notes - keane · • holders that enter into an unclaimed property voluntary disclosure agreement...
TRANSCRIPT
New Delaware Voluntary Disclosure Agreement Program Creates a Window of Opportunity for Holders Incorporated in DelawareBy Freda Pepper, Esquire, Keane’s Director of Compliance
KeANe WelCOmes lAurIe ANDreWs
Laurie recently joined the Keane Unclaimed Property practice following over 15 years of service with the Pennsylvania Department of Treasury. Laurie
brings with her an extensive unclaimed property background focused on fraud prevention, claims, research, and a wide range of client needs. As the Division Manager for Customer Service and Claims in Pennsylvania’s Unclaimed Property Department, Laurie oversaw all aspects of the fraud, research, claims, and customer service departments. She developed and provided training in these areas of unclaimed property to her staff, other departments within the Pennsylvania Treasury, and other unclaimed property state programs.
Throughout her career, Laurie has continued to build on her expertise in unclaimed property. She also has worked as both Tangible Property Supervisor and Public Outreach Coordinator. These experiences have afforded her the opportunity to understand how unclaimed property issues affect both the holder and unclaimed property owner.
Unclaimed Property. Uncompromising Performance. 1
ALSO in this issue:Failure to Focus on Fraud = Disaster for Unclaimed Property Compliance ........ 3
Legislative & Regulatory Updates ............. 6
Why Should Your Company Consider a Proactive Risk Assessment? .................. 9
Keane Hosts Unclaimed Property Webinar for Insurers ............................. 10
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Fall 2012: Volume 10, Issue 3
The first unclaimed property compliance quarterly newsletter, published exclusively by Keane since 2003. Keane is the country’s leading provider of unclaimed property compliance solutions.
A new Voluntary Disclosure Agreement (VDA) initiative has been established in Delaware. On July 11, 2012, Delaware Governor Jack Markell signed Senate Bill 258 (SB 258) into law. Under the new law, holders who have a reporting obligation to Delaware will be given a window of time to report any past-due property without the threat of audit. At face value, the new program provides significant benefits to those who wish to come into compliance and avoid long and contentious audits with the State and third-party audit firms. The legislation will offer holders a unique opportunity to decrease their unclaimed property exposure.
The new program will be administered by the Delaware Secretary of State (SOS). The incentive is temporary, as the law provides that participants in the new program must enroll by the June 30, 2014 deadline, and complete the program by June 30, 2015, in order to take advantage of the shortened “look-back” periods. Prior to the enactment of SB 258, holders were required to include past due property dated from 1991.
Here are the details of the new program:
• Holders must complete and submit an application to participate (SOS DE-1).
• Those holders that enter into the unclaimed property voluntary disclosure agreement on or before June 30, 2013, and make payment in full or enter into a payment plan on or before June 30, 2014, will be subject to a “look-back” period to 1996, as opposed to 1991.
• Holders that enter into an unclaimed property voluntary disclosure agreement on or before June 30, 2014, and make payment in full or enter into a payment plan on or before June 30, 2015 will be subject to a “look-back” period to 1993.
• After the SOS enters into a voluntary disclosure agreement with a holder, the State will not seek further payment of abandoned property covered by that agreement unless it can establish evidence of fraud or willful misconduct in the voluntary disclosure.
• Holders currently participating in a VDA process with the State Escheator shall have the benefit of the shortened “look-back” periods but under the auspices of the State Escheator and not the SOS.
• Holders currently under audit or who have received a notice of audit are not eligible for the reduced “look-back” periods set forth in SB 258.
• The new law expires July 1, 2015.
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It is important to note that SB 258 requires both the State Escheator and the SOS to waive any right to seek payment under 12 Del. C. §§ 1156 and 1158 of Delaware’s Escheatment Law after a VDA is accepted by the SOS, except in the case of fraud. This is a marked departure from current practices. Prior to the passage of this law, the State Escheator had the right to audit VDA deliverables up to three years following submission of a VDA.
Despite the apparent benefits, it’s still unclear how the new legislation will be administered. Recently, Drinker Biddle & Reath, LLC (“Drinker Biddle”), a large Philadelphia law firm with a presence in Delaware, was selected by the Delaware SOS through a request for proposal process to aid the Secretary of State in developing and administering the VDA program. Drinker Biddle’s responsibilities will include creating guidelines and regulations governing the program including all forms, agreements, and policies that will be utilized by the SOS. Drinker Biddle will also develop a forensic audit component, provide advice to holders, process submitted VDAs and communicate the SOS’s expectations to the holder community. Lastly, they will assist the Secretary of State in determining claims and resolving agreements pursuant to SB 258 for unclaimed property otherwise owing to the State Escheator.
Stay tuned for more news as Keane will stay at the front of the industry in reporting the latest developments.
Proposed regulations to Benefit Holders Currently under Audit
As stated earlier, SB 258 does not apply to holders currently under audit or who have received a notice of audit. Recognizing another opportunity to incentivize holders to come into compliance, the Delaware Department of Finance proposed new regulations that would similarly limit the look back period for those subject to audit. The regulations proposed on July 1, 2012, provide the following:
• For holders currently under audit, or who become the subject of an audit before the effective date of the new regulation, auditors will review records dating back to January 1, 1986, provided that the examination is completed by June 30, 2015. This will reduce the effective cumulative look-back by five years.
• For holders who become the subject of an audit on or after the effective date of this new regulation, and for all others whose examinations are not completed by the close of business on June 30, 2015, the State Escheator will continue the existing policy of examining records created on or after January 1, 1981 to determine compliance.
