Keep an eye out for the release of the Introduction to Unclaimed Property webinar

To learn more about record retention and suggested practices attend the 2014 Annual Conference in March 2014!

The UPPO Buyer’s Guide lists UPPO members that provide services to assist or consult with record retention


Tags:  holder responsibility  record retention  unclaimed property  UPPO 

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