10 Things You Can Do Throughout The Year To Save Your Sanity During Reporting Season

by Maureen Ferrari 25. September 2017 12:49
Ahh, the Fall. The change of seasons. The air is crisp and the leaves are bursting with color. For those of us who own the responsibility of reporting and delivering unclaimed property to the states, we watch much of the Fall pass us by from our office window. Unclaimed property compliance is a year-round job, but with the majority of states having a reporting deadline on October 31 or November 1, the Fall reporting season can be an extremely busy time for unclaimed property practitioners. Whether you perform the function in house or outsource, there is a lot of effort and cooperation required to be compliant with all of the deadlines. For those who like the adrenaline rush of making it just under the deadline, keep doing what you’re doing. For the rest of us, a little planning and preparation goes a long way. Things you can do year round to make reporting easier: A calendar/timeline of events is your best friend. Establish a year-long calendar of events or take advantage of the calendar in your reporting software. This will ensure that you hit all of the compliance deadlines for due diligence and reporting.  Realize that once you stray from the timeline it has can have a snowball effect and push everything closer to, or beyond, the final reporting deadline. Perform customer outreach early and often. Send courtesy letters prior to the account tolling the dormancy period. Invest in owner location services. You not only have a greater opportunity to reach the customer, you can save due diligence costs in the future. Ensure that you have policies and procedures in place for paying claims initiated by the courtesy letters or due diligence letters. Consider what will be required to pay multiple owner claims, estates, businesses, foreign owners, etc. Be aware that fraud is pervasive in this area. Make use of state online resources and holder handbooks to make certain that you have the most up-to-date information for report delivery, making payment and transferring securities, mutual funds or safe deposit box contents. This information can change annually and some states have been known to make updates very close to the reporting deadline. (Que the insanity!) Utilize the report upload feature on the state’s web site. Be aware that some require you to register or obtain a unique holder ID so don’t wait until the last minute. There may be a lag time between registration and obtaining your credentials. Be aware that if you need to file an extension, some states require 30 days’ notice. If you have a catastrophic event close to the deadline, many states will cooperate in extending the deadline, though you may have to direct your appeal to the state administrator rather than a staff member. Note that a few states require payment to be made by the deadline, even when filing an extension, and some states will not grant extensions two years in a row. Prepare to set aside a reserve to pay penalties and interest for property that is being reported late to states that actively assess them. Interest assessments are not always immediate, and can arrive months or years after reports have been reconciled by the state. Have a plan in place for customers who are late in responding to due diligence notices. (And this will inevitably happen) If you have already locked down your accounts or reported the funds to the state, what is your protocol? Do you refer the customer to the state or do you make the customer whole and seek a reimbursement from the state? File your report as soon as it is completed. You don’t have to wait until the deadline to file. The states receive thousands and even tens of thousands of reports on the deadline. The earlier they receive your report, the sooner it will be reconciled and made available for your customers to file claims. For all unclaimed property practitioners, gurus and novices alike, you can’t always foresee the roadblocks that lie ahead but we can be prepared to take action when they get in our way. As they say, “Only someone who is well prepared has the opportunity to improvise!” That is the least we can do to save our sanity during reporting season.
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Caveat Emptor: When a Merger or Acquisition Yields More Than You Bargained For

by Maureen Ferrari 16. March 2017 13:21
Congratulations! You just successfully completed an acquisition, and the business press and your industry peers have all taken notice. Another group is following your transaction as well: state unclaimed property auditors. Unclaimed property review, as part of transactional due diligence in a merger or acquisition, often goes overlooked. Armed with this knowledge, state unclaimed property auditors include a company’s history of transactions in audit proceedings, and states review M&A activity in their jurisdiction for likely audit candidates. This can lead to a costly process for companies that haven’t performed the proper due diligence, as the audit scope can expand to include the acquirer’s unclaimed property reporting history, the acquired company’s reporting history, plus the reporting history from other, previous acquisitions. Unclaimed property due diligence can have a direct impact on a deal price. If the company is not in compliance with state unclaimed property laws, and has written these unresolved transactions off as income, the acquiring company can be paying an inflated purchase price for the acquisition as well as acquiring the liability, depending on the nature of the acquisition. In an asset purchase, the buyer generally acquires the liabilities that are explicit in the purchase agreement. Under this circumstance, the probability of acquiring an unknown unclaimed property liability is diminished. However, in a stock purchase agreement, the buyer generally acquires all disclosed and undisclosed liabilities. Investing the time and effort into an unclaimed property review as part of transactional due diligence will enable a buyer to evaluate risk, provide opportunity for mitigation, and reinforce or reevaluate the purchase price of the transaction. The review should include: Policies and procedures for resolution of credit balances, unapplied cash, accounts payable and all uncashed checks; Policies and procedures for unclaimed property liabilities and reporting; Annual unclaimed property reporting history, including copies of reports, voluntary compliance agreements and audit history; Exemption and due diligence history; Current liabilities that have not yet tolled the dormancy period; Third party agreements, including stock transfer agents, payroll administrators, rebate administrators, etc.; and, Merger and acquisition history including state of incorporation for all entities. One factor that can hinder an unclaimed property review is record retention. The preferred record retention period for unclaimed property is at least ten years, since most unclaimed property audit lookback periods are ten years or greater. If the target company was compliant with unclaimed property laws but failed to retain evidence, it could further prolong the review period. Non-compliance altogether could also delay the acquisition until estimations are completed and mitigation efforts or a resolution plan is implemented. So, Caveat Emptor. Be sure to include an unclaimed property review in your transactional due diligence. Otherwise, you could end up with an unclaimed property headache and a real case of buyer’s remorse.
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The Healthcare Industry Gets a Dose of Unclaimed Property