Comments to the proposed regulation were invited to be submitted to the Department of Finance by July 31, 2012. The comments that were submitted have not been made public by the State. However, the Council on State Taxation (COST) has made its
comments publicly available. COST is concerned with the requirement that in order to take advantage of the proposed shortened look-back periods, an audit must be completed by June 30, 2015. COST aptly points out that the completion of an audit is largely beyond the holder’s control and that the State Escheator rarely declares an audit complete. It is then suggested that the State Escheator be required to set forth an audit plan describing steps for completion of the audit and similarly to provide a reasonable and accurate statement of the holder’s potential liability. Most significantly, COST suggests that the State Escheator be authorized to extend the deadline beyond June 30, 2015 in cases where the size and complexity of the audit justifies the extension.
The proposed regulations have not been finalized as of the writing of this article, but Keane continues to monitor developments and regularly post updates on our industry blog.
Anticipating the Window of Opportunity
Both SB 258 and the proposed regulations seek to encourage a swift resolution of unclaimed property compliance given the requirement to complete the process by a certain time. There has been great anticipation over the past few months waiting for the final bill to pass, and while several companies will likely take advantage of this new law, the process and information required for the bill has not yet been published. While there are many questions yet to be answered, there are significant benefits to using a seasoned unclaimed property specialist to help formulate a cohesive strategy and develop a comprehensive and credible VDA package for presentation to the state.
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Failure to Focus on Fraud = Disaster for unclaimed Property ComplianceBy Ann Moore, CPA, CFE, CIA and Pamela Wentz, CFE, MBA; Keane Consulting & Advisory Services Group
Unclaimed property is the perfect target for a fraudster. The majority of unclaimed property accounts consist of uncashed checks that are undeliverable and outstanding, dormant accounts customers forgot they had, and credit balances customers don’t remember being owed. They also represent the perfect opportunity for committing fraud. If an owner has forgotten about the funds, then who is going to discover they are missing? In this article, we will discuss how fraudsters can steal thousands from unsuspecting companies, the ramifications of fraud on unclaimed property reporting and compliance, and how strategies can be employed to help companies protect unclaimed property from fraudulent activity.
Generally speaking, fraud is the manipulation of policies and procedures to facilitate the intentional taking of property that belongs to someone else. Everyone has heard of the corporate fraud cases that come in many shapes and sizes and the devastating impact it can have on a company. Unclaimed property fraud, on the other hand, tends to occur at a smaller level, benefiting an individual, but its ramifications and negative impacts can affect an entire organization.
It is important to remember that fraud is everywhere. No company, government, civic organization, charity, hospital, university, or individual is immune. Damage created by fraudulent activities takes many forms, causes financial hardship and reputational weaknesses, lowers employee morale, creates distrust from every angle and could have substantial legal ramifications. Even those that are deemed immaterial to the organization as a whole can create feelings of distrust, suspicion, and betrayal among co-workers long after the fraud is discovered.
Why Be Vigilant?
Today companies are highly visible to both their customers and their investors. As such, companies need to consider the potential ramifications of fraud. The financial impact can be substantial as misappropriated funds are likely still due to a third party in the form of accounts payable, credit balances, or restitution. In these cases, not only is the company financially impacted by the initial fraudulent activities, but is also still responsible for fulfilling its responsibilities to third parties. Ultimately, this can result in a duplication of expenditures. Additionally, if the fraud causes unclaimed funds to be reported late (i.e. in excess of the statutory holding period) the states may assess interest and/or penalties.
The risk of fraud occurring has never been higher. The current economic atmosphere pressures both individuals and companies to achieve financial goals that outpace their normal expected performance. Individuals may be experiencing financial hardships at home, having to compensate for a spouse who is currently un- or under-employed while companies are facing downturns in customer activity, sales, and production and may be looking for ways to bolster their current financial standings.
Fraud examples by Individuals
Keane has identified the most common forms of fraudulent activity that can be perpetrated through the manipulation of unclaimed property. We have provided some examples for your consideration; however, these are by no means a complete list of possibilities.
Case A: Misappropriation of Uncashed Checks
Due to inadequate controls and a lack of segregated duties, a clerk was able to reissue checks that were returned by the post office as undeliverable. The reissued checks were reissued in the name of credit card companies, catalogues, utilities, and family members of the perpetrator. In this case, the fraud went unnoticed for four years and resulted in $450,000 in misappropriated funds plus up to $450,000 due to the state for unknown restitution accounts. Additionally, the holder had the expense of reconstructing records manipulated by the clerk and became the subject of an FBI investigation. Once reconstructed, those funds that could not be reunited with the rightful owner became reportable to the state as unclaimed property.
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Case B: Manipulation of Client Accounts
Credit balances owed to one party might be used to offset the bad debt of another, thus helping accounts receivable representatives meet monthly collection goals. Additionally, employees, who are evaluated by the number of active accounts they maintain or save, may neglect to report accounts due to deceased individuals. Not only does this deprive the estates and heirs of the funds, it creates past due properties for their employers and exposes them to interest and penalties for past due filings.
Case C: Manipulation of Owner Detail
Owner detail reported to states can be modified to enable the funds to be claimed by someone other than the true owner. In one example, an employee who was responsible for filing unclaimed property reports with the states, took it upon himself to change the names and addresses of the “lost” owners to those of his friends and relatives. His indiscretion was discovered when he continued to call the state to inquire when the properties would be available to be claimed. Over several weeks, this individual called every few days questioning why the properties were not showing on the website. A review of the times and dates of the phone calls revealed that most were being made after business
hours. An additional review of the addresses associated with the “lost” property owners showed that most originated from the same small town. After contacting the holder, the state was able to verify that the information supplied to them was fraudulent. The holder company had to invest a large sum of money and time to recreate the owner information
that represented the actual owners.
