Unclaimed Property: A Reporting Process and Audit Survival Guide

Preface xi

Chapter 1 Four Myths of Unclaimed Property 1

Myth 1: “We Don’t Have Unclaimed Property.” 1

Myth 2: “Unclaimed Property Compliance is Voluntary.” 1

Myth 3: “If I Don’t Have Records, the Auditor Can’t Determine Any Unclaimed Property Liability for My Company.” 2

Myth 4: “I Am Only Liable for Reporting Unclaimed Property to States Where I Conduct Business (i.e., Have Nexus).” 3

Chapter 2 What is Unclaimed Property? 5

Purpose of the Unclaimed Property Laws 7

Terminology 8

What Types of Property Can Become Abandoned Property? 9

When Does an Item Become Unclaimed Property? 10

States’ Responsibilities 12

Holder’s Responsibilities 12

Notes 14

Chapter 3 Basics of Unclaimed Property Reporting 15

Why You Must Report Your Unclaimed Property 15

Determining Your Liability 16

Where You May Have a Reporting Obligation: Jurisdiction 18

Due Dates, Due Diligence, Aggregates, and Dormancy Periods 19

Preparing the Report 20

Note 22

Chapter 4 Calculating Unclaimed Property Liability 23

Gather Your Records 23

Identify Your Company’s Unclaimed Property Types 24

Determining Your Liability 24

You Do Not Have All of the Records for the Audit Period: Determining the Best Estimation Technique for Your Company 28

Do Your Due Diligence 34

Complete the Final Summary Report and Pay the Money! 34

Chapter 5 Preparing for and Managing an Unclaimed Property Audit 37

Audit Targets: Are You Next? 37

Offense—Contact the States for a Voluntary Disclosure Agreement 38

Beware the Gift Horse 39

Where to Start 40

Defense—Your Company Has Received Notification of an Audit: Do Not Ignore the Letter! 41

First Contact 43

Recruit Your Team 45

Know Your Enemy: Unclaimed Property Auditors 46

Audit Timeline 49

Records Requests 49

Opening Meeting 50

Site Visit and Records Analysis 51

Closing Meeting 52

Final Assessment 53

Appeal Process 54

Audit Best Practices 55

Post-Audit Cleanup 56

Notes 57

Chapter 6 Developing Unclaimed Property Policies and Procedures 59

Compliance Timelines: Due Diligence, Aggregates, and Dormancy Periods 64

Content of Due Diligence Letters 65

Timing of Due Diligence Mailings 66

Aggregates 67

Dormancy Periods 69

Record Retention Policies 70

Managing Your Exceptions and Exemptions 70

Internal Controls: Checks and Balances 71

Internal Audits 71

Handling a Desk Audit or Fishing Call from a State Auditor’s Office 72

Note 72

Chapter 7 Exemptions and Exceptions to Unclaimed Property Reporting 73

Business-to-Business Exemptions 74

Current Business Relationship 78

Gift Certificates/Gift Cards 80

Gift Card Corporations 85

Dormancy Fees 86

Customer Credits/Credit Balances 89

Tangible Personal Property 89

Notes 91

Chapter 8 Special Industry Considerations 93

Insurance 93

Offers to Settle 94

Demutualization of Shares 96

Banking 97

When is an Account Considered Dormant? 97

What Fees Can Be Imposed on Dormant Accounts? 98

Safe-Deposit Boxes 98

Money Orders and Traveler’s Checks 99

Health Care 99

Not-for-Profit Medical Service Providers 103

Oil, Gas, Utilities, and Energy 103

Oil, Gas, Coal Mining, and Other Mineral Mining Industries 103

Utilities 105

Utility Co-ops 106

Retail 107

Customer Loyalty/Incentive Programs 107

Gift Certificates/Gift Cards 107

Notes 108

Chapter 9 Foreign Unclaimed Property Laws 111

U.S. Laws on Foreign Escheat 112

Indian Reservations 112

U.S. Territories 113

Other Nations’ Laws 115

Canada 115

United Kingdom 118

Australia 119

New Zealand 124

Hong Kong 127

Notes 128

Chapter 10 Selected Legal Issues in Unclaimed Property Audits 129

Lack of Nexus as an Audit Defense 129

Dormancy Fees and Service Charges 130

Expiration Dates and Other Contractual Limitation Periods 131

Unclaimed Employee Benefits 132

Unclaimed Property of Bankrupt Holders 133

Mergers and Acquisitions: Successor Liability 134

Asset Acquisitions 135

Notes 137

Chapter 11 How Not to Be a Victim of Unclaimed Property Fraud 139

Psychology of Fraud 140

Types of Fraudsters 141

Mitigating the Risk of Unclaimed Property Fraud 143

Note 146

Chapter 12 Trends in Unclaimed Property 147

Legislative Trends 147

Non-Legislative Trends 150

Conclusion 153

Appendix A XYZ Corporation: Unclaimed Property Holder Questionnaire 155

Appendix B Sample Policy and Procedure Manual 159

Appendix C Sample Due Diligence Letter 171

Appendix D State Unclaimed Property Office Contacts 173

Appendix E Sample Audit Records Request 185

Appendix F Summary of Current Gift Certificate Law 187

Glossary 201

Index 203