Navigating the Challenges of Multi-State Reporting

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1 Navigating the Challenges of Multi-State Reporting National Association of State Treasurers Treasury Management Conference Albuquerque, New Mexico May 2012 Representing State Governments That Actively Find Owners While Protecting Forgotten Funds Until Claimed

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4 Presentation Topics Dormancy Periods: WHAT to Report Due Diligence: WHO to Report Reciprocity: WHERE to Report Codes and File Formats: HOW to Report Claims for Reimbursement: HOW to Get Your $ Back State Anomalies: WHICH Way is UP

5 Presented by: Rebecca Adams, President, Compliance Services Group LLC Mary Celentani, Wisconsin UP Administrator Linda Fisher, Administrator, ND Department of Trust Lands Valerie M. Jundt, Managing Director, Keane Allen Martin, Audit Director, North Carolina Treasury Jo Ann Tinsley, West Virginia Treasury

6 The biggest challenge related to multiple-state reporting is that There are Multiple States

7 A wide variety of state-specific information can be found within the NAUPA QuickReferencePacket

8 Useful Information in the QRP Glossary of Unclaimed Property terms Reciprocity Definitions Reciprocity State matrix Due Diligence All States with Sample Letter Service Charge provisions All States Holder Claims Processing Guide Uniform Holder Reimbursement Form Negative Report Requirements Warrants Survey States Escheatment Penalties Survey States ID Guide Gift Cards and Gift Certificates Statutes and Recent Legislation Expanded Unclaimed Property Office Staff Roster How to build a Corporate Unclaimed Property Department Fraud Controls in a Corporate Unclaimed Property Department Dormancy Period Reporting and Payment Electronic Reporting Capability Schedule Reporting Manual Unclaimed Property Offices (Links to Individual States)

9 Dormancy Periods (Determining What to Report And When) Linda Fisher Administrator ND Unclaimed Property Representing State Governments That Actively Find Owners While Protecting Forgotten Funds Until Claimed

10 Three Main Components Determining the last date of contact or indication of owner generated activity Defining the Property Type Identifying the Dormancy Period for the State of Last Known Address for that property type

11 Challenging Factors Different Requirements Among States Evolving State Statutes Determining What Constitutes Activity Property Type Conversions Business Transactions/Mergers/Acquisitions

12 Think of Dormancy in Terms of Logic Rather Than Law Consider the intent of the unclaimed property statutes then at what makes sense in the context of the situation then at the law to ensure complete compliance.

13 Step 1: Determining the last date of contact or indication of some type of owner generated activity

14 A dormancy period is the time frame, [sometimes referred to as the abandonment period], during which the owner of the property does not take action on their property. Key Word: Action In other words, if the owner doesn t actually do something, a property goes dormant/inactive. Automatic deposits, rollovers, deductions, etc., do nothing to indicate to the Holder that a viable owner is still on the line.

15 Action Logic Action logic can be applied to a variety of holder questions related to dormancy. (Determining the point of dormancy is not as much about what happens to the property (when it was acquired, bought, sold, or converted) as it is about the most recent date of owner action.

16 Action Logic Another way to look at it Think about what the OWNER has done (or not done) with the property vs. what the HOLDER has done (or what has happened) with the property.

17 For Example: How are dormancy periods affected by mergers or other business combinations? THEY REALLY AREN T State unclaimed property statutes define the amount of time a property can remain inactive before it needs to be reported. A merger has no bearing on the date of last action (or inaction ) by the owner.

18 Another Example: We send checks to last known address at the end of your (ND) 3-year dormancy on credit balances. Your dormancy period on uncashed checks is 2 years. Does the dormancy period start over making for a total of 5 years? No Action logic: The holder s action did not change the owner s last date of action on that property.

19 Owner Action Generally Defined (again, varies by state) Basic Indication of Owner s Interest Validated by Action The cashing of a check Deposit to or withdrawal from an account The payment of a premium Written communication from owner The filing of a claim Other Indications of Owner s Interest State Laws, Rules, or Policies may allow for other less blatant indicators of activity Qualified owner activity in one account can count for inactivity in another. Phone contact with record made. Mail not returned. Electronic contact, on-line, ATM, etc...

20 Electronic Verification of Owner Action Although perhaps not specifically addressed in statute or rules, it is widely recognized by the States that in the current electronic culture, owner activity can take many forms with proper validation ATM using a magnetic strip card with PIN activation On-line - using a secure user ID and password Phone communication using an automated phone calling center to enter unique information Retinal / facial/ fingerprint scan using biometric security

21 Keeping Track of E-Activity (Data Capture and Integrity Considerations) Are you capturing enough data (account numbers, dates, validation info, etc.) to link an owner to specific activity? Is your data secure in the event of file conversions or upgrades? Is your data easily transferrable (mergers and acquisitions etc.)? Is your data subject to automatic purges or system overrides?