Organizational Fraud
Some organizations have intentionally under-reported unclaimed property so that they could continue to hold and retain use of funds rather than report/remit them to the appropriate state. Efforts to underreport can include the deliberate
destruction or manipulation of records, the ability to inflate or manipulate financial information and earnings, the imposition of unreasonable or unlawful inactivity fees, or the implementation of policies that result in “private escheat” (i.e. policies that attempt to terminate the owner’s right to collect the property before its dormancy period has been met).
There have also been cases where companies have diverted unclaimed funds into revenue in order to manipulate the financial position of the company. Unclaimed property is an outstanding or unpaid liability owed to another party. By unlawfully moving unclaimed funds into a revenue account, companies have understated liabilities while overstating revenues. This not only results in a fraud committed against the owners of the property but also results in the deliberate misrepresentation of the company’s financial statements, which can result in fraud against the company’s shareholders.
In these cases, if states can demonstrate that the failure to comply with unclaimed property laws was intentional, interest and penalties can also be imposed. If the state can demonstrate that the misrepresentation of the financial statements was deliberate, officers of the company can prosecuted.
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The Typical FraudsterFraud can be committed by anyone. The typical fraudster in a financial position (e.g. bookkeeper, accounts payable clerk, accountant, controller), appears to be a trustworthy, valued employee, who never takes vacation because they are so committed to their job. Everybody loves working with the fraudster because they go out of their way to make those around them happy. The most common misperception—that trusted, happy employees would never commit fraud—encourages a lack of controls and provides a key opportunity for the fraud to occur.
The three key factors influencing fraudulent activity, commonly known as the Fraud Triangle (see graphic above), fit perfectly with unclaimed property. The first key element is rationalization.
Fraudsters can easily rationalize the taking of unclaimed funds because the taking of the property can be seen as victimless; nobody is directly hurt by the crime. The second key element is Opportunity. Opportunity stems from the fact that unclaimed accounts tend to be immaterial when considered as individual transactions and often fall below the materiality thresholds established by most auditors. Most unclaimed accounts sit on the company’s books for years, are unmonitored, and are excluded from normal control activities. The final ingredient for fraud is Pressure. In today’s economy there are many forms of pressure that affect employees including, but not limited to, unemployed spouses, a desire to “keep up with the Joneses,” and addictions. Often these pressures are unknown to employers. In many cases, the misappropriation of funds goes undetected until the fraudster either gets lazy or they finally hit a level that catches everyone by surprise.
FrAuD TrIANGle
rATIONAlIzATIONIf the owner wanted it they would
have cashed the check.
OPPOrTuNITyNobody’s watching the
returned checks.
PressureIf nobody needs this,
I certainly do.
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Former Unclaimed Property Manager Convicted of Embezzlement
Manipulation of unclaimed property records can occur at all levels of the organization. In one such case, an employee entrusted as the unclaimed property manager was convicted of eight counts of theft by embezzlement. The unclaimed property manager had been employed as a tax accountant in the corporate tax department for seven years. Prior to that, he also worked with the Financial Services and Mutual Funds Group to escheat abandoned accounts of investment company shareholders and investment advisory clients. As such, he had access to abandoned investment advisory client accounts and investment company shareholder accounts.
The conviction resulted from the unclaimed property manager’s embezzlement of approximately $1 million over a two-year period from investment advisory clients and the clients and shareholders of two affiliates. The unclaimed property manager was sentenced to 11 years in prison and ordered to pay restitution of approximately $1 million.
Former Government Employee Convicted of Fraudulent Practices
Unclaimed property is also susceptible to fraud once it is reported to the States. Recently, a former employee with a state’s Abandoned Property Division, plead guilty to wire fraud, conspiring with four other people to submit false claims for the return of abandoned property seized by the state. The fraudulent activity continued for more than two years and resulted in a misappropriation of funds totaling over $1.24 million. The former state employee was initially sentenced to 60 months jail time plus restitution.
No matter what type of fraud, any company may be susceptible. By instilling regular fraud prevention practices and being vigilant in enforcing the rules, companies can help protect their reputation with both customers and investors and reduce their exposure.
With the growing threat of fraudulent activity, it is imperative that companies and organizations of all shapes and sizes take action to protect their assets and reputations from fraud. Below are best practices Keane shares with all clients to help mitigate the risk of fraud.
• Perform an overall risk assessment of your companies’ unclaimed property policies and procedures, both those in writing and in practice. Risk exposures, and their possible impacts, should be identified and documented.
• Pay close attention to annual filings and due diligence requirements to ensure that the information provided to the states accurately reflects the names and addresses of the true owners of the reported property. Frequent monitoring of activity in customer accounts is also essential. Activity in accounts that were previously dormant should be scrutinized to ensure that it is owner generated activity. Inappropriate activity could be generated by a fraudster internal or external to the company.
• Monitor individual employee performance reviews as compared to activity of the whole, making note of outliers. This simple step can be a useful tool to identify fraud that is being perpetrated by an employee to reach internal goals. Often, it is the person that is consistently performing at levels that cannot be attained by others that is manipulating financial records.
