navigating the challenges of multi-state reporting law, the umbrella dormancy for that state applies...

Representing State Governments That Actively Find Owners

While Protecting Forgotten Funds Until Claimed

National Association of Unclaimed Property Administrators

Navigating the Challenges of

Multi-State Reporting

National Association of State Treasurers

Treasury Management Conference

Albuquerque, New Mexico

May 2012

2012 National Holder Workshop




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



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



The biggest challenge related to multiple-state

reporting is that

There are Multiple States



A wide variety of state-specific information can be found

within the NAUPA QuickReferencePacket

http://www.naupa.org/reporting/qrp

http://www.naupa.org/reporting/qrp



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)




Dormancy Periods (Determining What to Report –And When)

Linda Fisher

Administrator

ND Unclaimed Property



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



Challenging Factors

Different Requirements Among States

Evolving State Statutes

Determining What Constitutes “Activity”

Property Type Conversions

Business Transactions/Mergers/Acquisitions



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.



Step 1: Determining the last

date of contact – or indication of

some type of

owner generated activity



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”.



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.



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.



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.



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.



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...

Owner Action Generally Defined (again, varies by state)



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



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?



Step 2: Defining the Property Type

Step 3:

Identifying the Dormancy Period for the State of

Last Known Address



Umbrella Dormancy

When a property

dormancy is not

specifically stated

in law, the umbrella

dormancy for that

state applies



Property Type Dormancy Periods Vary by State

North

Dakota Minnesota Montana

South

Dakota Arizona Florida California

Savings 5 3 5 5 3 5 3

Checking 5 3 5 5 3 5 3

Non-bank Money Orders 7 7 7 5 3 7 7

Certificates of Deposit 5 3 5 5 3 5 3

Official Bank Checks/MO 3 3 5 5 3 5 3

Safe Deposit Boxes 3 5 5 5 3 3 3

Travelers Checks 15 15 15 15 15 15 15

Life Ins Matured 3 3 3 4 3 2 3

Otherwise 3 3 3 4 1* 5 3

ALL 3 3 5 4 * 5 3

Casualty 3 3 3 5 * 5 3

Utility Deposits 1 1 1 1 2* 1 3

Utility Refunds 1 1 1 1 3 5 3

Dividends 2 3 5 5 2 3 3

Securities 3 3 5 5 3 3 3

Debt (bonds) 3 3 5 RSL 3 3 3

Dissolution/Liquidation 1 6 months 1 1 1 6 months 6 months

Fiduciaries 3 3 5 5 3 5 3

Wages 2 1 1 1 1 1 1

State Courts/Agencies 3 3 1 1 2 1 3

Federal Courts/Agencies 3 3 1 1 2 1 3

Mineral Proceeds 3 3 RSL 5 3 5 3

All Other Property 3 3 5 5 3 5 3

IRA Keogh 3 3 RSL 5 2 5 3

Gift Certificate Exempt * RSL 5 Exempt Exempt* 3 (RSL)

Credit Memos 3 3 3 5 3 5 3

Vendor-Vendor Payments 2 3 5 5 * 5 3

Aggregate Amount 50 100 50 <50 50 50 <50



“THANK YOU”

to the Unclaimed Property Reporting Vendors who

continually poll states in an effort to keep their software packages

current in this regard.



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



•

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

Proceed to Due Diligence

NO

Hold Another Year




Due Diligence (Determining Who to Report)

Mary Celentani

Administrator

Wisconsin Unclaimed Property



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.



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



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



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



More Tips….. • Allow for telephone, e-mail

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!)



Due Diligence Resources

• NAUPA QRP (Quick Reference Packet) monitoring service (www.unclaimed.org)

• 3rd party compliance consultants

• Reporting systems may automatically generate due diligence letters (UPExchange, Xerox/Wagers, Tracker, Chesapeake, etc)

• State websites

http://www.naupa.org/



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



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



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?



COMMENTS OR QUESTIONS?

THANK YOU FOR PARTICIPATING

IN THIS PROGRAM!




Reciprocity (Determining Where to Report)

Jo Ann Tinsley, Claims Manager

Commonwealth of West Virginia

Valerie Jundt, Managing Director

Keane Consulting & Advisory Services



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



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



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.



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.



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



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



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.



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 email 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.



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



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.



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.




Unique State Codes and

Reporting Formats (Determining How to Report)

Rebecca Adams, CPA Compliance Services Group, LLC

Allen Martin

UP Audit Director, North Carolina



Property Classification Codes

• Description differences

• Unique codes and state specific codes

• Current NAUPA committee work



Report Formats

• File types accepted

• Payment Procedures

• Some Unique State filing procedures

– CO

– CA

– NC

– Foreign owner reporting



State Exemptions

• Wage Exemptions

• Gift Certificate Exemptions

• Business to Business



Information Sources

• NAUPA

– QRP

– Reporting Resources

– http://www.unclaimed.org

• State Unclaimed property websites

• Reporting software systems

http://www.unclaimed.org/





Info Sources – cont’d

• UPPO

– http://www.uppo.org/

• NCLS – Gift Cards

– http://www.ncsl.org

• Add-on subscriptions to existing tax libraries

http://www.uppo.org/

http://www.uppo.org/

http://www.ncsl.org/

http://www.ncsl.org/




Holder Claims (Getting Money Back to Reporters)

Jo Ann Tinsley

UP Claims Manager, West Virginia

Allen Martin UP Audit Director, North Carolina



Holder Reimbursements

• Payment to Owner

• Error In Reporting



• 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



www.unclaimed.org




Holder Claims

Processing Guide



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.



Wagers and Associates File format is a comma separated value (.csv) file.

Column Heading

Field Contents

LastActivityDate Last activity date, in the format of MM/DD/YYYY

Year

Original “report year”, in format of YYYY

Account

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)




Variables in State Laws

Navigating through the challenges to achieve

Unclaimed Property Compliance

Valerie Jundt, Managing Director

Keane Consulting & Advisory Services

May 17, 2012



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.



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



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



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



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



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.



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



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



When the law allows discretion…

• Imposition of interest & penalties

• Amnesty and Voluntary Disclosure

• Settlement negotiations of VDAs and audits



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)



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



Questions

Valerie M. Jundt Managing Director

701-224-1224

[email protected]

mailto:[email protected]

navigating the challenges of multi-state reporting law, the umbrella dormancy for that state applies...

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