Presenting a live 110-minute teleconference with interactive Q&A. Today s faculty features:

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1 Presenting a live 110-minute teleconference with interactive Q&A Unclaimed Property: Mitigating Risks Arising From Tougher State Enforcement Identifying Unclaimed Property, Sharpening Compliance, and Tracking Latest Developments TUESDAY, APRIL 16, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Sonia M. Walwyn, Vice President, Unclaimed Property, Duff & Phelps, Chicago Jennifer A. Zimmerman, Horwood Marcus & Berk, Chicago Robert S. Peters, Managing Director, Tax Services, Duff and Phelps, Chicago William J. Weigand, Senior Manager, True Partners Consulting, Denver For this program, attendees must listen to the audio over the telephone. Please refer to the instructions ed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at ext. 10.

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5 Unclaimed Property: Mitigating Risks Arising From Tougher State Enforcement Seminar April 16, 2013 Sonia M. Walwyn, Duff & Phelps, LLC William J. Weigand, True Partners Consulting LLC Robert S. Peters, Duff & Phelps, LLC Jennifer A. Zimmerman, Horwood Marcus & Berk 5

6 Today s Program Fundamentals [Sonia M. Walwyn] Current Landscape [Robert S. Peters] Audit Environment And Risk Factors [William J. Weigand] Managing An Audit [Jennifer A. Zimmerman] Record Retention [William J. Weigand] New World Of Voluntary Disclosure Programs [Robert S. Peters] Shaping The Future [Jennifer Zimmerman] Slide 8 Slide 25 Slide 26 Slide 32 Slide 33 Slide 40 Slide 41 Slide 47 Slide 48 Slide 54 Slide 55 Slide 64 Slide 65 Slide 80 6

7 Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. 7

8 Sonia M. Walwyn, Duff & Phelps, LLC FUNDAMENTALS

9 Introduction Unclaimed property has become a hot topic among many industries and companies. State-initiated audits External auditors (audited financial statements) Source of revenue for many states Affects all companies, regardless of: Formation Industry, or Size 9

10 What Is Unclaimed Property Or Escheat It is not a tax. Nexus standards -- are not applicable. With few exceptions, there is generally no statute of limtiation (very extensive reach-back periods). It is rooted in the concept of derivative rights No traditional administrative remedies (most states) 10

11 What Is Unclaimed Property Or Escheat (Cont.) Unclaimed property is a liability that is issued, held and owing in the ordinary course of a company s business. The liability must be fixed and certain. Must be both abandoned and unclaimed Burden of proof is on the company. Accounting and reconciliation errors are not unclaimed property, but will be demanded by a state if the company cannot prove otherwise. N.B. Use of third party administrators will not absolve a company from its unclaimed property obligations to the applicable state(s). 11

12 Key Terms Escheat Holder Owner Custodian Aggregate Due diligence Dormancy periods 12

13 Traditional Property Types Uncashed checks Unidentified deposits Unapplied cash Accounts receivable credit balances Customer overpayment Refunds Duplicate payments Insurance proceeds Dormant deposit accounts Equity and debt-related property 13

14 Newer Categories Of Property Unbilled inventory (GRIR) Rebates IRAs Self-insured plans Retirement benefits Third-party administered plans Life insurance proceeds (death index) Gift cards/stored value cards (open- and closed-loop cards) 14

15 Who Are The Players? Owner: Customer, vendor, shareholder, employee Holder: Company that owes the liability State and other jurisdictions Custodial possession on behalf of the owner 55 reporting jurisdictions and three Canadian provinces (N.B. property does not belong to the state -- derivative rights) 15

16 Who Are the Players? (Cont.) Third-party auditors Contingent fee firms that audit on behalf of the states o Kelmar Associates, LLC o Specialty Audit Services (SAS) 16

17 Compliance Requirements Due diligence requirements (most states) Annual filing requirement Spring (March through May) Fall (Oct. 31 and Nov. 1st) (N.B. banks, life insurance companies have different reporting cycles based on the states) July (Michigan and Texas) Negative reports ACH payments California (two-step process) 17