Steps should also be taken to safeguard tangible property and depositories. All tangible property inventories should be maintained in a secured, locked location and include a written inventory, reviewed by a minimum of two people, supported by a written log of property moving in and out.
Finally, controls should be established that would require a management-level review of unclaimed property reports; including a cross reference to vendor/owner files to ensure validity of names and addresses to confirm that unclaimed funds are being reported appropriately.
Overall, organizations should ensure that they maintain strong controls over all types of potential unclaimed property including:
• Scheduled (or unscheduled), independent and periodic reviews of potential unclaimed property processes and procedures;
• Written policies and procedures regarding how outstanding accounts payable, payroll, accounts receivable credit balances, etc. will be researched, tracked, monitored, and reported as unclaimed property;
• Maintenance of names and addresses with unclaimed property records;
• Written record retention policy that includes unclaimed property reports and supporting documentation; and
• Verification that unclaimed property policies and procedures do not circumvent the applicable state unclaimed property laws.
Failing to focus on fraud can result in an unclaimed property compliance disaster that can have an adverse effect on the company’s financial position and reputation. Companies are responsible for safeguarding unclaimed funds from potential fraudsters that can be either internal or external to the company. Incorporating a review of unclaimed property into internal control procedures and risk assessments can help the company verify that controls established are working as intended so that the adverse effects of fraud are avoided.
Best Practices and Proactive measures for Preventing Fraud
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AlABAmAHB 281
Introduced 2/9/12, indefinitely postponed 5/9/12
1. This bill proposes to change the abandonment
rules for automatically renewing CDs. The bill
proposes to leave the general presumption
language that provides that CDs are presumed
abandoned three years after the earlier of
maturity or the date of the last indication by
the apparent owner of interest in the property.
However, it removes the language defining
maturity for automatically renewing CDs as
the initial date of maturity. Theoretically, it
appears that the proposed law would allow
an automatically renewing CD to be presumed
abandoned before its initial maturity if the
CD’s term is longer than the dormancy period
and there has been no contact with the owner.
2. The bill proposes to expand upon the property
types that are currently exempt from reporting
any payment instruments drawn on the
Alabama State Treasury. AL currently exempts
certain property types drawn from the AL State
Treasury—this is simply an expansion of what
currently exists.
3. This bill proposes to require a holder to
electronically report and remit property.
The Treasurer may grant an exception
upon request.
4. With respect to due diligence, the bill proposes
that a holder send notice to the apparent
owner of property not less than 60 days of
filing a report. Currently, the law provides that
notice be sent not more than 120 days or less
than 60 days before the report is filed.
5. The bill provides that upon delivery of
property to another state or upon receipt of
property from another state, the Treasurer,
State of Alabama, and its employees shall be
relieved of and held harmless from any and
all liabilities for any claim or claims in respect
to the property delivered to or received from
the other state. Reciprocally, upon delivery of
property to the State of Alabama, the other
states’ employees shall be relieved of and
held harmless from any and all liabilities for
any claim or claims in respect to the property
delivered to the State of Alabama. Currently,
the Treasurer is required to ascertain an
agreement to indemnify by another state
before recovering property from that state.
6. This bill seeks to amend the early reporting
provision by requiring that property reported
early be deemed abandoned upon receipt.
Currently, the State has to hold property
reported early until it becomes presumed
abandoned.
7. The bill also provides that an agreement by
an owner, the primary purpose of which is to
locate, deliver, recover, or assist in the recovery
of property presumed abandoned must now
state that the property is in the custody of
the Alabama State Treasurer’s office and must
specify the fee percentage to be paid on the
amount claimed by the owner of the property.
Currently, the fee is restricted to an amount
that is not unconscionable. However, under
this bill, fees will be capped at 10 percent.
ArIzONAHB 2023
Introduced 1/10/12, Passed 4/10/12,
Effective 9/23/12
Presently, Arizona’s unclaimed property law
states that “a demand, savings or time deposit,
including a deposit that is automatically
renewable, and any interest or dividends are
presumed abandoned three years after maturity
or the date of the last indication by the owner of
interest in the property, whichever occurs first.”
This bill adds language clarifying that a certificate
of deposit cannot be presumed abandoned until
the initial maturity of the CD. Therefore, if the
last indication of interest by an owner occurs
prior to initial maturity, the dormancy trigger
for the CD cannot begin until initial maturity.
Finally, the bill specifies that if a person agrees
to auto renewal upon opening an account
and the consent is in writing, it is not considered
abandoned property upon its initial
maturity date.
CAlIFOrNIA21419 2012
Proposed 6/8/12
This rule-making action will amend California
Code of Regulations, title 2, section 1155.350
by updating forms incorporated by reference.
The proposed regulations also amend section
1155.250 by deleting language requiring prior
approval to remit funds by Fed Wire.
DelAWAreSB 258
Introduced 6/14/12, Passed and Effective 7/11/12
On July 11, 2012, the Governor of Delaware
signed Senate Bill 258 into law. The new law
establishes a program overseen by the Delaware
Secretary of State that provides holders a three-
year window to enter into voluntary disclosure
agreements (VDA) and report any unclaimed
property liabilities. The new law provides
the following:
1. Holders that indicate in writing their intent to
enter into an unclaimed property VDA on or
before June 30, 2013, and make payment in
full or enter into a payment plan on or before
June 30, 2014 will be subject to a “look-back”
period of 1996.
