KeepUP™ Blog

Accounts receivable credits (A/R credits) are often overlooked when it comes to unclaimed property compliance. This is problematic because A/R credits, if treated incorrectly, can create a substantial amount of unclaimed property, and can become a key focus in unclaimed property audits. Consequently, any effective escheat program should include formal policies and procedures for reviewing and including accounts receivable credits in the reporting process.

Businesses are required to report unclaimed property on an annual basis. States differ as to when particular property types are subject to escheat, the type and timing of the due diligence notices that holders must send to property owners before escheating the property, and how and when the property should be reported to the states. The risks of non-compliance can result in penalty and interest assessments and can subject a company to a lengthy unclaimed property audit. Businesses should conduct regular reviews of their unclaimed property processes to ensure compliance with all state unclaimed property laws.

A holder’s obligations during a typical unclaimed property reporting cycle can be summarized as follows, with each step discussed further below:

▪️ Identify dormant property; collect data and review records

▪️ Analyze and apply applicable state laws;

▪️ Perform state-mandated due diligence;

▪️ Report and remit unclaimed property to the states; and

▪️ Retain supporting documentation.

We recently posted about the importance of checking the mail for letters inviting holders to participate in the Delaware Secretary of State’s Voluntary Disclosure Agreement (VDA) program. Delaware is scheduled to mail a new round of VDA invitations on May 14^th. More states are beginning to join this outreach trend. Maine and Massachusetts appear to be joining states like Nevada and Washington in mailing targeted outreach to holders regarding their compliance with the unclaimed property laws, which can take the form of self-audit questionnaires or invitations to self-audit books and records, and often disclose that they will be assisted by a third-party auditor in the process.

The following blog originally posted on March 3, 2021 on the UPPO website as part of their Membership Community Blog contribution. MarketSphere is sponsoring UPPO blogs published to their site during the month of March.

Unlike most of the property types in the unclaimed property world, safe deposit boxes are an anomaly because they contain physical, tangible items. As such, handling of safe deposit boxes has a unique set of rules, requirements, and concerns.

There are two scenarios for when a financial institution would likely drill open a safe deposit box: nonpayment and relocation. In either case, state bank laws and the rental agreement between the financial institution and the customer govern how the property should be handled.

Because most consumers are likely to return to the location where they left their physical property, the state where the safe deposit is located – rather than state where the owner lives – dictates the requirements for safe deposit box handling. Familiarity with the specific requirements of the applicable state is essential.

On January 12, 2021, the Department of Labor (DOL) issued a series of guidance for pension plan fiduciaries related to missing or nonresponsive participants, which can assist them in their review of their policies and procedures surrounding locating these participants and their beneficiaries and as related to uncashed checks.

Financial institutions, like other entities, must comply with state unclaimed property laws, which include sending customers due diligence notices and reporting dormant accounts to the states on an annual basis.

Banking property, including checking accounts, savings accounts, and certificate of deposits are considered dormant absent owner-generated activity within a period of time defined by the state (typically 3 or 5 years). The recent adoption by several states of revised unclaimed property laws modeled on the 2016 Revised Uniform Unclaimed Property Act (RUUPA) and the continued introduction of similar legislation (North Dakota and Indiana in early January 2021), illustrates the ever-changing nature of these laws and the need to monitor legislative changes. States adopting a “RUUPA” – like law may adopt the shorter dormancy period (3 years) for most property types, alter the 60-180 due diligence timeframes and/or add the requirement that notice be sent to the owner via first class mail and email (if the owner has consented to electronic mail communications from the holder).

Taking a proactive approach to the escheatment process by communicating early and often with your customers decreases the population of reportable property, meaning less costs associated with due diligence (certified mail, return receipt requested, is required in some states, particularly above a certain dollar threshold) and with the reporting process itself.

After the Shareholder Services Association (SSA) and Securities Transfer Association (STA) voiced their concerns via a joint letter to the National Association of Unclaimed Property Administrators (NAUPA) regarding the interruption of international mail delivery due to the COVID-19 pandemic, NAUPA sent a survey to its member states in May 2020.  

