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 or via telephone at 610-256-7931.

Sweeping Changes to Delaware Unclaimed Property Law Present New Opportunities for the Holder Community, But Proceed with Caution

by Maureen Ferrari 17. February 2017 13:59
Delaware has long been known for its aggressive position on unclaimed property audits that included prolonged lookback periods, debatable extrapolation methods and no express period for record retention. Despite improvements, there are still areas that remain unclear and require further definition. Holders considering taking any action in Delaware should carefully consider all of their options and risk tolerances and make an educated and informed decision that best suits their organizational goals. Finally, in June 2016, the Federal District Court in Delaware issued a decision in the Temple-Inland v. Delaware case affirming that these practices amounted to a “game of gotcha” that “shocked the conscience” and further violated the due process rights of Temple-Inland. As a result of this case, and after years of Delaware-incorporated companies complaining about the State’s aggressive position on unclaimed property, Delaware has made attempts to update and clarify its outdated unclaimed property law and provide holders with more opportunities for voluntary compliance by passing Delaware Senate Bill 13. With Bill 13 the State has adopted some of the provisions of the Federal 2016 Revised Uniform Unclaimed Property Act[1]. Notable attempts at clarification in Bill 13 include: · Defining an “indication of owner interest” which now includes written or oral communication and accessing account information. It also recognizes that activity in one account equals activity for all other accounts linked to the same owner. · Defining “last known address” as the description, code or other indication of the location of the owner which identifies the state of the address of the owner. · Defining the process and timeframe for disposal of securities being held by the state and provides options for owners claiming securities. It also affirms the current law that owners of securities must receive due diligence notice prior to sale of the security. · Defining the record retention period at 10 years from the date the unclaimed property report is submitted. · Adopting and defining the “knowledge of death” concept as a trigger for dormancy for life-insurance proceeds. · Adding the terms “goods” and “services” into Delaware’s gift card provision, stating “the amount unclaimed is the amount representing the maximum cost to the issuer of the merchandise, goods or services, represented by the card”. · Addressing the transfer of liability and providing that liability can only be transferred to related entities.   While attempting clarification, the law also seems to address the specific issues that arose in the Temple-Inland v. Delaware case, including: · Reducing the lookback period to 10 years for both audits and VDAs. · Setting the statute of limitations at 10 years from the date the unclaimed property obligation arose. · Mandating that the state must adopt extrapolation methodologies by July 1, 2017. · Eliminating the administrative review process and giving the state court the authority to review questions of law relating to an unclaimed property examination. · Prohibiting Delaware from taking property into custody that is exempted by the first priority rule. (Under the first priority rule, property containing a last known address is reported to the state of the owner’s last known address. If no address is known, it is reported to the state of incorporation, which in many cases is Delaware.) Finally, the changes in law present some opportunities to holders that could be beneficial to those currently under audit or those that find themselves out of compliance, including: · A two-year accelerated audit program is offered to holders currently under audit. This means that the state has two years to complete the audit but there is a caveat to the holder, the holder must respond to the auditor’s requests for information “within the time and in the manner established by the State Escheator”. · Conversion from audit to VDA. Holders under audit as of July 22, 2015 may enter into the VDA program and be relieved of penalties and interest that could be assessed in an audit. · Creation of a compliance review program – permitted when the State Escheator believes that the report filed was inaccurate, incomplete or false. All of the states need to update, clarify and define vague and outdated unclaimed property laws and we will see many states adopting portions of the 2016 Uniform Unclaimed Property Act in the months and years to come. Delaware may have been forced into early adoption due to the Temple-Inland case, but their efforts to take action are a step in the right direction. There are many opportunities for the holder community, particularly those who may be under audit or find themselves out of compliance, to give careful consideration. However, there are still areas that remain unclear and require further definition. Holders considering taking any action in Delaware should carefully consider all of their options and risk tolerances and make an educated and informed decision that best suits their organizational goals. [1] an effort by the Uniform Law Commission, with representation from the holder, state and industry-related associations, to update the 1995 Uniform Unclaimed Property Act and address electronic commerce and other means of doing business that have evolved over the last twenty plus years.

