From the Regulator’s Perspective: Recent …...Legacy VDAs Division of Revenue Division of Lottery Division of Accounting Department of State Voluntary Disclosure Agreement (VDA)

May 19-21, 2019 | Walt Disney World Resort®, FL

From the Regulator’s Perspective: Recent Developments in Unclaimed Property

Compliance for AP Professionals

Brenda MayrackState Escheator / Director

Delaware Office of Unclaimed Property

Learning Objectives

May 19-21, 2019 | Walt Disney World® Resort, FL

• State unclaimed property requirements

• Steps companies should take to achieve

prospective and historical compliance

• Regulatory consequences for failure to

comply

What is Unclaimed Property?

, 2019 | Walt Disney World Resort®, FL May 19-21, 2019 | Walt Disney World® Resort, FL

➢ Legal Definition: Unclaimed property is … a fixed and certain

interest in tangible or intangible property held, issued or owed,

in the course of a company’s business that has been

abandoned or unclaimed for a specific period of time (dormancy

period) by the rightful owner.

➢ Indication of abandonment vs. owner interest

➢ Common Types of Unclaimed Property:

o Disbursements / Vendor Checks / Accounts Payable

o Mergers & Acquisition Activity

o Dividend Checks / Securities

o Accounts Receivable Credit Balances

o Payroll

o Commission / Bonuses

o Rebates

o Gift Cards / Stored Value Cards

What is Unclaimed Property?

➢Once property is deemed abandoned/unclaimed, it triggers the obligation to report and remit the value

of the UP to the appropriate jurisdiction.

➢The United States Supreme Court has established a two-pronged approach for determining priority

among states:

❑Texas v. New Jersey, 379 U.S. 674 (1965)

❑Pennsylvania v. New York, 407 U.S. 206 (1972)

❑Delaware v. New York, 507 U.S. 490 (1993)

➢ First Priority Rule: Report to State of the Owner’s last known address.

➢ Second Priority Rule: If no last known address for the Owner is indicated on the Holder’s books and

records, or if last known address is in a foreign country, then report and remit the UP to the

company’s state of incorporation.

➢ Public Policy: State governments are better situated to hold (in perpetuity) and return (one-stop

search for owners) property than private corporations, and if not returned, funds are used for public

benefit.

Unclaimed Property – The Story of a Check

➢Company A issues a paycheck to Employee B

➢Employee B never cashes the check and a replacement is never

issued, his wages remain unpaid

➢Company A is still holding the money to which Employee B is

entitled

➢When the obligation to pay Employee B remains unsatisfied for a certain length

of time (typically 1 to 5 years), Company A may no longer hold onto this money

➢ Instead, Company A must report it as Unclaimed Property to the appropriate

state on the appropriate annual unclaimed property report

➢ If Employee B’s last know address is in Texas, then the amount of money for

this check is reported on Company A’s annual report to Texas

➢Texas receives the money and publishes (in a newspaper,

on a website, etc.) that it has unclaimed property for

Employee B

➢In theory, Employee B can see his name and retrieve his

property from Texas by filing a claim.

Delaware Landscape

➢Delaware’s Corporate Franchise

-1.3 million legal entities

-66% of Fortune 500

-Built on a reputation for efficiency, predictability, and

fairness

➢Approximately 10,000 unique unclaimed property filers

annually

➢A Compliance Gap: Many Delaware legal entities with

unclaimed property liability likely are not reporting to

Delaware and other states.

• Parent

• Subsidiaries and affiliated entities

Vision Statement

Collecting and Returning

Unclaimed Property

for the Public Good and

Business Fairness

Mission Statement

To fairly, accurately, and

efficiently collect and maintain

the unclaimed property

reportable to the State of

Delaware and facilitate its

prompt reunification with the

rightful owners.

Core Values

• Fair

• Accurate

• Innovative

• Responsive

Structure

Department of Finance

Compliance

Holder

Reporting

Enforcement

Annual

Compliance

Reviews

Legacy VDAs

Division of

Revenue

Division of

Lottery

Division of

Accounting

Department of State

Voluntary Disclosure

Agreement (VDA)

Program

Office of the Secretary

Office of Unclaimed Property

Securities

Claims

State Escheator

Overview

Claims

Priorities – for Companies (Holders)

• Annual Reporting

• If not reporting, begin reporting

• Voluntary Compliance (i.e., SOS VDA)

• If have historical exposure, sign up for the SOS VDA program

• Enforcement

• Last resort

• Only as needed to promote compliance

• Where holder have not voluntarily complied in annual reports or VDAs

• Likely involves:

• Examination of books & records to determine liability

• Interest & Penalties

Annual Reporting – State’s View

• Online reporting required

− Upload NAUPA File

− Manual Entry

• No paper/disk reports accepted after March 1, 2018

• Deadlines

− Banks: 11/10

− Insurance: 12/20

− All Other Holders & Businesses Associations: 3/1

• Owner outreach (“Due Diligence”) required

• OUP sends filing reminders to holders

Annual Reporting – Company Overview

• Identify outstanding obligations (uncashed checks,

A/R credits, unused gift cards, dormant accounts,

• Determine reporting state based on priority rules

and owner address

• Apply state’s dormancy period by property type

• Before reporting, conduct owner outreach as

required by state law (“due diligence” letter)

• Report & remit property to each state

Annual Reporting – Company Overview

• Many companies outsource all or part of unclaimed property

reporting functions

• Companies may conduct additional outreach to contact owners

prior to dormancy

• Consolidated v. single-entity reporting

• Company structure: shared service environment?

