Escheat Risk Management: What A/P Managers Need to Know!

Transcription

1 Escheat Risk Management: What A/P Managers Need to Know! By: Karen Anderson Senior Vice President UPRR, LLC Accounts Payable and Purchase to Pay Leadership Conference 2014

2 Disclaimer This presentation is provided for educational purposes only. Unclaimed Property Recovery and Reporting, LLC is not rendering accounting, business, financial, investment, legal, tax, or other professional advice or services with this presentation. Further, this presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Unclaimed Property Recovery and Reporting, LLC its affiliates and related entities are not responsible for any loss sustained by any person who relies on this presentation. 2

3 Objectives Pinpoint Accounts Payable and Related Items that are Potential Unclaimed Property Explain the Holder s Basic Obligations Due diligence and Reporting requirements Discuss Unclaimed Property Risk Management Voluntary Disclosure Program as a Remediation Tool Practices, Policies and Procedures Identify Audit Triggers and Consider What to Do if Notified of an Audit Describe Trends and Recent Legislative and Regulatory Changes 3

4 State Unclaimed Property Laws 1954 Uniform Disposition of Unclaimed Property Act (UDUPA) created by the National Conference of Commissioners on Uniform Laws (NCCUL) 1966 The 1954 UDUPA was amended by the NCCUL 1981 The Uniform Unclaimed Property Act of 1981 was created (many state laws are substantially modeled on this act.) 1995 The Uniform Unclaimed Property Act of 1995 was created (about 14 states have adopted this Act in pertinent part) Non-Uniform Act states: California, New York, Delaware July, 2013 The Uniform Law Commission (formerly NCCUL) decides to rewrite the 1995 UUPA over the next 2 years. February 21-22, 2014 UUPA drafting committee first meeting 4

5 Unclaimed Property Nuances 4 Uniform Act Versions: 1954, 1966, 1981 & 1995 No 2 state laws are exactly the same. No statute of limitations in most state laws Contract auditors some paid by contingent fee State stands in the shoes of the owner Lengthy record retention requirements 55 Reporting jurisdictions throughout the United States and territories. No two jurisdictions have the exactly the same law/requirements Last Known Address v. Contacts/Business Nexus 5

6 Key Unclaimed Property Terms Intangible personal property: Property held, issued or owing in the ordinary course of business that has remained unclaimed by the apparent owner for a specified period of time after it became payable or distributable is presumed abandoned. Accounting errors are NOT unclaimed property. Holder: An individual or legal entity (public or private) in possession of property belonging to another. Owner: An individual or legal entity (public or private), government or governmental subdivision who has a legal or equitable interest in property. End or As of Date: The date through which a Holder must search its records to determine if it is in possession of unclaimed property. Dormancy Period: The number of years (generally 1,3, or 5) from the date of last contact with the Owner property must be unclaimed before it is considered abandoned. Reporting Deadline: Date report and property due to state. A very few states have different dates to report and deliver property. 6

7 Unclaimed Property Defined Unclaimed Property: Any intangible personal property that is held, issued or owing in the ordinary course of business and has remained unclaimed by the apparent owner for a specified period of time after it became payable or distributable is presumed abandoned. Due and Owing / Payable and Distributable Fixed and Certain No Owner-Generated Act 7

8 Unclaimed Property Defined (2) Is there a debt or obligation? ( due and owing ) Has there been owner-generated activity ( unclaimed ) Increase or decrease in amount Written communication with holders Recorded telephone conversation Other relationship / account active (?) Internet account activity (?) Tangible property can be unclaimed property in certain situations as well: Safe deposit box contents Hospital safe keeping items Other custodial property situations: Items left for repair but never picked up

9 Common Unclaimed Property Types A/P (vendor and other uncashed checks or unused payments) Payroll (wages, commissions, expense payments) A/R (credit memos & balances, unapplied cash, rebates) Third Party disbursements Worker s compensation Suspense accounts Self-insured benefit payments Gift cards and certificates Timed deposits Escrow balances IRA, Coverdell and 529 distributions Insurance claim checks/proceeds Annuity distributions Mineral Interest Related Royalties/Proceeds 9

10 Examples of A/P Related Potential Unclaimed Property Uncashed or Unused: Vendor checks Rebate checks Payroll checks Pay cards Workers compensation checks/distributions Flexible spending account distributions Commuter assistance distributions Uncashed or Unused: Expense checks Self-insured benefit checks/distributions Settlement checks/distributions Claim checks/distributions Dividend checks 10

11 Which State Has Jurisdiction? Which State s Law Do You Follow? The Rules of UP Jurisdiction (Also called the Priority Rules ): Texas v. New Jersey (US Supreme Court-1965) and later cases: Priority rules: 1. Last known address of the owner/payee/creditor controls 2. When no address sufficient for mailing or owner is unknown, the business state of incorporation controls. If the state does not have a law governing the property, the business state of incorporation controls 3. If the state does not have a law governing the property, the business state of incorporation controls Uniform Act (adopted by some states): State of incorporation if address of apparent owner is in a foreign country and if holder is incorporated in the US 11