Due Diligence: It’s More than a Project, It’s an Ongoing Process

by Maureen Ferrari 29. December 2016 14:33
Maureen Ferrari-Grollman, Managing Partner, Unclaimed Property Advocates Due diligence, the official notification sent to the owner of a dormant account advising that their account will be reported to the state if no action is taken, is a mandatory step in the unclaimed property reporting process in all states. And because state laws vary, so too do the requirements for the due diligence mailing. In other words, one size does not fit all when it comes to meeting state’s requirements. Some variances in the due diligence process include: Timing of the mailing – Some states require due diligence letters to be sent 60-120 days prior to the reporting deadline. In other states it can be as much as nine months to one year or as little as 30 days. Content of the letter – Specific language may be required within the body of the due diligence letter. It can include certain disclosures about the account type and what happens to the account if the owner takes no action. Many states will post a sample due diligence letter on their web site. Mailing requirements – A few states require certified postage either for all letters or if the value of the property exceeds a certain amount. New York requires both first class and certified mailing for owners whose property is valued over $1,000 if they do not respond to the first class mailing. Meeting all of the special requirements warrants careful attention to the compliance details of each state, keeping in mind that they can change from year to year. Staying current with due diligence procedures and a year-long timeline is an effective way to manage this complex process. Can you get ahead of the game? Absolutely! Early outreach, before the state unclaimed property law requires it, is an excellent way to establish customer contact before the account becomes too “stale”. Reaching out to a customer six to twelve months after an account has become dormant, or a check remains uncashed, will significantly increase your chances of location and reunification. If you add some owner location efforts for those account holders who are non-responsive or lost, you can increase the likelihood of returning the property to the owner, or reinstating/reactivating an account before it reaches the mandatory dormancy period. In addition, you can reach an owner via first class mail before a state requires the more expensive certified mailing. Early and often, with owner location efforts for high dollar value accounts, is the key to a customer-effective and cost-effective due diligence program. Inevitably, though, when a person receives a letter stating that they are owed money, there can be some element of skepticism; and rightfully so. Society has taught us that if it’s too good to be true, it probably is. Back in the mid-1990s when I worked for Pennsylvania’s Unclaimed Property Department, the PA Attorney General used the lure of an unclaimed property letter as the basis for a sting operation for wanted criminals. It took the Unclaimed Property Department a long time to regain credibility and reassure the public of the legitimacy of our letters, ads and outreach. Companies should have an awareness of consumer skepticism when crafting due diligence letters. While there is not much room for customized messages after incorporating the required language, you should ensure that the letter contains the same branding as other company correspondence and provides the contact information of an informed individual or call center that can be prepared to answer questions about the letter and unclaimed property in general. Enclosing a separate Frequently Asked Questions brochure can be helpful in explaining the purpose of the letter. While some who receive the letter may allege fraud, there are those that are willing to commit fraud in order to claim money that is not rightfully theirs. Management must be especially mindful of this possibility and have policies and procedures in place not only to ensure accurate payments to entitled parties, but identify the potential fraudsters and stop them in their tracks. Due diligence is undoubtedly a process. It involves crafting a letter that will uphold statutory language, sending it according to statutory timeframes, and processing returns to your customers, all with an awareness that the consumer may think the letter is a fraud and the responder may be trying to commit fraud. How UP Advocates Can Help UP Advocates can serve as your partner for a fully outsourced unclaimed property solution, or we can work with you to advise you on policies and procedures for best practices in the due diligence process. For more information, please contact Maureen Ferrari-Grollman at

The Four Deadly Sins of Unclaimed Property Reporting and What to Do if You Have Committed Them