• Property types

• Third-party administrators – allocation of UP responsibility?

• Payroll

• Transfer Agents

• Ultimately, the company is the “holder” or has oversight

responsibilities over TPAs

• Ensure that TPAs are meeting contractual responsibilities for UP.

Annual Reporting

• https://unclaimedproperty.delaware.gov/app/submit-a-report

Upload File (many properties)

Manual Reporting (few properties)

Voluntary Disclosure Agreements (VDAs)

• Administered by Secretary of State (“SOS”)

• If holder receives invite from SOS, and does

not opt in to VDA Program, holder will receive

exam notice after 60 days

• 2-year process

• Holder-directed review

• VDA will reflect scope of review (entities,

property types)

• Penalties & interest waived

Annual Compliance Reviews

• Established by SB 13 (12 Del. C. § 1170)

• Selecting holders based on certain criteria and at

random for review

• Opportunity for holder to remedy any errors in filing

without an exam

• Educational opportunities for holders without

regulatory consequence

• Policies & Procedures

• Respond promptly to requests

• Do not ignore, or will be escalated for enforcement

Annual Compliance Reviews

• Based on common holder reporting errors & filing

history

• Paper filing

• Late

• Incorrect Information

• Variance by year

• Variance by Property type

• Variance with comparable holders/industry

• Non-filers will be asked to file a Verified Report

• Targeted election of filers for additional review

• Completed within one year

• Not an exam

• Abbreviated review of filing

Enforcement

• All holders receive an invitation to the VDA Program before

receiving a Notice of Examination

- Delaware Registered Agents receive a copy

- Holder has 60 days to enter VDA program

- After 60+ days, Holder will receive Notice of Examination,

unless Holder has entered VDA program.

• Exam Process

- Interest & Penalties

- Expectation is that all exams are completed within 2-3 years

- Holders have 30-60 to respond to all IDRs, or

o 30-day letter

o Subpoena, if necessary

Claims

https://unclaimedproperty.delaware.gov/

Claims

• Searchable online database

-Smart device accessible

-Process improvements

-Technology improvements

-Fraud prevention enhancements

• Businesses are also “owners” and may claim property.

-Holder reimbursement claims

-Wrongful escheatment

-Business as owner claims

-Must designate & authorize representative to file claims

What can AP Professionals Do?

➢ Implement robust policies & procedures to track potential unclaimed property, conduct owner outreach, and

report to all states.

➢ Comply with annual unclaimed property reporting deadlines and requirements for all jurisdictions.

➢ If your company is not reporting annually to Delaware, begin filing annually and consider the SOS VDA program

for historical liability for Delaware legal entities.

➢ Other states offer a variety of VDA/amnesty programs.

➢ Search for unclaimed property owed to your company as an owner and pursue claims in all states.

➢ If you receive correspondence regarding Delaware unclaimed property, treat it seriously and respond in timely

manner.

➢ Annual Reporting Reminder / Follow-Up Request

➢ Invitation to SOS VDA Program

➢ Annual Compliance Review Request

➢ Notice of Examination

➢ Escalate to company leadership, if needed, to ensure that sufficient internal and external resources are available

to meet compliance obligations.

Resources

Statute: http://delcode.delaware.gov/title12/c011/sc02/index.shtml

Regulations (Reporting & Exams): http://regulations.delaware.gov/AdminCode/title12/1000/100/104.shtml#1041398

Regulations (SOS VDAs): http://regulations.delaware.gov/AdminCode/title12/300/301.shtml#1040963

Holder Reporting Guidelines: https://unclaimedproperty.delaware.gov/app/reporting-guidelines

Holder Reporting Submission Portal: https://unclaimedproperty.delaware.gov/app/submit-a-report

Claims: https://unclaimedproperty.delaware.gov/

Q & A?

Brenda R. Mayrack

State Escheator / Director, Office of Unclaimed Property

Brenda.Mayrack@delaware.gov

D: 302-577-8891

https://unclaimedproperty.delaware.gov

Contact Information

Brenda R. Mayrack

State Escheator / Director, Office of Unclaimed Property

Brenda.Mayrack@delaware.gov

D: 302-577-8891

https://unclaimedproperty.delaware.gov

From the Regulator’s Perspective: Recent …...Legacy VDAs Division of Revenue Division of Lottery Division of Accounting Department of State Voluntary Disclosure Agreement (VDA)

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