12 Which State Law Applies? Example: Lotso Stuff Growingbiz Co. issues a check for $300 to Lotso Stuff, Inc. in payment for supplies. Lotso s address in Growingbiz s records is in Georgia. The headquarters of Growingbiz is in Alabama. Lotso has not cashed the check. Which state s unclaimed property law would apply if the check remains uncashed? Answer: Georgia. This is the classic first rule of Texas v. New Jersey. 12

13 When are a Holder s Obligations Triggered: Determining Item Eligibility Eligibility: When the applicable dormancy period has run, the property is eligible for due diligence plus reporting and remitting. When an item is eligible the holders obligations of statutory due diligence and reporting are triggered. Dormancy Period: States have enacted unclaimed property laws to require that such property be turned over to the state after a statutorily prescribed period of time has elapsed, known as the dormancy or abandonment period. The applicable state statute will determine the following which are important to determining the when : 1.Dormancy period for the property type 2. As of or End date 3.Reporting deadline 13

14 State Examples of Dormancy Periods & Cut-off Dates For Business Associations (non-financial / non-insurance) Accounts Payable (MS08) Vendor Checks (CK13) Payroll Checks (MS01) Credit Memos (MS09) Dividends (SC01) Annual Reporting Deadline California 3 yrs 3 yrs 1 yr 3 yrs 3 yrs 10/31 (Notice Report) As of / End Date 06/30 Delaware 5 yrs 5 yrs 5 yrs 5 yrs 3 yrs 3/1 12/31 Illinois 5 yrs 5 yrs** 1 yr 5 yrs** 5 yrs 11/1*** 6/30*** Indiana 3 yrs 3 yrs 1 yr 3 yrs 3 yrs 11/1 6/30 Maryland 3 yrs 3 yrs 3 yrs 3 yrs 3 yrs 10/31 6/30 Michigan 3 yrs 3 yrs 1 yr# 3 yrs 3 yrs 7/1 3/31 New York 3 yrs 3 yrs 3 yrs 3 yrs 3 yrs 3/10+ 12/31+ Nevada 3 yrs 3 yrs 1 yr 3 yrs 3 yrs 10/31 6/30 Texas 3 yrs 3 yrs 1 yr 3 yrs 3 yrs 7/1 3/1 **May be exempt under certain circumstances. ***Business Association & Life Insurance Companies report 5/1 with 12/31 end date. +NY deadlines vary by industry, i.e., banks- 11/1 w/ 6/1 end date and ins companies- 9/10 w/ 6/30 end date. # Under $50 exempt. ^ 14

15 When Example Lettuce, Olives and Libations, Inc. (LOL) purchased products from Burgers, Fries and Friends, Co. (BFF) and issued/sent BFF a check for $750 in payment which was dated on Feb. 14, The BFF did not cash the check. BFF s address in LOL s records is in Indiana (where CK13 vendor checks a 3-year dormancy period). Would the value of the check be reportable on the 11/1/14 Indiana reporting deadline? 15

16 When Calculation Example Calculation: IN 2014 End Date = 2014/6/30 LAD or Issue Date = 2011/2/14 Dormancy Time = 3 yrs, 4 mos,16 days IN Dormancy (CK13) = 3 yrs Answer: This value of the check would be due for reporting to IN on the Fall 2014 deadline. 16

17 Eligibility Formula ED LAD (ID) = DT If DT is greater than DP = Eligible 17

18 A Holder s Basic Compliance Obligations The basic holder compliance obligations* are: Record Review / Internal Due Diligence Due Diligence/Owner Contact Reporting and Remitting Record Retention *All of the above must be done within the time frames and in the formats required by the various applicable state laws. 18

19 Record Review: Minimizing Exposure This is your opportunity to minimize liability! Common Items to review: Disbursements (i.e., dividends, royalties) Vendor Checks Payroll Checks Credit Memos / Balances Outstanding check/payment lists (including payments made by 3 rd parties) Industry specific items (checking and savings accounts, insurance claims payments, etc.) Timing Records should be reviewed at least once a year but preferably every days to stay current Materiality Limit: Set a materiality limit for your review. Policies and Procedures Review steps should be in P& Ps 19

20 Record Review: Procedures Considerations First, determine if the owner is really lost: For A/P items, check vendor master list for a second address or for the address of a parent co or for a related subsidiary. For payroll-related UP, determine if the employee has been terminated or transferred, access retirement info. For customer accounts: Search internal data pertaining to other types of accounts that the individual or business has with your organization (if found, look for a change of address or activity by the owner on the other account) Review all types of communications sent to or that are possible from the customer, i.e., documented telephone calls or internet (verifiable access) regarding the account, proxy responses, increases or decreases in the account value caused by the owner, etc. 20