by Maureen Ferrari 27. February 2017 15:07
Among the many compliance obligations that corporations have, one that can be the most complicated and costly to an organization, if neglected, is unclaimed property compliance. While each state has its own unclaimed property law, and no two laws are exactly alike, every state has the authority to audit the books and records of a holder if the state has “reason to believe” that the holder is not in compliance with the state’s unclaimed property law. States have recently targeted the healthcare industry, including both providers and insurers, for unclaimed property audits. The level of risk for an unclaimed property liability in the healthcare industry can be greater than average due to the unique accounting challenges that may give rise to its occurrence. This includes: · Multiple payors, including the patient, insurer or multiple insurers, Medicare/Medicaid can result in overpayment for services. It is often challenging to determine who is entitled to the refund. · Decentralized accounting systems in large healthcare organizations create risk on an enterprise-wide level, including all affiliates such as outpatient care centers, rehabilitation centers and physician practices. · Accounting adjustments/overpayment for contractual allowances. This can occur when a healthcare provider unknowingly uses an expired contract to estimate and record a receivable. If the incorrect amount is recorded and the payment is larger than the estimate, it will result in a credit. Other causes can be an incorrect billing for service or a miscoding of services provided. · De minimis write offs. Many healthcare institutions have a policy of writing off what they consider to be de minimis credit balances. According to most unclaimed property laws, there are no de minimis amounts of unclaimed property, therefore, any and all amounts are owed to the owner and if the owner cannot be located, they must be reported to the state. · Unapplied cash or other payment is common in the healthcare industry and can occur when they cannot be attributed to a specific patient. · Unclaimed patient accounts and security deposits are a common source of unclaimed property generated by long-term care and assisted living facilities. Recognizing that the healthcare industry is susceptible to unclaimed property liabilities, the states have begun to issue audit notices via their third-party audit firms. States frequently utilize the services of audit firms to represent the state in an audit because they lack the resources or expertise to engage in audits in certain industries. Most often, the audit firms will represent multiple states in the audit, with the state of incorporation taking the lead in the audit. It is not uncommon for unclaimed property audits to go on for years. What can healthcare providers do to minimize exposure? · Have detailed policies and procedures for the handling of inactive and unclaimed accounts. Keep them updated and ensure that the entire enterprise is operating under the same procedures. · Have a record retention policy to support unclaimed property compliance. While the typical record retention period for tax is seven (7) years, unclaimed property record retention should exceed ten (10) years, as that is often the minimum lookback period for an unclaimed property audit. · Ensure that unclaimed property liabilities are addressed in all contracts with third party providers. · Make an unclaimed property compliance review part of your merger and acquisition transactional due diligence. · Be aware of business to business transactions that may be exempt from unclaimed property in some states. · Ensure that transaction details are maintained or systems archived in the event of a system conversion. · Report unclaimed property on an annual basis to all states where a liability exists and ensure that all operating entities are reporting either on their own or as part of a consolidated enterprise-wide report. If your organization has a questionable or inconsistent unclaimed property reporting history, there are things that you can do to get ahead of an audit: · Control your own destiny. Perform a self-assessment to determine liability, state by state. · Take advantage of opportunities to voluntarily comply. Most states have a voluntary compliance/disclosure program that will allow you to report out-of-compliance property penalty and interest free. If you enroll in a voluntary program, you can likely avoid an audit. · Establish policies and procedures that are implemented enterprise-wide. It is important that all entities, divisions and subsidiaries are utilizing the same standards for handling and reporting dormant accounts. · Ensure that unclaimed property compliance is part of your compliance and risk evaluations. Consider hiring an advocate to evaluate your unclaimed property exposure and develop a compliance strategy that is cost effective and time sensitive. A state-specific solution is the best solution, as one size does not fit all when working with the states. Unclaimed Property Advocates, LLC, an affiliate of Urish Popeck & Co., LLC, is a full-service unclaimed property annual reporting and advisory service organization. For more information, please contact Maureen Ferrari Grollman, Managing Partner, at meferrari@upadvocates.com or via telephone at 610-256-7931.