Legislative & Regulatory UpdatesFall 2012 (For the period 3/31/2012 through 8/31/2012)
Introduced – used for Legislation
Passed – used for Legislation
Proposed – used for Regulations
Adopted – used for Regulations
Prefiled – drafted bills and resolutions to
be numbered, printed, made available for
public review, and scheduled for hearing
before the actual start of session
Update Key
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2. Holders that indicate in writing their intent to
enter into an unclaimed property VDA on or
before June 30, 2014, and make payment in
full or enter into a payment plan on or before
June 30, 2015 will be subject to a “look-back”
period of 1993.
3. Holders that wish to participate must enroll by
June 30, 2014 and complete the program by
June 30, 2015 in order to take advantage of
the shortened “look-back” periods.
4. After the Secretary of State enters into a VDA
with a holder, the State will not seek further
payment of abandoned property covered
by that agreement unless it can establish
evidence of fraud or willful misconduct in
the voluntary disclosure.
5. The State Escheator shall not initiate an
examination of any holder who has indicated,
in writing, their intent to enter into a VDA with
the Secretary of State by June 30, 2014 unless
the Secretary of State refers that holder to the
State Escheator for examination.
6. Holders currently engaging in the VDA process
with the State Escheator shall have the benefit
of the same shortened “look-back” periods
but under the auspices of the State Escheator
and not the Secretary of State.
7. Holders currently under audit or who have
received a notice of audit are not eligible for
these reduced “look-back” periods.
8. This legislation will cease to be effective on
July 1, 2015.
2976 2012
Proposed 7/1/12
On July 1, 2012, the Delaware Department of
Finance/Unclaimed Property proposed regulations
that limit the look back period for purposes of
audit. The regulations propose that, in order to
encourage compliance, the following starting
periods for examinations will be observed:
1. For holders currently under audit, or who
become the subject of an audit before
the effective date of the new regulation,
auditors will review records dating back
to January 1, 1986, provided that the
examination is completed by June 30, 2015.
2. For holders who become the subject of an
audit on or after the effective date of this
new regulation, and for all other holders
whose examinations are not completed by the
close of business on June 30, 2015, the State
Escheator will continue his existing policy of
examining records created on or after
January 1, 1981 to determine compliance.
Comments to the proposed regulation were
invited to be submitted to the Department of
Finance by July 31, 2012.
FlOrIDAHB 7111
Introduced 2/8/12, Passed and effective 5/4/12
An act relating to a review under the Open
Government Sunset Review Act amending
s. 717.117 which provides an exemption from
public record requirements for social security
numbers and property identifiers contained in
reports of unclaimed property. The law removes
the exception to the public record exemption for
social security numbers and provides for future
legislative review and repeal of the exemption.
It also provides the following statement of
public necessity: The Legislature finds that it is
a public necessity that social security numbers
contained in reports of unclaimed property
remain confidential and exempt from public
records requirements. Social security numbers,
which are used by a holder of unclaimed
property to identify such property, could be used
to fraudulently obtain unclaimed property. The
release of social security numbers could also
place owners of unclaimed property at risk of
identity theft. Therefore, the protection of social
security numbers is a public necessity in order to
prevent the fraudulent use of such information
by creating falsified or forged documents that
appear to demonstrate entitlement to unclaimed
property and to prevent opportunities for identify
theft. Such use defrauds the rightful owner or
the State School Fund, which is the depository
for all remaining unclaimed funds.
HAWAII S 2748
Introduced 1/23/12, Passed 7/5/12,
Effective 7/1/12
Hawaii currently has a two-step reporting process
including a report and remit date. The new law
now provides that all holders report and remit all
property with their November 1 report.
mICHIGANHB 5577
Introduced 4/26/12, Passed and Effective 8/1/12
The new law reduces from 10 years to 5 years
the time in which the state administrator can
commence any action against “a holder of
records of transactions between two or more
business associations.” All other holders remain
subject to administrator action for 10 years. The
new law also reduces the amount of time that
records need to be maintained by a holder of
transactions between two business associations
from 10 years to 5 years.
NOrTH CArOlINASB 810
Introduced 5/17/12, Passed and Effective 7/16/12
The period for which a holder must maintain the
records containing the information required to be
included in the report is lowered from 10 years to
5 years after the holder files the report, unless a
shorter period is provided by rule of the Treasurer.
SB 816
Introduced 5/17/12, Passed 6/21/12,
Effective 10/1/12
This bill seeks to rewrite the NC General Banking
Law. The proposed law includes a provision for
dealing with safety deposit boxes by setting forth
the procedures by which a bank can take to
open, inventory and report the contents of a safe
deposit box where the rental fee is more than
90 days past due.
HB 462
Introduced 3/28/11; Amended 6/7/12,
Passed 7/3/12, Effective 7/1/12.
Audits shall not be performed on a contingent
fee basis. However, the Treasurer may contract
on a contingent fee basis to conduct audits
of life insurance companies where the audit is
being conducted for the purpose of identifying
unclaimed death benefits or to conduct audits of
holders of unredeemed bond funds. This law will
be effective 7/1/12 and the Treasurer shall not
renew contingency fee based contracts after
July 1, 2012.
NeW JerseySB 1928 (consolidated with AB 3045)
Introduced 5/14/12, Passed and Effective 6/29/12
1. The new law increases the dormancy period
for stored value cards from two years to
five years.
2. The law provides that once presumed the
proceeds of a “general purpose reloadable
card” shall be the value of the card. The
proceeds of all other stored value cards
presumed abandoned will be 60% of the
value of the card on the date the card was
presumed abandoned. General purpose
reloadable card is defined.
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3. The bill leaves the zip code collection
requirement in the law, but delays the start
of the requirement until the “49th month”
following 6/29/12.