21 Records Review: Procedures Considerations First, determine if the owner is really lost (continued): Use free internet sources to find a new address (i.e. anywho.com, free-people-search-engines.com, switchboard.com) If practical, use a tracing firm or government or commercial database searches (i.e., credit bureaus, Social Security Administration Death Index, etc.) or other services designed to locate the customer/owner or next of kin 21

22 Records Review: Procedures Considerations A/P Next, review the data for accounting errors A/P: Re-issues without voiding original. Duplicate payments. Incorrect payee. Inter-company payments Periodic/recurring payments (utilities, landlords, etc.) Reconciliation error (i.e., Bank rec has checks w/ sequential numbers outstanding/bad check run). Large dollar checks with familiar payee names. Check represents payment for an invoice for which a credit was issued. EFT s issued simultaneously. 22

23 Records Review: Procedure Considerations Next review the data for accounting errors (continued) : Industry Specific Issues Mistaken postings to account Computer application errors? Misapplied funds Insurance offers settlement (unclaimed property?) Unperfected rebate? (unclaimed property?) Claim disavowed or incomplete? (sitting in agent s drawer?) Other types of items in a pending status 23

24 Records Review: Procedure Considerations Finally, consider whether the property is exempt from reporting. Business to Business Exemption (tricky-generally, for MS09 credit memos, some CK13 vendor checks) AZ, IL, IN, IA, KS, MD, MA, MI, NC, NY?-administrative, OH, TN, VA, WI (WY - only for gift certificate merchandise credits) Colorado 2% of property remitted or $25 exemption Florida - $10 exemption for credit balances, customer overpayments, security deposits and refunds Kentucky, Michigan, Ohio Wages less than $50 Idaho intangible property valued at $50 or less Gift Certificate / Card Exemptions (tricky) 24

25 Records Review: Suggested Procedures Summary 1. Review / research outstanding checks/payments on a regular basis (60 90 days) for accounting errors, familiar payee names, offsets, or exemptions. Set a materiality limit Reverse identified accounting errors, make appropriate journal/entries / descriptions 2. Review supplemental information that may lead to the address of a customer, employee or former employee, or vendor 3. Establish contact with the owner through correspondence and telephone calls to resolve outstanding checks or credits, etc. If appropriate, perform database/location searches. 25

26 Records Review: Suggested Procedure Summary (2) 4. Retain documentation of reversals resulting from research or contact. 5. Maintain and follow written procedures for record review and make them a part of your company s policy or manual. 6. Assign one person at the company who is responsible for escheat compliance, and insert this responsibility in their job description to insure continuity. 26

27 Compliance Obligation #2: Statutory Due Diligence Methods First Class Mail, Certified Mail or Publication Letter Content Timing 60 to 120 days? 6 months? Limitations/Exceptions DE letter requirement only for securities, PA no letter requirement Due Diligence Minimums Special Requirements (i.e., OH-return envelope) Allowable Deductions 27

28 Statutory Due Diligence: Methods & Letter Content 1. Methods: a. Generally A letter to the owner at the last known address in the records of the holder b. Delaware and New York require publication in newspapers for certain industries and under certain conditions c. Electronic Due Diligence Is it acceptable? 2. Letter Content: a. Generally Uniform Act (Section 7e): 1. Must state that the holder is in possession of the property subject to the unclaimed property law 2. Must state that the claim of the owner is not barred by the statute of limitations 3. That the value of the property is greater than $50. 28

29 Statutory Due Diligence: Letter Content (cont.) 2. Letter Content (continued): b. California - For accounts valued at over $50, notice must be sent not more than 6 to 12 months prior to reporting deadline and the following information must be included in the notice and must be in bold type or type 2 points larger than the rest of the notice: 1. the time when the property will escheat to state and effect of a escheat; and 2. statement that since the date of last activity there has been no customer, client, payee activity; and 3. identification of the deposit, account, shares, etc. by number or identifier; and 4. statement that the item in in danger of escheatment to the state. Also, a form for confirming the owner s current address must be included for response. Plus, California requires specific language to be printed on the top of the letter. 29

30 Statutory Due Diligence: Letter Content (cont.) 2. Letter Content (continued): c. Important inclusions 1. A statement that the property will be delivered to the state if no action is timely taken 2. A statement that the state is the custodian and the owner does not lose his/her rights to the property 3. A date by which the owner must respond and/or a direct request for the owner to respond 4. Property identification and instructions for responding (i.e., how to contact the holder, the methods for responding and/or receiving the property, how to effect an address update, etc.) 30