18 Reporting Rules Governed by a trilogy of U.S Supreme Court decisions resulting in the following two rules: First priority rule o State of the owner s last known address (no nexus) Second priority rule o If the last known address is unknown, the holder s state of legal incorporation 18

19 Challenges To Compliance Lack of uniformity among jurisdictional rules 55 reporting jurisdictions Administered by varied state agencies Legislative changes Shortening dormancy periods Changing filing requirements (even less uniformity) New and emerging property types and areas of focus Increased audit activity Enforcement of interest and penalties 19

20 Practices That Give Rise To Unclaimed Property Liability Write-offs to income Failure to reconcile books and records No written polices and procedures Destruction/lack of retention of supporting records Compliance with respect to some, but not all, applicable property types Mergers and acquisitions 20

21 Ways To Mitigate Unclaimed Property Liability Exemptions Business-to-business Gift certificate Rebates De minimis (KY, OH, MI, CO and FL) Industry specific Deductions Federal preemption Formation of a gift card company Voluntary compliance programs 21

22 What Triggers An Unclaimed Property Audit? Failure to report Filing zero reports Company in the news Merger or acquisition Incorporated in Delaware or other aggresive state Industry Recovering/claiming unclaimed property First-time filer 22

23 Notable Dichotomy States understand the the majority of companies are not in compliance. Most companies believe that they are in compliance. Take the time Understand the rules (nexus not applicable) Review your companies practices, including filing history and the impact of merger and acquisitions Quantify your exposure, if any COMMENCE THE PROCESS TO GAIN COMPLIANCE IN THE APPLICABLE AREAS AND FOR ALL APPLICABLE ENTITIES 23

24 IT S THE LAW! Why Comply? States are using unclaimed property as a means of generating revenue without raising taxes. Significant assessments Third-party auditors Audit on behalf of numerous states at once Contingent fee Significantly expanded the states ability to audit many more companies and industries than before Sarbanes-Oxley Financial statement impact 24

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26 Robert S. Peters, Duff & Phelps, LLC CURRENT LANDSCAPE

27 Overview Although not a tax, unclaimed property continues to be enforced as such and a major source of revenues for the states. Audit activities have increased over past year, including addition of several new contingent fee third-party entrants. Virtually all states (except those prohited by law) utilize thirdparty contingent fee firms. Changes in state provisions have not kept pace with business expansion and e-commerce enviorment. Examples include: 27 Uncertainty regarding treatment of certain stored value cards/rewards products Impact of cloud computing on record retention requirements

28 Current Landscape Frustration voiced by corporate lobbists have resonated with state legislatures. Mixed reaction by state legislatures Legislation passed to encourage self audits through voluntary submissions (DE, MI) While at same time shortning dormancy periods and increasing audit activity to maintain revenue stream 28

29 Current Landscape: Targeted Industries Virtually all industries are prone to audits by the states, most notably those with large volume of transactions with third parties (customers, vendors, employees) Some specifically targeted over past year include: Financial services and insurance industries Energy companies Manufacturing Consumer products 29

30 Difference In Views Re: Compliance States believe the majority of corporations are not in compliance with unclaimed property rules. Record settlements in last several years January 2012: Prudential Insurance Company reached a settlement with 19 states. April 2012: MetLife agreed to a $500 million multi-state settlement. October 2012: Nationwide Insurance Company, American General and Forethought Group entered into multi-state settlements. 30

31 Holders Believe Otherwise Survey conducted in February revealed the following:* Majority of companies believe they are in compliance with unclaimed property requirements (55% of companies surveyed). Some companies participating in voluntary disclosure programs have thus far, not met expectations (MI, DE). Fewer than 1/3 surveyed believe they will join in on new Delaware program. General unfamiliarity with unclaimed reporting rules *Financial Executives Research Foundation/Duff & Phelps survey of Fortune 1000 public and private entities (02/18/2013) 31