The apprehensions raised were surrounding the suspension of mail service, which would prevent the successful completion of due diligence and ultimately the reporting property without a last attempt at reunification with the property owner.  It is notable that states may liquidate securities property, making it difficult for the shareholder to retrieve it in its native form.   In connection with ongoing concerns expressed by UPPO and the holder community, NAUPA recently released the responses from 19 states to the following questions:

In today’s digital world, you no longer need to be physically present in a casino, at the poker table, or at the racetrack to place a bet.  In many states, you can now place those bets online or even play daily fantasy sports directly from your mobile device.  

In May 2018, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act, a federal law that had previously prohibited sports betting. Since then, half of the states have legalized or are in the process of legalizing sports betting.  According to the American Gaming Organization, sports betting revenue in 3Q 2020 totaled $352.3 million[1] .

Online gambling includes online casinos, online poker sites, daily fantasy sports (DFS), and sports betting.  Sports betting, in turn, includes online and mobile “sportsbooks.”  To place an online sports bet, you need an online account.  Most states that permit online sports betting allow you to do this on your mobile device, but in certain states, like Nevada, you need to create your account while physically at the casino (and often to make a deposit or withdrawal as well).

As of November 10, 2020, retail and/or online sports betting is permitted in: AR, CO, DC, DE, IA, IL, IN, MI, MS, NV, NH, NM, NJ, NY, MT, OR, PA, RI, and WV.  Sports betting is legal, but not operational in the following states: LA, MD, NC, SD, VA, and WA.  Pending legislation exists in OR and MA.  Sports betting is prohibited in the following states: ID, ND, OK, SC, TX, UT, and WI[2].

States often send official communications to companies regarding unclaimed property. While some of these mailings are mere filing reminders, other types of communications, such as VDA invitations, audit letters, and self-audit letters, urge holders to take affirmative steps to comply or demonstrate compliance with the unclaimed property laws. We will discuss some, but not all of these types of communications, to assist companies in understanding what each one means, and what holders should consider upon receipt of such a communication.  

Delaware – VDA Invitations and Audit Notices:

We recently posted that the Delaware Department of Finance is expected to send new unclaimed property audit notices in the near future to businesses who did not enroll in the state’s Voluntary Disclosure program (VDA program) in response to the Secretary of State’s invitation to participate in the program dated August, 21, 2020. Under Delaware law, businesses who do not enroll within the 60-day notice period in the letter will be referred to the Department of Finance for an unclaimed property audit.

Indiana, Pennsylvania, Utah and Washington: The Self-Audit Letter

Indiana, Pennsylvania, Utah and Washington have recently started mailing holders letters on official state letterhead that advise holders of their obligation to comply with the unclaimed property laws. Further, the letter proclaims that based on the state’s records, the holder “has never” or “only rarely” reported unclaimed property to the state.

Record retention refers to how long important information must remain accessible for future use or reference. Most financial and accounting processes have standards that need to be met because agencies such as the Internal Revenue Service, the Federal Deposit and Insurance Corporation, and the Public Company Accounting Oversight Board all have requirements. You may be familiar with the obligations for these well-known agencies. Do you know what is required for unclaimed property compliance? 

Companies generally maintain a schedule or policy for their escheat records that help define what will need to be kept and for how long. This is a worthwhile practice to meet requirements and have supporting documents available if requested or needed in the event of an audit. 

Creating and maintaining a schedule for unclaimed property record retention isn’t always easy. Unclaimed property retention requirements vary by state and jurisdiction and cause holders confusion about what information must be maintained and how ling they need to archive records. Some holders might decide not to retain unclaimed property records and take their chances during an unclaimed property audit. We don’t want you to fall into this danger zone and have some practical advice that can simplify your escheat record retention policy.

A Few Facts:

◾ Most States’ unclaimed property laws require record retention periods longer than standard tax statutes.

◾ The 1981, 1995 & 2016 Uniform Acts require a record retention period of 10 years plus the dormancy period of the type of property (typically 3 or 5 years).

◾ Statutes are often silent on which records to keep.