31 CA Notice Letter: From CA Holder Handbook UPD/guide_rptg_holderhandbo ok.pdf pg 80 31

32 Statutory Due Diligence: Timing 3. Timing: Generally Not more than 120 days nor less than 60 days prior to the reporting deadline. (1995 Uniform Act, Section 7(e)): AR, DC, FL, GA, IL, IN, KS, KY, LA, ME, MT, NE, NV, NH, NJ, NM, NC, TN, UT, VT, WV, WI. OTHER TIME PERIODS: Within 120 days prior to filing report: AK, CO, ID, MN, ND, OK, RI, SC, VI, WY At least 30 days prior to filing report: OH At least 60 days prior to filing report: AL, MA, VA At least 90 days prior to filing report: OR At least 120 days prior to filing report: AZ Within 30 to 120 days prior to filing the report: MD Within 60 to 365 days prior to filing the report: MI Within 180 days prior to filing report: HI, CT* Within 90 days for the first attempt and 2 nd attempt within 60 days if over $1000: NY* (certified mailing required on second attempt) k. Within 30 to 365 days prior to filing report: MO Within 180 to 365 days prior to filing report: CA Required but no timing specified: IA*, MS, SD, WA *Please see state statute for more details. Time frames for due diligence may change as new legislation is adopted. 32

33 Statutory Due Diligence: Form of Delivery 4. Form of Delivery: a. Generally No specification in the1995 Uniform Act, Section 7(e), but most states require first class mail. b. Notable exceptions: Iowa - Requires Banks and Financial Institutions only to send due diligence letters by certified mail. The costs of the certified mailing may be deducted from the account by the Bank or Financial Institution New Jersey For items that are greater than $50, the letter must be sent certified mail, return receipt requested. New York - First notice by first class mail within 90 days prior to reporting deadline; second notice by certified mail, return receipt for $1000+ (cost of certified mail deductible from property reported.) Ohio - Certified mail requirement for items $1000 & greater; costs deductible up to $20 maximum 33

34 Statutory Due Diligence: Limitations/Exceptions 5. Limitations/Exceptions: a. Due Diligence Minimums - By item value. Examples: $10 IL, $25 NE, $50 AR, AZ, CA, $75 WA, $100 - MA, MD, MN, OR, VA, $250 - TX No minimum AL, CT, IA, MS, NE, NY, PR b. No Statutory Letter Due Diligence Requirement PA, DE requires for securities only c. Self-Addressed Stamped Envelope Requirement-OH d. Publication requirement 1. Delaware - Banks, courts, and life insurance (must publish in newspapers in 3 specified counties) 2. New York - Banking organizations, insurance companies, and utilities must publish in newspaper in city of residence of owner. Due Diligence mailing still required! 3. Puerto Rico has an advertising requirement. 34

35 Compliance Obligation #3: Annual Reporting & Remittance Important Considerations: 1. Type of Report 2. Report Format 3. Negative Reporting 4. Report Aggregate Limits 5. Form of Remittance 6. Report & Remittance Delivery 7. Filing Extensions 35

36 Annual Reporting & Remittance: Report Type The Report 1. Type - Paper, Diskette, CD, or Internet a. Some states mandate reporting through their website via report upload. (i.e., Alabama, Indiana) b. Most states require electronic (diskette or CD) reporting if there are more than 10 items to report. Many states no longer accept paper reports at all (i.e., Maine, Idaho). c. Note that some states that require electronic reporting also require that a hard copy of the report accompany the electronic report. 36

37 Annual Reporting & Remittance: Report Type (cont.) Type Internet! Some states have on-line reporting through their websites but it varies from an upload of your report to data entry of the report /upload or both. Alabama, Indiana, Montana and Texas now require reporting only by online, upload from their websites. Examples of state on-line reporting: Florida (need FL Holder # and to register to file this way): tion.jsf Maryland (Need MD Holder and FEIN # and to register first): dpr/ Virginia: (Need to register first): 37

38 Annual Reporting & Remittance: Report Format 2. Format a. All states accept the NAUPA II Standard Electronic Reporting Format: Standard relationship and property type codes listed as well. b. Report Formatting - State Endorsed On-line Cloud Formatting Software: - UPExchange (Cloud Based): Other Formatting Software: c. Common Property Type Codes: MS01 Payroll, Wages, Salary MS08 Accounts Payable MS09 Credit Balance CK13 Vendor Checks SC01 Dividends 38

39 Annual Reporting & Remittance: Negative Reporting & Aggregate Limits 3. Negative Reporting - Required by: AZ, CT, DC, FL, ID, IL, IN, KY, LA, MD, MA, MI, MN, MS, ND, NJ, NM, NY, NV, OH, PR, RI, SC, TN, VA, VI, WA (ME only companies HDQ in ME). Some states permit both negative reporting on-line. Examples: Indiana/Negative Reports: Ohio/Negative Reports: 4. Aggregate limits Most states have a limit under which the property does NOT have to be reported with name and address detail. These items are lumped together by property type and reported as an aggregate lump sum. $25, $50, & $100 are usual limits but this varies by state. Most states do not permit reporting of dividends or mineral interests in the aggregate. 39