22 Step 2: Defining the Property Type Step 3: Identifying the Dormancy Period for the State of Last Known Address

23 Umbrella Dormancy When a property dormancy is not specifically stated in law, the umbrella dormancy for that state applies

24 Property Type Dormancy Periods Vary by State North Dakota Minnesota Montana South Dakota Arizona Florida California Savings Checking Non-bank Money Orders Certificates of Deposit Official Bank Checks/MO Safe Deposit Boxes Travelers Checks Life Ins Matured Otherwise * 5 3 ALL * 5 3 Casualty * 5 3 Utility Deposits * 1 3 Utility Refunds Dividends Securities Debt (bonds) RSL Dissolution/Liquidation 1 6 months months 6 months Fiduciaries Wages State Courts/Agencies Federal Courts/Agencies Mineral Proceeds 3 3 RSL All Other Property IRA Keogh 3 3 RSL Gift Certificate Exempt * RSL 5 Exempt Exempt* 3 (RSL) Credit Memos Vendor-Vendor Payments * 5 3 Aggregate Amount < <50

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26 THANK YOU to the Unclaimed Property Reporting Vendors who continually poll states in an effort to keep their software packages current in this regard.

27 Determined the last date of contact or indication of owner generated activity Defined the Property Type Identified the Dormancy Period for the State of Last Known Address for that property type

28 National Association of Unclaimed Property Administrators Dormancy Determination Rule of Thumb Assumes Property is Due November 1 (as of June 30) Based on specific state dormancy requirements, was this particular property XXX years old/dormant on June 30? YES NO Proceed to Due Diligence Hold Another Year

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30 Due Diligence (Determining Who to Report) Mary Celentani Administrator Wisconsin Unclaimed Property Representing State Governments That Actively Find Owners While Protecting Forgotten Funds Until Claimed

31 Definition Due diligence is the activities of a holder to contact the legal owner of a dormant financial asset and allow the owner to claim the property before it is remitted to a State Unclaimed Property program.

32 Why Due Diligence is Beneficial to Holders Compliance with state laws Reestablishes communication & promotes goodwill with customers Prevents inappropriate entries on financial statements Internal fraud control tool

33 General Requirements Wide variety of state requirements but generally speaking... Account value thresholds for notice vary from $50 to $100 NOT required if most recent address is known to be bad NOT required if account value is less than $50 Notice usually mailed up to 120 days before escheatment or by specific statutory dates Some state laws allow Holders to recoup service charges for mailing costs (IL, IA, CA, MO, NV, NY) ALWAYS CHECK STATE WEBSITES OR NAUPA QRP FOR SPECIFIC STATE REQUIREMENTS

34 Due Diligence Notification Tips Clearly identify your company name and the type and value of financial asset Warn owners that assets are at risk to be remitted to state and the date of transfer Request response in shortest period possible (ideally 2 weeks) Early reporting does not relieve holders of performing due diligence

35 More Tips.. Allow for telephone, and fax responses from owners Do not provide state UP office contact information in notice State contact information may be given after transfer has occurred (website preferred!)

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37 Due Diligence Resources NAUPA QRP (Quick Reference Packet) monitoring service ( 3rd party compliance consultants Reporting systems may automatically generate due diligence letters (UPExchange, Xerox/Wagers, Tracker, Chesapeake, etc) State websites

38 Record Keeping Holders may be required to maintain records related to due diligence efforts for 3 (OR), 5 (OH), or 7 YEARS (ID) Some states require Holders to file Affidavits regarding due diligence mailings (AR, NM, NC) Best practice maintain electronic or hard copies for up to 10 years

39 Outsourcing As An Option May be more efficient and cost-effective than using internal staff Provides staff already trained and familiar with state requirements Access to more mailing options such as bar coding, certified and return receipt mailings Established procedures for processing responses & transmitting to holder in timely manner

40 Survey Comments/Questions What information is required for the due diligence letter? How often should I follow-up with owners? Specific waiting period for due diligence before filing report? Due diligence letter is RPO any other required efforts to contact owner? Can I send one general letter for multiple property types? How much additional research is a Holder required to do? Which states require action beyond a letter? What is a valid response to a due diligence letter? What do I do when a customer responds to the due diligence letter and I have already sent in our report?