4. The “place of presumption” requirement that
presumes New Jersey as the address of the
owner, has been removed.
5. The law provides for certain exceptions to the
presumption of abandonment and zip code
collection requirements.
6. Only a stored value card which is exempt shall
be deemed a gift card or gift certificate for
purposes of C.56:8-110 (concerning expiration
dates and dormancy fees generally).
7. Beginning September 1, 2012, if a stored
value card or a stored value card deemed a gift
card is redeemed and a balance of less than
$5 remains on the card after redemption, at
the owner’s request, the merchant or other
entity redeeming the card shall refund the
balance in cash to the owner. This does not
apply to general purpose reloadable cards.
a. Failure to comply with this provision will
result in a merchant paying a penalty of
$500 for each violation. The amount of the
penalty will be tripled for an aggregate of
100 violations occurring during any
12 month period.
b. An issuer or merchant has no
obligation to advertise the availability
of a balance redemption.
8. For stored value cards sold after
December 1, 2012, the funds shall be
valid until redemption and cannot expire.
9. For stored value cards sold after
December 1, 2012, no fees or charges
may be imposed except that the issuer
may charge (1) an activation fee when the
stored value card is purchased and when
reloading an existing stored value card; and
(2) a replacement card fee if the fees are
disclosed in writing prior to issuance.
A 3189
Introduced 7/30/12
Disengages stored value card
escheat prospectively.
NeW yOrK11 NYCRR 226
Emergency Adoption 5/14/12,
Effective 6/14/12
New York Governor Andrew M. Cuomo
announced new regulations that require all life
insurers doing business in New York to regularly
cross reference a government list of recent deaths
such as the Social Security Administration’s Death
Master File to identify deceased policyholders and
then locate and pay beneficiaries of policies for
which no claims have been made.
The new regulation requires insurers to
implement reasonable procedures to identify
unclaimed death benefits, locate beneficiaries,
and make prompt payments. Specifically,
insurers must:
• Cross check their policies at least every three
months with recent deaths using the Death
Master File or another database acceptable to
the Superintendent of Financial Services.
• When a policy is sold, request more detailed
beneficiary information, such as social security
number and address, to facilitate locating and
making payments to beneficiaries when a
death occurs.
• Search for multiple policies on the same
person in the files of all insurers owned by a
holding company.
• Cross-check policies with consumer requests
received through the State’s new Lost Policy
Finder, a free on-line service located at
www.NYPolicyFinder.com, to help consumers
locate life insurance policies that have been
lost or misplaced.
The new regulation also requires life insurers
to submit every year to the Office of the State
Comptroller the number of policies for which a
death occurred but for which the insurers were
unable to find the beneficiary.
rHODe IslANDHB 7523
Introduced 2/15/12, Passed and
Effective 6/19/12
This law exempts gift card or gift certificates
that are given to a non-profit corporation or
association for fundraising from the prohibition
against expiration dates, provided an expiration
date is clearly stated on the card or certificate in
bold print.
WesT VIrGINIAADC 112-5-1-15
Proposed 7/6/12
1. Adds mutual funds to the definition
of security.
2. Removes the notarization requirement
for reports.
3. Adds a provision requiring a holder to include
the date of birth of an apparent owner,
insured, annuitant and any beneficiary, if
known, on unclaimed property reports.
4. Requires electronic reporting only.
5. Requires that a request for an extension
be filed even if the holder will be filing a
negative report.
6. Specifically authorizes the use of estimation
in the course of an audit.
Comments invited until July 31, 2012.
9
Why should your Company Consider a Proactive risk Assessment?
The True Value of a Proactive risk Assessment
Budget shortfalls, decreased tax revenues and slow economic recovery efforts have contributed to increased efforts by the states to find revenue streams from alternative sources. As a result, unclaimed property is increasingly being evaluated and revised to bring more income into the state coffers. Recent activities at the state level have focused on reduced dormancy periods, increased enforcement efforts, and the unveiling of new voluntary disclosure programs. What can your company do to protect it’s assets from being tagged as potential unclaimed property? Are there steps that can be taken proactively to identify and remediate potential property types before they have to be remitted to the states? The answer to both questions is yes. A proactive Risk Assessment of your company’s books and records will help you identify areas of key concern and research the true nature of the property in question.
The specialists with Keane’s Consulting & Advisory Services have seen first-hand how proactive Risk Assessments can save companies thousands of dollars and address issues before they become susceptible to unclaimed property audit claims. It is much easier to address questions and issues on your own terms and timelines, rather than in response to auditor inquiry.
Keane’s Three steps to Proactive risk Assessment
Step 1:First, review and evaluate the policies and procedures currently utilized throughout your company to determine if they adequately address all lines of business and potential property types. Most companies frequently focus on property in the form of outstanding checks and assume they are in full compliance. They neglect to consider other types of property that are unique to their industry
including accounts receivable credit balances, rebates, or lost account owners. A frequently overlooked property type lies with third party administrators. Companies assume that if a third party is handling their self-insured benefits, they are also monitoring and remitting their outstanding benefit checks. This is not so in most cases and could result in a substantial unrecognized liability over time.
Step 2:Another frequently overlooked area lies within your company’s historical handling of unclaimed property. Many companies instituted unclaimed property programs within the last five years. How was unclaimed property handled prior to this period? Do you have liabilities still sitting on your books from 10 years ago? Did you write-off unclaimed property before realizing that it was reportable? These are the types of questions we look to answer. We will also help your company research the true nature of the properties so that they are not improperly classified.