40 Reporting Date Breakdown: Non-Insurance Corporations 40

41 Annual Reporting & Remittance: The California Difference Dual Reporting And then there is California.Taylor v. Westly (federal court decisions in 2007 and CA SB 86 of 2007) The CA Dual Reporting Scheme: 1. All Entities Except Life Insurance a. Notice Report Due before 11/1 b. Remittance and Report Due between 6/1 & 6/15 c. Claims paid between Notice and Remittance Report 2. Life Insurance Companies a. Notice Report Due before 5/1 b. Remittance and Report Due between 12/1 & 12/15 c. Claims paid between Notice and Remittance Report 41

42 Remitting Unclaimed Property Some states now require remitting any amount via electronic means (i.e., EFT/ ACH ) Examples: Alabama and Indiana require by law that the remittance be delivered electronically. If checks are permitted, must insure that the payable to is correct: Examples: Illinois: Illinois State Treasurer Ohio: Ohio Department of Commerce Minnesota: Minnesota Department of Commerce Wisconsin: Wisconsin State Treasury 42

43 Compliance Obligation: Reporting Red Flags! Tips - Preventing Reporting Red Flags by: Use the state prescribed cover sheets and/or holder numbers when filing reports Make sure your reports/cover sheets are completed and signed (and notarized if required) Insure that the report reflects the same dollar amount that is reflected by your remittance Request filing extensions within the states prescribed periods prior to the filing deadline (you may have to request in writing and/or on a state form) File all property types: securities and general ledger-related and filing them accurately (not disproportionately) 43

44 Remitting Unclaimed Property Exception: Some states do not permit checks to be used for the remittance if the total amount is greater than a specified sum. Examples: 1. CA requires that if the sum (including interest penalty amounts) is greater than $20,000 it must be delivered by electronic funds transfer in the specific manner designated in CCP Section MA requires the if the sum is $10,000 or greater it must be delivered by electronic funds transfer. To do so, the holder must complete and file (annually) with the MA Abandoned Property Division an Authorization to Agreement for EFT and it must be approved by the MA APD. 3. NJ requires Fed wire transfers for $50,000 or more. 4. TX law requires holders who paid $100,000 or more during the previous state fiscal year to make subsequent payments by electronic fund transfer. The preferred method is through TEXNET.

45 Compliance Obligation #4: Record Retention 1. Retention Time Period 1995 Uniform Act (Section 21) a holder required to file a report must maintain the records containing the information required to be included in the report for 10 years after the report is filed. (Ten (10) years from date property was first reportable.) Consider state audit reachback periods! 2. Records to Retain 1995 Uniform Act (Section 21) is silent on this issue. Practical Considerations: Audit Protection Substantiation for reversals - accounting and data errors Evidence of reporting and timely reporting Evidence of due diligence (including certified mailing if it is required.)

46 Risk Management: Policies and Procedures Outline Your Policies and Procedures Should Include: Periodic Generation of Reports of Outstanding Items Research Methods to Identify Potentially Unclaimed Items A Description of the Measures for Resolving Items Notification of Owners/Vendors re Outstanding Items (Sample Letter in Procedures?) The Procedure for Reporting & Remitting property to the Appropriate State(s) and for Recording same Record Maintenance Standards and Steps/Procedures A Method for Maintaining and Updating Compliance Requirements A Time Table for All of the Above Appropriate Separation of Tasks and Task Assignments 46

47 Risk Management: Voluntary Disclosure Programs VDP - Programs operated by state unclaimed property officials whereby a business can voluntarily report past due unclaimed property and promise future compliance. Sometimes called Voluntary Compliance Program (VCP). State programs can be formal or informal (so requirements vary among states) Some programs are initiated by a signed contractual agreement VDA or VCA = Voluntary Disclosure Agreement or Voluntary Compliance Agreement 47

48 Risk Management: Voluntary Disclosure Is it Right for Your Co? Analyze the situation: Amount/value of property potentially reportable to the state(s) in question Report filing v. VDA Reporting / Compliance history (filing, audits, VDAs) Sensitivity of data and potential NDAs Resources and Timing staff, technological, Record depth and accessibility 48

49 Risk Management: Voluntary Disclosure - Benefits Some states have a shorter reach back period for VDP/VCPs than for audits Waiver of penalties and/or interest Can prevent an audit of property within the scope period of the VDA Demonstrates good faith by the business to the state 49

50 Risk Management : Voluntary Disclosure - Potential Issues Internal staff reluctance / management support Limited record depth and/or accessibility of information Staff or technological resources are unavailable or only sporadically available Attorney-client privilege not appropriately established Scope of review fails to encompass all property types, accounts and/or entities 50

51 Risk Management: Voluntary Disclosure Eligibility and Scope Not eligible for the VDP/VCP if currently under audit or notified of impending audit Some states only permit first time filers to undergo the VDA process Involves guided self-audit within particular parameters Generally, all property types must be reviewed for all entities that hold or may hold unclaimed property The review and final report and remittance must be completed within a particular time frame. (i.e. 6 9 months) 51

52 Risk Management: Audits TRIGGERS A few examples: Holder has presence in or is incorporated in state but no reports filed Holder is big enough to warrant scrutiny by state of incorporation Amounts reported appear too small for size of the holder Unlawful deductions or large aggregate amounts in previously filed reports Gaps in reporting history No reach back on initial reporting Inadequate due diligence (e.g., high rate of claims from state) 52