41 COMMENTS OR QUESTIONS? THANK YOU FOR PARTICIPATING IN THIS PROGRAM!

42 Reciprocity (Determining Where to Report) Jo Ann Tinsley, Claims Manager Commonwealth of West Virginia Valerie Jundt, Managing Director Keane Consulting & Advisory Services Representing State Governments That Actively Find Owners While Protecting Forgotten Funds Until Claimed

43 Background Rules of Jurisdiction as defined by Texas v. New Jersey Property is reportable to state of owner s last known address Where there is no address of record to the state of incorporation. Required by Texas v. New Jersey-if an address is reported, the state is only entitled to keep property if the owner s last known address is in that state. This is the law and has been reaffirmed three times by the U.S. Supreme Court

44 Purpose and Background of Reciprocity What is it How it has evolved over time Current state of affairs Benefits & consequences of filing through another state

45 Definitions ENTITLED STATE - The state to which abandoned property should be remitted pursuant to the provisions of Texas v. New Jersey, Pennsylvania v. New York, Delaware v. New York, and all applicable statutes. INCIDENTAL PROPERTY - Ten or fewer properties, totaling $1,000 or less, which belong to a state other than the state to which the properties were remitted. IN-STATE HOLDER - A holder which is either incorporated or headquartered in a state; or which prepares or processes its abandoned property reports in a state; or which maintains its financial records in a state.

46 Definitions Con t RECEIVING STATE A state, other than the entitled state, to which property is remitted by an In-State Holder. RECIPROCITY AGREEMENT - A written agreement between two states in which the states agree to exchange information and collect abandoned property for one another. This agreement permits the states involved to inform In-State Holders that they may report current abandoned property to the Receiving State, which will then forward the property and information to the Entitled State on an annual basis.

47 Exceptions to Reciprocity Safe deposit box contents reportable to the state in which property is located. Stock fluctuates in value * Should only report/remit these items per the rules outlined in Texas v. New Jersey

48 Reciprocity Agreements Some states have formal agreements. Some states exchange even without agreements. Caution: Greater risks associated with the delivery of property when there is not a formal written agreement. Violates the directives outlined in Texas v. New Jersey

49 Why has it historically been used? First used in 1954 Act to save holders from duplicate liability. If a holder reported to one state and another state later showed a better claim to that property, the first state sent the property to the second. were subject to multiple liability. Holders were subject to multiple liability.

50 How Our Process Works We receive property with last known address in another state. We create a file for each of those states. We send an and claim form to each state. We sort out properties that may be exempt in another state, that have come to us as the state of incorporation. We send a report to each state, with a check. Process takes 2 to 6 weeks.

51 Possible Risks Not all states exchange Not all states load this information on their systems much more difficult to track Not necessarily released from liability Different abandonment periods

52 Reciprocity is not intended for: Reporting property to a state just because they will accept property for other states. Reporting past due property to a state other than the entitled state to avoid penalties and interest. Reporting to a state other than the entitled state because you like their laws better.

53 Best Practices Reporting to appropriate state typically results in Indemnification for that property More timely reporting Better audit trail Use reciprocity only in a limited situations such as a holder having a few properties. Consider whether the owner will be likely to be able to claim the property.

54 Unique State Codes and Reporting Formats (Determining How to Report) Rebecca Adams, CPA Compliance Services Group, LLC Allen Martin UP Audit Director, North Carolina Representing State Governments That Actively Find Owners While Protecting Forgotten Funds Until Claimed

55 Property Classification Codes Description differences Unique codes and state specific codes Current NAUPA committee work

56 Report Formats File types accepted Payment Procedures Some Unique State filing procedures CO CA NC Foreign owner reporting

57 State Exemptions Wage Exemptions Gift Certificate Exemptions Business to Business

58 Information Sources NAUPA QRP Reporting Resources State Unclaimed property websites Reporting software systems

59 Info Sources cont d UPPO NCLS Gift Cards Add-on subscriptions to existing tax libraries

60 Holder Claims (Getting Money Back to Reporters) Jo Ann Tinsley UP Claims Manager, West Virginia Allen Martin UP Audit Director, North Carolina Representing State Governments That Actively Find Owners While Protecting Forgotten Funds Until Claimed

61 Holder Reimbursements Payment to Owner Error In Reporting

62 Request for reimbursement must include: Amount Date reported Original Owner name Proof of reimbursement or description of reporting error Strongly recommend contacting state BEFORE paying customer

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64 Holder Claims Processing Guide

65 Wagers and Associates Wagers & Associates (a Xerox company) has a Holder Claim Import option which allows holders requesting reimbursement for numerous properties to submit an electronic file, in a specified format, of the properties being requested. The system attempts to match the criteria to existing properties in the system and adds them to a claim.