32 What To Expect In Near Future Expanded outreach program by states Increased audit activity Expanding definition of property types Increasing focus on electronic reporting and securities Another attempt to unify unclaimed property rules among states 32

33 William J. Weigand, True Partners Consulting LLC AUDIT ENVIRONMENT AND RISK FACTORS

34 Audit Environment An increasing number of states are beginning to participate in multistate audits being conducted by third-party contingent fee audit firms (e.g., SAS, Kelmar, ACS). Following the adoption of the new Delaware voluntary disclosure agreement (VDA) program on July11, 2012, the Delaware Department of Finance temporarily suspended commencing new audits. However, beginning in February 2013, the Delaware Department of Finance began issuing audit notices to companies that had not entered into the new VDA program True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 34

35 Audit Environment: Risk Factors Unclaimed property reporting history No reporting history in the company s state of incorporation/formation, or where the company has significant presence or operations Filing state income tax returns, but not reporting and remitting unclaimed property Many states are actively comparing state tax databases with unclaimed property reports submitted Non-reporters are receiving unclaimed property questionnaires and, in some cases, audit notices. As part of recent VDA initiatives, states have reached out to companies registered in the state for filing tax returns, but that are not submitting unclaimed property reports True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 35

36 Audit Environment: Risk Factors (Cont.) Unclaimed property reporting history (Cont.) Few, incomplete or no unclaimed property reports submitted Non-filing in years subsequent to a voluntary disclosure Companies sometimes fail to report unclaimed reports after participating in a voluntary disclosure with a state. As ongoing filing is a key provision of most voluntary disclosure programs, companies that fail to do so may find that their voluntary disclosure agreement is void and may be at risk for an audit. Omission of property types on unclaimed property reports Companies with otherwise good reporting histories may be selected for an audit, when an expected property type was not included in their reports True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 36

37 Audit Environment: Risk Factors (Cont.) Unclaimed property reporting history (Cont.) Skipping years when reporting States notice when companies fail to file unclaimed property reports every year and often subject these companies to additional scrutiny. Unusually large or small remittance relative to company size Older companies filing for the first time 2013 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 37

38 Audit Environment: Risk Factors (Cont.) Headline news Companies in the news for reasons unrelated to unclaimed property, including earning reports, and merger and acquisition announcements Targeted industries Unclaimed property audits have historically followed industry-related trends, whereby states have focused on the key members of a specific industry (e.g., healthcare, transportation). One industry recently targeted for unclaimed property audits, and that has subsequently received a lot of media attention, is life insurance companies True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 38

39 2013 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A.

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41 Jennifer Zimmerman, Horwood Marcus & Berk MANAGING AN AUDIT

42 Horwood Marcus & Berk Chartered Preparing For The Audit Perform internal audit to determine potential exposure and possible weaknesses and strengths of any audit positions that the state may assert Discuss lack of records before commencement of the audit Determine and pin down audit period- may range anywhere from a few years to more than 20 years Even if limited audit period, auditor may require records going back before the audit period May be able to negotiate reduced audit period or elimination of certain states depending on previous audits Set up a pre-audit interview between the auditor and the person responsible for the audit Get a confidentiality agreement Assess impact of systems conversions, acquisitions, availability to adequately research prior years 42

43 Horwood Marcus & Berk Chartered Documents To Be Reviewed By Auditor What can auditors review? Only abandoned property compliance Only years within statute Only what they haven t looked at previously Only what exists in your records Only what the auditors request specifically What must auditors review? Addresses Any documents that establish defenses Demonstration of compliance and effective policies and procedures 43

44 Horwood Marcus & Berk Chartered Audit Mitigation Strategies Audit controversy can be minimized by: Clarifying lookback period as affected by past M&A activities and prior VDAs Agreeing on a base period for each of the property types Agreeing to a sampling methodology by property type Agreeing on adequate remediation for potential items of reportable property, including: Voided checks Stale, dated tax payments or utility payments Unapplied customer credits Customer deposits Consumer rebates 44

