KeepUP™ Blog

As we’re entering the home stretch of the fall filling season, it is important for companies to ensure that they are reporting accurately and comprehensively.  We have been seeing an ever-increasing volume of audits and state enforcement, added sophistication in state report review processes, as well as, assessments of penalties and interest.  Many companies who have been reporting unclaimed property for years are now being targeted for unclaimed property audits as gaps in their reporting processes are being identified. 

It is now more important than ever that companies ensure that they review their unclaimed property policies and procedures to bring them up to speed with the changing regulations and landscape.  All it takes is one missed property type to have the auditors on your door step.  Our mission with our regular blog posts is to help you identify areas of potential non-compliance and industry changes that may impact your company to assist your organization with maintaining compliance.

Our entire team is not only committed to serving our clients and the unclaimed property holder community, they are the creators of our KeepUP™ blogs. This diverse group of individuals lends their expertise to create educational and informative articles for the holder community. In case you missed them, here is a roundup of Q3 posts.

Unclaimed property holders know that the escheat environment is constantly changing. Q1 2018 has been no different. Audit letter issuances are on the rise, and RUUPA adoption and penalty/interest assessments have been hot topics. We've addressed them all, and more, in our blog posts. Before diving into the subjects highlighted in Q1, I'd like to take a moment to express a couple of points of gratitude.

First & foremost are our clients. We truly appreciate each and every one of the companies and the people at those companies that trust us to assist them with their unclaimed property needs. We've made it a priority to work ever more closely with them to better understand their needs, how we can better serve them, and in turn, tailoring our current solutions and developing new ones to better meet those needs and make their escheat compliance lives even easier. 

I'd also like to thank our team. This group is comprised of driven, industry-leading specialists from many former backgrounds including multiple, former 3rd party audit leaders, accounting specialists, and technology innovators just to name a few.

It can be difficult to smoothly add abandoned and unclaimed property management duties to primary business responsibilities. It’s not simply a matter of squeezing in extra work. Escheatment involves spikes of activity rather than steady work—often at inconvenient times of year when other responsibilities are also spiking (notably when tax returns are being prepared). It doesn’t help that personnel often do not have needed expertise. 

Some of the spikes in work can be managed by cross-training staff to pitch in when needed. Working with outside unclaimed property specialists can help, not only with the extra work of reporting cycles, but also by providing deeper expertise than it’s possible for in-house staff to acquire. This blog will define the challenges of merging unclaimed property work with other duties and provide advice for overcoming the challenges. 

Getting Perspective on Unclaimed Property Workflow Issues 

Year end, quarter end and month end are all peak times for accounting and finance staff in general. Most of the state’s unclaimed property reporting deadlines fall within the same timeframes. For tax professionals, half of the spring unclaimed property season falls exactly into peak tax season. 

On the other hand, unclaimed property management really has to be a year-round endeavor to ensure all supporting records are in place and a plan is followed for accurate reporting. You also need time to lay the groundwork for successfully meeting the challenges of unclaimed property audits. 

Here’s what often happens: Accounting or finance professionals find themselves busy with other duties, then unclaimed property hits their radar and they realize they haven’t completed due diligence requirements—maybe even haven’t done due diligence (pun intended) on what those requirements are! They have to scramble to meet the deadlines, often taking shortcuts resulting in under-reporting or over-reporting the unclaimed property they hold. 

The truth is, when peak reporting time rolls around for abandoned and unclaimed property, it is an intense effort that leaves little time for other duties. 

On April 1, 2017, The Delaware Department of Finance release proposed regulations relating to its  Abandoned or Unclaimed Property Law.   These proposed regulations can be found at: "Delaware Proposed Regulations 4/1/2017". 

The public comment period for these proposed regulations end on May 3rd. It is anticipated that Delaware will issue final regulations shortly thereafter.

As required by Delaware’s recently enacted SB13, these proposed regulations include sections dealing with many aspects of estimation, including permissible base periods, items to be excluded from the estimation calculation, sampling, funds returned and aging criteria for outstanding and voided checks.  In addition, there are sections dealing with projection and complete and researchable records.