Step 3:Evaluate the internal controls and communication streams that currently exist. From our experience, we’ve seen that most companies establish a central point for reporting unclaimed property and assume that everyone in the company corresponds with this group before making decisions regarding transactions that could affect unclaimed property. In most situations, this is not the case. Many times, decisions are made that could affect potential property types without consulting those who understand the compliance implications of unclaimed property. A Risk Assessment will help identify these weaknesses and give you the opportunity to reconfigure internal control procedures to ensure that communication efforts include unclaimed property considerations.
At this time, the specialists of Keane’s Consulting & Advisory Services can assist your company with a proactive Risk Assessment to provide a level of assurance that otherwise may not exist. We can work with your company to identify and research potential unreported properties. We can also help you establish strong internal controls and lines of communication that help ensure ongoing compliance. If the results of the proactive Risk Assessment reveal outstanding reportable properties, we are available to assist with the exploration of the best means of remediation, including voluntary disclosure agreements and initial filings. Keane’s team of specialists is ready to help. If you have any questions, contact Keane’s Consulting & Advisory Services Group at 1.800.848.8896.
10
Q: sometimes, if a policy is in the contestable period when the insured dies, we either can’t locate the beneficiary or get them to cooperate. It is possible at that point to determine what amount is owed—the death benefit may be denied and only the premium returned if there is a misrepresentation. I would be interested to know how others handle these situations.
A: If the insured dies within the contestable period, one of two things
is applicable:
(1) If the insured dies before the policy is issued, but the applicant
had paid an initial premium and received a conditional receipt
when application was made, the insurance company must
continue underwriting, processing, and issuing the policy based
solely on the health and living status of the insured at the time of the application. If the policy is issued, the face amount is
payable (unless there was a misrepresentation by the applicant
that would have caused the company to not issue the policy); or
(2) If the policy has been issued, but is still within the contestable
period, the duties and obligations of the insurance company
remain, just as in the above example—the face amount is payable.
This applies in both scenarios regardless whether the company
can locate the beneficiary or get them to cooperate. Only in the
instance of fraud or misrepresentation at the time of application
that would have caused the insurance company to have never issued the policy (based on its normal underwriting
criteria and practices), would a simple return of premium be
applicable. In any event, the fact that an insured died during the
contestable period of a policy should not prevent a policy from
being reported and remitted as unclaimed property if the company
does not have a basis to deny the claim based on application of
the “contestable” provisions of the contestable period.
Q: How was Verus chosen as the auditor for Florida? How does the state oversee Verus’ activities?
A: Verus, as all contracted audit firms, is required to submit a detailed
proposal that meets specific professional criteria and qualifications.
Florida maintains continued communication with the firm and
oversight of all audits during any authorized examination, and must
approve all audit findings. Holders are also provided administrative
rights pursuant to Chapter 120, Florida Statutes.
Q: What is the advice to companies who are not required to perform cross checks because the current legislation either doesn’t exist or there are clear exemptions in the legislation for certain products? Are companies still voluntarily cross checking all business? Only those products not clearly exempted? If so, is it advisable to cross check in force only? For example, group life insurance sold through employer groups has been exempt in some state’s legislation of late; however, not all states have adopted the legislation. Is it
INsurANCe uPDATe: Q&A from the Keane Florida Webinar
This past July, Keane had the opportunity to host an unclaimed property webinar focusing on the recent regulatory changes, compliance outreach,
settlements, and legislation impacting the insurance industry. The event was led by Valerie Jundt, Managing Director, Keane Consulting & Advisory
Services and Mr. Walter Graham, Bureau Chief, State of Florida Unclaimed Property Division. There was an excellent turnout for the event, with over
200 people in attendance.
Attendees of the webinar asked great questions, as the concept of unclaimed property is fairly new to the life insurance industry. Below are some of
the questions we received after the webinar, along with answers from Valerie and Walter.
11
advisable to cross check group employer life in all states, only the states where legislation does not exist, or wait and see what happens with legislation?
A: In general, companies should be using consistent standards across
all product lines to identify customers who may be deceased, both in
situations when the death of the customer allows for the cessation
of benefit payments and when the death triggers an obligation for
a payment to be made. Regardless of whether current legislation
specifically requires it or not, we believe it is advisable for companies
to be performing cross checks against the Death Master File. This
is the case for a number of reasons, including ensuring that the
company: (1) is compliant with all of its statutory and regulatory
obligations related to claims investigation and the reporting and
remittance of unclaimed property (whether they specifically reference
the Death Master File or not); (2) is applying best practices; and
(3) is fulfilling the long-term promises it has made to its customers.
Q: even if state legislation exempts certain life or annuity products, will a Verus type audit still include these products in its scope?
A: Florida-authorized audits do not include property that is statutorily-
exempt from reporting and remittance under Florida’s unclaimed
property laws. However, just because legislation may be enacted in
a state exempting certain products from Death Master File search
requirements, it does not necessarily mean that unclaimed property
associated with those products are exempt from reporting and
remittance under Florida law.
Q: What if an annuity allows a beneficiary to defer a death benefit election for 5 years?
A: In determining when the dormancy period begins, the overriding
question is: when does the obligation or benefit become payable?
Generally, the “clock starts” when it becomes payable pursuant
to an “event” such as death, surrender, mandatory distribution,
maturity, limiting age, etc. Under the Internal Revenue Code, in
some circumstances a beneficiary may elect to postpone payment
of the annuity death benefit for a period of time. If such an option
exists, then it would be acceptable if a beneficiary provided, in
writing, that he or she wished to engage this option pursuant to the
contract. In such a case, the dormancy “clock” would start once the
postponement period expired.
