United States

2016 UPPO Annual Conference highlights trends in unclaimed property

INSIGHT ARTICLE  | 

In March, the Unclaimed Property Professionals Organization (UPPO) hosted its Annual Conference in Palm Springs, Calif. The event, which included more than 525 professionals, highlighted key issues that companies should be aware of when managing and mitigating their unclaimed property risk.

It is an exciting time to work in the field of unclaimed property, and this year’s event addressed hot topics such as the Uniform Law draft, on-going litigation and audit trends and new legislation. It is increasingly important to monitor your company’s compliance procedures to make sure that escheatment is continually handled appropriately.

Revisions to the Uniform Unclaimed Property Act

The first uniform law on unclaimed property was drafted in 1954, and subsequently revised in 1981 and 1995. At this time, approximately 40 states have enacted a version or parts of a version of one of the acts. 

Since the last revision, there have been many technological developments that are not addressed in the current version, and new potential types of unclaimed property have emerged such as gift cards and/or virtual currency. The newest draft version, released in February 2016, addresses some of these challenges. In addition, UPPO identified the following areas as membership priority issues that will continue to be raised to the drafters of the uniform law: due diligence timelines, record retention requirements, electronic owner contact, definition of owner contact, reporting deadline dates and uniformity, electronic due diligence, remittance cover sheets, de minimis exceptions, electronic reporting and uniformity in dormancy periods.

Once the draft is finalized and states consider enacting the new version in whole or in part, these changes will likely affect annual reporting requirements. Companies should consult with their unclaimed property advisor to discuss the impact of these changes on their business.

On-going litigation

One of the most well-attended sessions at the conference was “Let Freedom Ring: Constitutional Issues,” which addressed the Temple-Inland case currently pending in the U.S. District Court, District of Delaware, that challenges Delaware’s estimation methodologies employed during audits for years for which records are no longer available. The outcome of this litigation will play a critical role in determining the ability for the state to employ estimation procedures in both audits and voluntary disclosure agreements.

Because estimation generally results in higher liabilities for holders during an audit or voluntary disclosure process (“VDA”), the outcome of this case may have significant impact on holders that are currently undergoing an audit or VDA.

Additionally, other sessions took an in-depth look at other key cases that arose in 2015-2016, that challenged escheatment and subsequent liquidation of securities, use of third-party auditors, whether holders were given adequate notice before property was escheated, and whether merchandise credits were subject to escheat in certain circumstances. See our recent alerts, US Supreme Court denies cert in Taylor v Yee and California court issues significant unclaimed property decision.

Audit trends and updates

As a result of the legislation in Delaware (S.B. 11), which made the state’s voluntary disclosure program permanent and revised the audit lookback period and procedures, the Secretary of Finance was also directed to develop a detailed audit manual which was released earlier this year. Also, some states, including Delaware, New York and New Jersey have increasingly initiated a larger number of new audits over the past year. In those states and others, we noticed that of the companies selected for audit, there seems to be increased scrutiny of equity property as well as an increased number of insurance companies chosen for audit.

Legislation

A number of bills in various states were introduced over the past year, and trends included revisions to escheat provisions related to treatment of gift cards and legislation requiring life insurance companies to periodically search the Social Security Administration’s “death master file” or similar databases to determine when insured persons became deceased. Other legislation, such as Michigan’s recent legislation, included exemptions of certain classes of property from presumed abandonment if both the holder and owner are in an ongoing business relationship as well as provided an overview of streamlined audit procedures.

For holders that timely elect the self-audit process in Michigan, the new audit procedures should ensure shorter, more efficient audits that pose less administrative burdens on both the holder and the state. Ultimately, this will also help ensure that the process aims to focus on reuniting the property with the actual owner.

Compliance

Other sessions addressed compliance trends, such as electronic reporting procedures and methods to streamline the reporting process. Speakers also noted the continued importance of internal controls to ensure reporting accuracy, such as developing written policies and procedures and education of key personnel in accounts payable, accounts receivable and payroll departments.

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