In light of recent and pending litigation, of most interest to the holder community are sections of the draft regulations dealing with the following:

• Estimation The State may utilize any available dormant records to estimate an unclaimed property liability for the period of time for which the holder does not possess complete and researchable records. In addition, if the holder fails to retain sufficient dormant years of records, the State and the holder shall discuss which records are to be utilized for the base period.  In the absence of agreement, the State shall possess the sole authority to make a reasonable determination for the base period in order to prepare an estimate.  Base periods shall consist of complete and researchable records and shall consist of at least three years from the universe of complete and researchable records. However, depending on the unique facts and circumstances of each holder, the State may consider including non-dormant periods in the base periods.  
• Items To Be Excluded from Estimation Calculation This section excludes items payable to a US federal department or agency and funds returned in the normal course of business prior to the issuance of the examination notice. However, it does not exclude items with non-Delaware addresses or items with addresses in states where specific statutory exclusions exist.
• Sampling Statistical sampling, generally in the form of stratified sampling, may be employed. However, if a holder wishes to research an entire population, this research must be performed “in a reasonable time”.  No definition is provided as to what constitutes “in a reasonable time”.   In addition, the State may elect to sample and test a number of entities of a holder in lieu of testing all Delaware entities and then extrapolate these results to non-tested Delaware entities.
• Funds Returned Funds returned in the normal course of business prior to the issuance of an examination notice will not be included in the population of potential unclaimed items. However, funds returned outside of the normal course of business (i.e., change in process) after issuance of the examination notice will be included in the population of potential unclaimed items.
• Aging Criteria Checks that remain outstanding less than 90 days after issuance and checks that are voided within 30 days of issuance are to be excluded from any testing populations. However, the State may adjust these periods, if, in its’ sole discretion, a redefined outstanding period is necessary.
• Projection Projection techniques may be used to calculate amounts due for periods where records do not exist. However, to the extent permitted by law, names and addresses identified in a base testing period, shall not be used to determine which state has the priority claim to the abandoned property estimated to be due for periods where records do not exist.  This appears to challenge what Judge Sleet stated in the Temple Inland case. The State “failed to follow the fundamental principle of estimation where the characteristics of the sample set are extrapolated across the whole”.   In addition, all sampling, projection and estimation techniques used by an auditor shall be approved by Delaware prior to use.  However, the ultimate decision to employ a particular technique is at the sole discretion of the State.  The holder may challenge this decision at the close of the examination.
• Complete and Researchable Records Where a holder may not have the expected 7-8 years of researchable records, the State and the holder may discuss the circumstances and use an alternative data set with fewer years. In addition, Delaware is also stating that “Researchable records are records to which the holder may research the resolution of an item.  At a minimum, researchable records shall include those items that contain a last known address of the owners of property.”  It is unclear what this last sentence means.  Is Delaware stating that, at a minimum, the only attribute a “researchable” record must have is an address?    

Most companies know they are only as good as the people who run them, from frontline staff to executive leaders. In the unclaimed property world, it’s worth taking some time to understand what can be done to enhance the efforts of unclaimed property management and process teams.

The recent release of the Delaware Department of Finance’s statutory unclaimed property manual is a great demonstration of the fact that unclaimed property laws and regulations are continually changing and holders must stay on their toes to keep up. The manual is also a perfect representation of the legendary conflict existing between unclaimed property holders and state unclaimed property administrators.

The stated intent of Delaware SB 11, passed in January of last year, was to “ensure greater transparency and predictability” to help holders know what to expect during a Delaware unclaimed property examination. However, when the first draft of the new manual was released at the beginning of this month, the industry began to voice concerns about the law as represented in the manual.

There is no doubt, the manual includes a number of positives for holders:

• It requires that the state’s goal in every examination is to be “fair and consistent.”

• Holders under audit are allowed to remediate items discovered during the audit, before they are included in required escheatment amounts.