66 Wagers and Associates File format is a comma separated value (.csv) file. Column Heading Field Contents LastActivityDate Year Account Last activity date, in the format of MM/DD/YYYY Original report year, in format of YYYY Check number or original account number OrigAmount Original amount remitted (include the decimal point if needed) ClaimAmount Amount that is being claimed at this time (include the decimal)

67 Variables in State Laws Navigating through the challenges to achieve Unclaimed Property Compliance Valerie Jundt, Managing Director Keane Consulting & Advisory Services May 17, 2012 Representing State Governments That Actively Find Owners While Protecting Forgotten Funds Until Claimed

68 Overview Sources of Legal Authority Statutes Regulations Cases Administrative Decisions and Guidance Actual Compliance & Enforcement Experience Practical Limitations Discretion Customs Fact vs. Myth Variables, or differences, in practice compared to the sources of legal authority may result for various reasons.

69 Unclaimed Property Statutes No comprehensive federal unclaimed property statute But federal laws often apply (e.g., ERISA, Sarbanes- Oxley, HIPAA, SEC, bankruptcy, transportation) State statutes primarily govern unclaimed property Uniform Unclaimed Property Acts of 54, 66, 81, 95 Not enforceable unless enacted by an individual state Each enacting state may modify its version of the Uniform Act upon enactment or amend it later Six states (DE, KY, MA, NY, OH, & TX) have not yet adopted one of the Uniform Acts

70 How Laws are Created Statutes become enforceable upon enactment: Introduction of a bill Deliberation and amendment in legislative committee(s) Passage by both chambers (House and Senate) Approval or signature of Governor Though not enforceable, components of legislation may provide guidance to inform practice or judicial decisions. Legislative History or Intent: Bill Synopses, Legislative Reports, Committee and Floor Debate Transcripts Uniform Acts and Model Acts: Commentary, Reports and Transcripts of Deliberation

71 Regulations Executive branch agency charged with enforcing statute may promulgate regulations Typically more detailed than statute, reflecting practical experience and expertise of agency Must comply with, and not exceed, statutes Process Usually governed by state Administrative Procedures Act Agency drafts proposed regulation Interested parties and the public may offer comments either in writing or at a public hearing Agency considers comments and adopts final regulation, which has force of law

72 Cases U.S. Supreme Court original jurisdiction Decisions establish a federal common law for UP Texas v. New Jersey, 379 U.S. 674 (1965) Pennsylvania v. New York, 407 U.S. 206 (1972) Delaware v. New York, 507 U.S. 490 (1993) Enforceable in all states Supremacy Clause Decisions of other courts enforceable in limited contexts, but may provide persuasive guidance Federal District Courts and Courts of Appeal State Courts

73 Administrative Decisions & Other Guidance Several states have an administrative appeal process for AUP disputes, but the majority of states do not. Attorney general may offer formal opinions interpreting state law upon request of agency or party. Role of the Attorney General s Office Whether decisions and opinions have force of law depends on: Whether decisions and opinions have precedential effect i.e., bind parties not involved in initial case Whether decisions and opinions are published or otherwise publicly available, similar to court decisions Repeat practitioners experience may be influenced by knowledge of prior decisions.

74 When the law isn t clear What is a sufficient address for reporting under the First Priority Rule? Sufficient for delivery of mail State code and/or Zip code Records Retention Requirements Exemptions How and when an estimate can be created

75 When the law is silent Law may not address new or evolving property types and business practices Shift from paper gift certificates to gift cards and other electronic stored-value systems Internet Transactions Paycards Confirming customer-generated contact

76 When the law allows discretion Imposition of interest & penalties Amnesty and Voluntary Disclosure Settlement negotiations of VDAs and audits

77 Other Considerations Personalities matter State administrators and auditors may apply the law in very different ways. They may be more strict or lenient, depending on the holder and the tenor of the audit. Influence by different contract auditors Political makeup of state agency head Elected vs. Appointed Agency that governs Tax Agency vs. Administrative Agency (State Treasurer)

78 What is a holder to do? Attend events, such as the NAUPA/UPPO Conference, to share experiences with other holders Consult regularly with other holders in the same industry regarding best practices Retain experienced consultants who have built an institutional knowledge of state customs and anomalies Seek formal or informal guidance from the state before choosing an approach

79 Questions Valerie M. Jundt Managing Director