by Maureen Ferrari 28. December 2016 11:18
Maureen Ferrari-Grollman, Managing Partner, Unclaimed Property Advocates A review of recent unclaimed property related news reveals state’s jurisdictional battles playing out in the courts, legislators proposing laws to broaden unclaimed property laws and plug budget shortfalls, and states seeking jurisdiction over matured federal savings bonds. The pressure to increase non-tax revenue among the states is real (take it from a former state unclaimed property administrator). Because of this, enforcement of unclaimed property laws has been at an all-time high. Through the use of contingency fee audit firms, or via their own internal audit staff, states are exercising their statutory authority to audit the books and records of unclaimed property “holders” believed to be out of compliance with unclaimed property laws, either from lack of reporting altogether, under-reporting, or inaccurate reporting. And finally, penalties and interest are being applied by some states for late reporting or not complying with the reporting format or payment methods. Lack of Reporting If your company has never reported unclaimed property, or has not consistently filed reports over the years, it is probably only a matter of time before you end up on the state’s radar. Most likely, your state of incorporation, your corporate headquarters or any state where you have a large footprint, will be raising the red flag. Even publicity, good or bad, can draw the attention of the state’s unclaimed property administrator. Over the years, state agencies have been more cooperative in sharing information with the unclaimed property department. This information may include companies incorporated in the state, companies paying state corporation taxes, companies with liens and fines. And, if your company files a claim to recover unclaimed property, and has never filed an unclaimed property report, you can almost guarantee an increased level of scrutiny before any money is ever paid out. Under-Reporting Think you are in compliance by filing a report annually with the states? Think again. Under-reporting, (not turning over all property due and owed to the state) can also land your company on the state’s audit radar. Based on industry type, the states have expectations about what property types should be reported. There is also an expectation that all divisions and subsidiaries will be in compliance as well. States compare you to your competitors and others in your industry of similar size and revenue. If company A is reporting an average of $100,000 in unclaimed property each year and Company B is reporting $10,000 in property, it may lead to increased scrutiny for Company B. Similarly, if Company A is reporting wages, commissions, accounts payable, and accounts receivable but Company B is reporting only wages, commissions and accounts payable; at minimum, Company B may receive an inquiry from the state regarding the accounts receivables. Inaccurate Reporting Preparing and filing unclaimed property reports can be a complicated, arduous task. Just as the act of filing the state report does not necessarily equal compliance, it also does not assume complete accuracy of the data reported. The most common mistakes are incorrectly determining the dormancy period and reporting property to the incorrect state. Dormancy periods vary by state and by property type. They require frequent monitoring to ensure that they are up-to-date and accurate. Most unclaimed property software companies will provide updates as part of the subscription, but if they are not applied, or if you are using free online reporting software and thus performing your own dormancy calculations, there is a high level of risk that the incorrect dormancy periods could be applied. In addition to incorrect dormancy calculations, reporting property to the incorrect state is prevalent. In a Supreme Court decision, upheld for over fifty years, the first rule of jurisdiction holds that the property must be reported to the state of the owner’s last known address. Absent an address, the property is reported to the state of the company’s incorporation.[1] One common mistake is reporting all property to the state of incorporation, either as a way of dumping all unclaimed property onto one report, or under the misconception that states have reciprocal agreements and will send the property to the appropriate state. While some states advise that they will accept de minimis amounts property on behalf of other states, the practice of reporting all property to one state is ill-advised. The concept of reciprocity among the states is both fleeting and inconsistent at best. While some states make a good faith effort to send property due to other states on a regular (usually annual) basis, other states do so as time and resources permit, and will often only reciprocate to those states that send property to them. In addition, reporting all property to one state does not negate the dormancy rules of the other states. You are still obligated to apply the proper state dormancy periods to ensure that the property is being reported at the appropriate time required by law. Late Reporting Missing a state’s reporting deadline, not filing in the appropriate format or not abiding by the state’s rules for preferred payment method can also result in penalties and/or interest according to some state laws and, at minimum, increased visibility on the state radar. While the states, for the most part, will accept the NAUPA (National Association of Unclaimed Property Administrators) format, there are some state-specific variations that may apply, depending upon the type of property being reported. Reporting formats, payment methods and remittance directions can usually be found on the state web site. Making it Right If you find that your company has committed one or more of the infringements above, there are remedies available that leave you in control of the process before the states come knocking at your door. To get into compliance, states sometimes offer one-time amnesty programs with generous provisions for reporting large amounts of out-of-compliance property. More often, you have the option of enrolling in a state’s Voluntary Disclosure Agreement (VDA) Program. The program requirements vary by state but generally offer a way to report out-of-compliance property penalty and/or interest free and be relieved from audit of the property reported. In some states, the process of obtaining a VDA can be as remarkably simple as making a phone call to the unclaimed property administrator, in other states it will require a formal agreement along with disclosure of the methodologies used for determining the liability. Navigating the various state rules surrounding VDAs can be time consuming, but well worth the effort to be in control of the process and avoid fines and penalties that can sometimes exceed the liability. In the event that circumstances beyond your control will prevent you from filing a report on time, many states are reasonable in working with you to extend the deadline. Extensions are usually granted for system issues, sudden personnel changes, natural disasters, weather-related emergencies and other unforeseen events. This is a viable option when making the deadline is not. How Unclaimed Property Advocates Can Help We can assist you in determining your unclaimed property liability. Once this determination is made, using our state and holder advocacy experience, we can establish a state by state strategy for resolving the liability. This can be done through mitigation, enrolling in a VDA program, or simply filing an unclaimed property report. We will work with you to create a customized solution that minimizes risk while carefully considering the cost effectiveness of the approach. Once you are in compliance, we can turn the annual compliance process back over to you or we can become your partner moving forward. We can create policies and procedures for ongoing compliance, conduct staff training and development to manage an effective unclaimed property program, or become your outsourced provider for annual compliance reporting. For more information please contact Maureen Ferrari-Grollman at [1] Texas v New Jersey, U.S. Supreme Court, 1965