53 Risk Management: More Audit Triggers History of mergers, acquisitions, reorganizations, liquidations, dissolutions, incorporations A specific period of time has passed since a previous audit High volume of financial transactions (e.g., Retailers or Distributors) Unique property types (e.g., IRAs, Gift Cards) Reporting some property types but not all that are common to your Industry Holder name recognition 53

54 Audits: Chronological Components 1. Notice 2. Schedule 3. Document Requests 4. Sampling and Extrapolation 5. Initial Findings Report 6. Negotiation 7. Final Report 8. Appeal? 54

55 The Audit Notice: The States First Move A Holder s Preliminary Questions 1. Who is performing the audit? (State or third party auditors?) 2. Which states are involved? State of incorporation? 3. What is the time period covered ( scope ) of the audit? REACH BACK PERIOD? 4. What audit procedures will be used? (What extrapolation procedures will be used when records are incomplete or nonexistent?) 5. What are the auditors schedules and site requirements? 6. Will the state(s) or their agent sign a confidentiality and scope limitation agreement? 7. Should legal counsel and outside expertise be obtained to handle audit issues in a privileged context? 55

56 Audits: Current Trends Extended reach back periods for non-filers Sampling and extrapolations Drawn-out audits State audit costs charged to the holder Third-party administrators 56

57 The Risk: Penalties and Interest Under most state UP laws, penalties and/or interest can be imposed for failure to perform any duties required by law, including failing to report and remit or to do so timely. (1981 Act includes criminal AND civil penalties) 1995 Act Penalties: 1. Interest : 2% above the annual Treasury bill discount rate in effect on the date the property should have been paid or delivered 2. Not Willful Failure: $200 for each day the report, payment, or delivery is withheld, or the duty is not performed, up to $5, Willful Failure: $1,000 per day from the report due date up to $25,000, + 25% of the property value that should have been reported 4. Fraud: $1,000 per day from the date a report due date up to $25,000, + 25% of the property value that should have been but was not reported. (#1 plus #2 or #3 or #4 can be applied under 1995 Act) 57

58 Latest Trends and Developments Recent Trends Recently Enacted Legislation Significant Pending Legislation 58

59 Important 2012 Enacted Legislation North Carolina HB 462 prohibits Treasurer from contracting for UP auditors to perform audits on a contingency fee basis except for certain audits of life insurance companies. North Carolina SB 810 decreases record retention period from 10 to 5 years after the holder files a report. North Dakota SB 2058 Prohibits the UP administrator from contracting for audits in ND unless there is reasonable cause to believe that the business has failed to comply with the ND UP statute. 59

60 2013 Enacted Legislation Alabama HB 112: Among the many changes made are: Requires reports and remittances to be delivered electronically and requires separate reports for tangible and intangible property. Allows the state to establish aggregate reporting threshold by rule (current = $50 aggregate). Changes the due diligence time frame to not less than 60 days before report filing & permits the state to increase due diligence minimum (now $50) by rule Establishes that property reported early will be deemed abandoned property and handled in the same manner as all other abandoned property. Indiana SB 222: This bill makes many changes including: Requires reports and remittances to be delivered electronically. Authorizes the attorney general to deduct from the proceeds paid to the owner, the costs of selling property (including tangible property and securities) or costs of identifying or recovering property (including the costs of examination or costs incurred in connection with an interstate agreement).

61 2013 Enacted Legislation California AB 212: Reduces the aggregate limit to $25 from $50 beginning 7/1/2014. Michigan HB 4289: Sets requirements regarding audits including the standards to be used, the info that must be provided to the holder and sets a standard for when estimation can be used. Requires any UP exam to be conducted using generally accepted auditing standards and that the UP administrator or his her agents provide to those who are audited a completed copy of the audit report. Within 6 months of this bill s effective date the UP administrator is required file a request for rule-making with the Office of Regulatory Reinvention, to initiate rules on auditing standards. Effective date: 10/29/2013 Illinois SB 1988: Effective 8/16/2013, reduces the aggregate limit to $5 from $25.

62 2012 & 2013 Enacted DMF Legislation Alabama HB 126: requires insurers to perform the death master file comparisons every 3 years plus other provisions including remitting unclaimed benefits/retained assets with interest to the State Treasurer. Effective 1/1/14 Kentucky HB 135: requires life insurers to perform death master file comparisons quarterly on in-force policies & retained asset accounts and if benefits due, locate &notify beneficiaries. Effective 1/1/13 Maryland SB 77: life insurers must perform death master file comparisons semi-annually on in-force policies & retained asset accounts and if benefits due, locate & notify beneficiaries. Effective 10/1/13. New York AB 9845: requires life insurers to perform quarterly death master file matches against in-force life insurance policies and retained asset accounts and to locate and notify beneficiaries. Requires the Superintendent of Insurance to create a Lost Policy Finder program.