Q: In regards to maturity dates of life and annuity contacts, when is the dormancy period triggered?
A: Regarding the maturity age of a life insurance policy, the dormancy
period (or clock) begins at the maturity age of the policy’s insured
in accordance with the terms of the policy, and insurance proceeds
generally must, within five years, be paid to the owner or beneficiary
(or heirs), or be reported and remitted as unclaimed property. There
are also “endowment” policies that are reached at certain ages of
the insureds (65, 70, 75, or in 15, 20, 30 years, etc), and insurance
proceeds under these policies generally must, within five years,
be paid to the owner or beneficiary (or heirs), or be reported and
remitted as unclaimed property. Regarding the maturity date of an
annuity contract, the dormancy period also begins at the maturity
date, but such a date may be extended in accordance with the terms
of the contract, which generally require that the request be made in
writing in advance of the initial maturity date.
Q: What does limiting age mean?
A: The limiting age applies in situations where the policy does not
contain a maturity age or endowment date and there is no indication
that the insured has died. In these situations, the limiting age is set
using the terminal or maximum age of the mortality table used to
determine the insurance company’s reserves for the policy. Upon
attainment of that age, the policy is considered matured and the
insurance company generally must pay the full policy benefits due
under the policy or the benefits must be reported and remitted as
unclaimed property. Although the exact limiting age may differ
based on several factors, a very common limiting age is age 100.
Q: What if we don’t have an address for the beneficiary, or know that what we have is a bad address?
A: It is common for policies to not include addresses for beneficiaries.
Generally, especially on older policies, the beneficiary and his/her
relationship to the insured are all that are listed. In Florida, due
diligence requirements under the unclaimed property laws are that
the holder should use database searches to attempt to obtain a
current address. If benefits are not paid to the beneficiary within five
years, the benefits should be reported and remitted as unclaimed
property. If an address for the beneficiary is not known at that time,
the address of the insured is used for due diligence purposes and to
determine the state to which to report.
A: If a beneficiary is a minor who will not reach their age of majority for several years, what type of contact is needed with this minor (or their parent) from now until the claim is payable?
A: This question implicates insurance law, and so I would suggest
consulting an insurance law advisor. However, generally speaking, if
the beneficiary is a minor, the obligation is payable to either the parent
or legal guardian on behalf of the minor beneficiary, if it becomes due
prior to the beneficiary reaching the age of majority. Therefore, as a
general rule, if the beneficiary of an insurance policy is a minor, the
policy benefits should be paid to the parent or legal guardian on behalf
of the child within five years, or remitted as unclaimed property. This
would not be the case if under the beneficiary designation terms of the
insurance policy the benefits were not payable until the minor reached
majority (or some other) age.
As a result of the overwhelmingly positive feedback we received, we will
be looking to host a similar event in the future. Check our website for
details on when the next webinar will be held. While you’re there, you
can also view the replay of this webinar.
Unclaimed Property. Uncompromising Performance.
KeANe WelCOmes mICHAel J. KINDyA
Michael recently joined Keane’s Consulting & Advisory Services following over 25 years on Wall Street. Michael brings with him an extensive knowledge of financial
management and directing and managing domestic and global reconciliation processes, financial business functions and business unit operations. Michael’s expertise in problem-solving has enabled him to deliver unsurpassed results while exceeding company goals.
During Michael’s career on Wall Street, he worked for BankAmerica National Trust Co. (13 years), Weiss, Peck & Greer LLC Investment Bank (2 years) and his most recent experience included Morgan Stanley (11 years) as Manager of the Cash Reconciliation Team. While at Morgan Stanley, Michael provided leadership and support to 15 staff members overseeing multiple case reconciliations (i.e. FX Trading, MS Real Estate, Money Markets, A/P and Prime Brokerage) worldwide pertaining to breaks and discrepancies. Michael ensured sufficient safeguarding of operating cash accounts. In addition, he verified and controlled the Unclaimed Property Cash and Security accounts, while providing support to the unclaimed property compliance and accounting team during annual escheatment reporting to state jurisdictions.
Keane Hosts Five unclaimed Property regional Forums
From left to right: James Jenkins, Auditor-DC, Gracie Musher, Administrator-DC, Lynn Hall, Assistant Director-MD, and Valerie Jundt, Managing Director of Keane.
As the leader in the industry, Keane stands out as the top educational resource for companies in virtually every industry that deals with unclaimed property.
Committed to compliance and continuing education, so far in 2012, Keane has sponsored five holder education seminars throughout the U.S. spanning from California to New York. Most recently, Keane hosted forums in New York City and Baltimore. Over 200 industry professionals from state offices and companies throughout the Northeast Region attended. The meeting agenda discussed topics ranging from the basics of unclaimed property and compliance requirements to potential liability and audit triggers. In addition, representatives from the state of New York and the District of Columbia discussed specifics on reporting unclaimed property for each of their jurisdictions.
Keane’s next seminar is scheduled for November 15 in Las Vegas. Please e-mail us at [email protected] for more details.
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The content presented in this newsletter represents Keane’s understanding of evolving legislation and case law governing unclaimed property law up to its publishing date. The content is provided for informational purposes only and should not be considered legal advice or legal opinion. For more information, please contact Debbie L. Zumoff, Chief Compliance Officer, at 610.232.0700 or via e-mail at [email protected].
©Keane 2012