Why Unclaimed Property Matters To Your Business

by Maureen Ferrari 7. December 2016 09:17
States have “discovered” unclaimed property revenue can be an alternative to a tax increase, and consequently it is an increasingly important source of operating funds among all 50 states. As a result of this increased attention, unclaimed property laws, and states’ administration and enforcement practices, are regularly changing. Businesses need to keep pace to protect their interests. Under unclaimed property laws, a “holder” of unclaimed property is required to report and remit unclaimed property to a state after the property has remained unclaimed by its owner for a specified period of time (usually three or five years, depending on state law). States have the statutory authority to audit any business for compliance. They may do so with their own internal resources, or they may hire third party audit firms that have a contingent financial interest in the property that they turn over to the state. Interest and penalties can be assessed for over 100% of the underlying liabilities, going as far back as 1981. Given this environment, if your business has not actively been pursuing unclaimed property compliance, it may be time to take a closer look. Following are some considerations to help you evaluate the applicability to your business relative to annual reporting, compliance and risk management: Annual unclaimed property reporting is required in every state Reporting can be complex, as all state laws are different Non-compliance with annual reporting requirements can be costly, with States possessing growing statutory authority to issues fines, penalties and to conduct audits of business records The average penalty imposed by the state is 12% of the individual account value, with the interest beginning on the date the property should have been reported In some circumstances, the fine far exceeds the value of the property In select states, unclaimed property revenue serves as a non-tax form of revenue to fill budget gaps Most unclaimed property audits involve multiple states, lasting 3-5 years, and are conducted by outside audit firms that work on a contingency basis Recent jurisdictional disputes among the states have reached the level of the Supreme Court States are becoming more aggressive in changing laws to lower dormancy periods (the amount of time a company is required to hold an account or credit on their books before it qualifies as unclaimed property) to generate more unclaimed property required to be reported to the state For example, Pennsylvania recently lowered its dormancy period from five to three years and also redefined the requirements for when Individual Retirement Accounts become reportable, which can be long before the date of mandatory distribution Unclaimed property compliance should be part of your merger and acquisition review Acquisition of a large unclaimed property liability places your company at risk, and liabilities that have been written off into income can overstate the value of a company Given these considerations, unclaimed property compliance is not something that can be ignored in any organization. Having an active, robust program, that is part of your company's risk management and compliance programs, can help you maintain positive customer relationships and be good corporate citizens at the same time.
Categories: Escheat

Unclaimed Property News - Delaware Offers a Carrot

by Ken Urish 11. July 2012 15:15
By virtue of its being the legal home for a large majority** of corporate America, Delaware is the big dog in the world of abandoned or unclaimed property. Policies and procedures regarding the reporting of unclaimed property are under scrutiny by state treasuries across the country because it is increasingly seen as a key resource to plug budget holes. Very understandable, since recoveries by states are literally found money. Because Delaware leads the country in unclaimed property receipts by a wide margin, it is significant that Governor Jack Markel is about to sign into law a new and alternative Voluntary Disclosure Agreement Program (“VDA”). The program is designed to be an incentive for holders to bring their reporting into compliance with Delaware’s laws, in return for a reduced look-back period. The earlier participants enroll the shorter the look-back period will be. Enrollees by 6-30-13 will be limited to a 1996 look-back period; those that wait until 6-30-14 may be eligible for a 1993 period. Delaware’s current VDA requires reporting back to 1991. Will this program increase compliance? State treasurers nationwide will be watching with great interest, as will those of us that practice in the area of unclaimed property recovery. For more details on Delaware’s new VDA, please see this state and local tax alert.     ** More than 900,000 business entities have their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 63% of the Fortune 500 (source: State of Delaware).
Categories: Tax