63 2012 & 2013 Enacted DMF Legislation Montana SB 34: requires life insurers to perform death master file comparisons semi-annually on in-force policies, annuity contracts, and retained asset accounts & if benefits due, locate and notify beneficiaries. North Dakota HB 1171: requires life insurers to perform death master file comparisons before 11/1/2014 and then, semiannually on in-force policies, and retained asset accounts & if benefits due, locate and notify beneficiaries. Reduces the dormancy period from 3 to 1 year for funds held or owing under a life or endowment insurance policy or annuity that has matured or terminated. New Mexico SB 312: requires that at least twice a year, a life insurer shall crosscheck its insureds' in-force life insurance policies and retained-asset accounts against a death master file & if benefits due, locate and notify beneficiaries. Vermont HB 95: requires life insurers to perform death master file comparisons semi-annually on in-force policies, annuity contracts, and retained asset accounts and if benefits due, locate & notify beneficiaries.

64 2014 Enacted DMF Legislation (to ) Indiana SB 220 Requires that an insurer shall, at least every six (6) months, perform a comparison of in-force policies, annuities, and retained asset accounts issued by the insurer in Indiana against a death master file to identify potential death master file matches. Makes an insurer s noncompliance an unfair or deceptive act or practice in the business of insurance. Effective date: Applies after June 30, Mississippi SB 2796 Creates the Unclaimed Life Insurance Benefits Act. Requires an insurer to perform a comparison of its in-force policies, annuities and retained asset accounts against a death master file, on at least a semiannual basis, to identify potential death master file matches. The matching requirement can be met by using the full death master file once annually and using the death master file update file for the remaining comparisons in that year. Effective date: Applies from July 1, 2015.

65 Other Significant 2014 Enacted Legislation Indiana SB Allows the attorney general to withhold from disclosure certain personal information contained in a report or claim for unclaimed property. Requires unclaimed property held in a safe deposit box to be delivered to the attorney general not later than 30 days (prior law was 120 days) after the property is reported to the attorney general. Provides that an owner of interest bearing property is entitled to receive interest that accrues after the date the property is delivered to the attorney general. Effective Date: 7/1/2014. Iowa HB Exempts from the presumption of abandonment gift certificates redeemable for merchandise only which do not have an expiration date or are not subject to deduction for any charges or fees. This change applies to gift certificates redeemable for merchandise only which are sold after 7/1/2014. Clarifies that all other such gift certificates have a 5 year from the dates of issuance abandonment/dormancy period.

66 Significant 2014 Pending Legislation Illinois HB 4242: Requires at least one due diligence mailing via certified mail. Further, requires that at least 45 days before reporting and remitting as to the State Treasurer as required under the Illinois UP law, the holder must provide to the Illinois Dept of Revenue information about owners that are required to be reported so that the Dept of Revenue can search its records for better addresses and provide such information to the State Treasurer. The State Treasurer then must send a first class mailing to the owner at this address and notify the owner how to contact the holder to retrieve their property. Michigan HB 4703: Creates a phased audit appeals process. Requires that when under-reporting discovered via audit, the UP administrator must deliver to the holder a findings statement and request for payment. If the holder appeals the review may ultimately go to an independent reviewer selected by the State Treasurer. If the Treasurer disagrees with the reviewer s determination he or she can overturn it. If after the administrative appeal process the holder appeals the decision to circuit court, the court's review is limited to whether the Treasurer's determination was supported by substantial evidence on the record.

67 Significant Pending Legislation Missouri HB 1075 Reduces the payroll dormancy period from 5 to 3 years. Creates a business to business exemption for any outstanding check, draft, credit balance, customer's overpayment, or unidentified remittance issued to a business entity or association as part of a commercial transaction in the ordinary course of a holder's business by indicating that such shall not be presumed abandoned if the holder and such business entity or association have an ongoing business relationship. Specifically states that, business credits between two business entities or two business associations are not subject to the unclaimed property act. Also, creates a statute of limitations by indicating that the state treasurer shall not enforce the unclaimed property act for a reportable period more than three years after the holder has either filed a report with the state treasurer or given express notice to the state treasurer of a dispute under this chapter. Pennsylvania SB Reduces most dormancy periods to 3 years from 5 years, however wages remain at 2 years. Effective Date: Sixty days from enactment. West Virginia SB Clarifies that there must be five years of continuous inactivity of a noninterest bearing demand, savings or time deposit before it may be presumed to be abandoned. The bill also clarifies there must be seven years of continuous inactivity of an interest bearing demand, savings or time deposit before it may be presumed to be abandoned.

68 . Pending DMF Legislation Georgia HB 920 Creates the Unclaimed Life Insurance Benefits Act. Requires insurers to perform a comparison of its in-force policies, annuities, and retained asset accounts against a death master file, on at least a semiannual basis, to identify potential death master file matches. Effective Date: Applies to policies issued or renewed on or after 1/1/2015. Iowa HB 2333 (formerly HB 516) and SB Requires that for any in-force life policy, annuity, or retained assets account, an insurer is required to perform a comparison against the death master file on at least a semi-annual basis. Effective Date: 7/1/2015. Oklahoma HB 3287 Creates the Unclaimed Life Insurance Benefits Act. Requires an insurer to perform a comparison of its in-force policies, annuities and retained asset accounts against a Death Master File, on at least a semiannual basis, to identify potential Death Master File matches. Effective Date: 11/1/2015. Pennsylvania HB 1937 Requires that if an insurer that utilizes a death master index to determine if an insurer's annuity owner is deceased shall implement procedures for performing a comparison of its insureds' in force life insurance policies and retained asset accounts against the same death master index, on at least a quarterly basis. Effective Date: Sixty days from enactment.

69 Pending DMF Legislation Louisiana HB 411- Creates the Unclaimed Life Insurance Benefits Act. Requires an insurer to perform a comparison of its in-force policies, annuities and retained asset accounts against a death master file, on at least a semiannual basis, to identify potential death master file matches. Provides that an insurer that has not engaged in asymmetric conduct prior to August1, 2014, shall not be required to comply with the DMF match requirements with respect to policies, annuities, or retained asset accounts issued prior to August 1, Effective Date: No internal effective date which means the bill becomes effective on August 15 th of the year it passes the legislature. Massachusetts HB 20 - Requires that for in-force life policies and retained asset accounts, an insurer is required to perform a comparison against the death master file on at least a semi-annual basis to identify potential death master file matches. Effective Date: Ninety days after signed by the Governor or if no action the Governor, ninety days after the end of the legislative session. Maryland SB 690 and HB 797 Amends the unclaimed life insurance benefits provisions enacted in 2013 by: 1. Exempting from the comparison requirements those life policies issued prior to 10/1/2013 if the insured did not engage in asymmetrical conduct prior to that date. Asymmetrical conduct is defined as use of the DMF with annuities but not with life policies. 2. Requiring life insurers to set procedures for periodically contacting insureds, annuitants, and retained asset account holders to verify their addresses and other contact information; and 3. Requiring the Insurance Commissioner, in consultation with insurers, to implement a lost policy finder program (by 6/1/2015) designed to assist beneficiaries in locating unclaimed life insurance benefits. Effective date: 6/1/2014. As of 4/1/2014 SB 690 had been withdrawn and HB 797 had been reported unfavorably by the Health and Government Operations Committee.

70 Pending DMF Legislation Rhode Island SB 2056 and HB 7031 Creates the Unclaimed Life Insurance Benefits Act Provides, among other things, that an insurer shall perform a comparison of its insureds' in-force life insurance policies and retained asset accounts issued for delivery in this state against a death master file, on at least a semi-annual basis, to identify potential matches of its insureds. Effective Dates: SB 2056 has an immediate effective date while HB 7031 has an effective date of 1/1/2015. Tennessee HB 2427 and SB 2516 Creates the Unclaimed Life Insurance Benefits Act. Requires insurers to perform a comparison of its in-force policies, annuities, and retained asset accounts against a death master file, on at least a semiannual basis, to identify potential death master file matches. Effective Date: For the purpose of promulgating rules, this act shall take effect upon becoming a law, the public welfare requiring it. For all other purposes, this act shall take effect July 1, 2015, the public welfare requiring it.

71 A Call to Action? Current Issues Uniform Unclaimed Property Act (UUPA) History Uniform Law Commission Schedule (ULC) for UUPA Revisions Approve a draft in summer , 1966, 1981 and the 1995 Acts 1995 Act: Alabama, Arizona, Arkansas, Hawaii, Indiana, Kansas, Louisiana, Maine, Michigan, Montana, New Mexico, North Carolina, West Virginia, Vermont, Virgin Islands April Stakeholders Meeting & July ULC Commission Meeting First Drafting Committee Meeting in Washington, DC held on February 21 st and 22nd 71

72 Potential Issues: For the ULC Effort Rules of Custody / Foreign Property/ Domicile Address Definition Eligibility Issues: Contact Reporting Issues: Deadlines, Codes, Aggregate and Electronic Reporting/Remitting Due Diligence Issues: Address Sufficiency, Minimums, Electronic Contact Record Retention / Audit Reach Back Audit Issues: Estimation and Administrative Appeals Process Statute of Limitations Exemptions: B2B and DeMinimus Newer products: HSAs, FSAs, ESAs Timing of states sale of securities 72

73 Resources 1. Unclaimed Property Professionals Organization (UPPO) (2014 Holder Seminar: September 10-11, Atlanta Hyatt Regency) 2. National Association of Unclaimed Property Administrators (NAUPA) 3. NAUPA II Standard Reporting Format: (click on new reporting standard ) Uniform Unclaimed Property Act pdf 73

74 Questions? Karen Anderson Senior Vice President Unclaimed Property Recovery and Reporting, LLC