45 Horwood Marcus & Berk Chartered Audit Sampling Estimation technique used must at least be a reasonable and valid method for determining the amount of unclaimed property not reported for an audit period. When holder believes that the estimation technique is not reasonable, the holder has certain options available. Discuss the estimation technique with the auditor to suggest modifications before the estimation takes place If the auditor is unwilling to modify his estimation technique, contact the auditor s supervisor or the administrator with alternative estimation technique If an administrative review of the estimation technique is provided, a formal protest to the estimation technique used can be made to the unclaimed property administrator of the state. If the state refuses to modify the estimation technique and no provision for the filing of an administrative protest, the matter must be decided in court. 45

46 Horwood Marcus & Berk Chartered Wrapping Up the Audit Be prepared to negotiate Conduct an exit interview; obtain copies of all audit workpapers Insist on a closing agreement; know what is and isn t covered by the agreement, and save the document. You may need it again in the future. Most importantly, learn from the audit 46

47 Horwood Marcus & Berk Chartered Post-Audit Considerations Voluntary disclosure and amnesty programs With VDA, the benefits include: o Limited lookback periods o Limited audit scope o Waiver of penalty in most cases o Waiver of interest in some cases o Closing letter security Get policies in place Assign leaders in A/R, A/P and credit departments Tax function vs. bookkeeping 47

48 William J. Weigand, True Partners Consulting LLC RECORD RETENTION

49 Record Retention In A Cloud Corporate duties include: Environment Identify and track sources of unclaimed property Protect and implement internal controls over unclaimed property until reported and remitted to the relevant jurisdiction Perform due diligence Timely file reports and remit funds Maintain supporting documentation and records 2013 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 49

50 Record Retention In A Cloud Environment (Cont.) What types of records should be retained? Records used for purposes of identifying and remediating potential unclaimed property, which may include: Organizational charts Merger and acquisition history (including related agreements) Chart of accounts Trial balance reports Bank statements and reconciliations for open and closed accounts Policies and procedures related to uncashed checks and aged credit balances Unclaimed property reporting/audit history Accounts receivable aging reports Unredeemed stored value cards reports Summary plan documents for benefit plans Contracts with TPA(s) for selfinsured indemnity plans Contracts with TPA(s) utilized to administer rebate program 2013 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 50

51 Record Retention In A Cloud Environment (Cont.) How long does a company need to retain records? Most states do not adhere to IRS record-retention requirements. Under audit, scope period may include property generated Jan. 1, 1981 and forward. Through a voluntary disclosure program, scope period may include property generated Jan. 1, 1991 and forward. Often, the scope of an unclaimed property audit or voluntary disclosure extends beyond the period for which records are available. In those cases, available data are extrapolated to estimate the presumed exposure for those periods. Often, a surrogate is utilized as a benchmark to estimate a company s exposure for periods where records are unavailable True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 51

52 Record Retention In A Cloud Environment (Cont.) Other considerations Changes in ERP system or other system(s) of record For acquisitions, predecessor system(s) should remain accessible until any past due exposure is addressed. For system changes or upgrades, access to historical records should not be lost. System archive processes Archive procedures should allow for the restoration of historical records to enable the company to research a specific transaction (e.g., uncashed check, aged credit balance, etc.). Documentation received in hard-copy form should be converted into and retained in an electronic format (e.g., bank statements) True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 52

53 2013 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A.

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55 Robert S. Peters, Duff & Phelps, LLC NEW WORLD OF VOLUNTARY DISCLOSURE PROGRAMS

56 Overview States are actively encouraging companies to come forward and voluntarily agree to come into compliance. Correspondingly, enforcement for non-participating includes imposing interest and penalties for late reporting of property (can equal or exceed amount of underlying liability). Stepped-up audits, both for companies selectively identified by states and those who initially indicate intention to participate and fail to complete submission Common for companies to be subject to multiple contingent fee audits representing different states 56

57 Benefits Of Participating In VDA Program Elimination of interest and penalties for prior years Reduction of lookback or reporting period; generally, no more than 10 reporting periods, to 1996 for Delaware Elimination of audit risk Resolution of uncertain positions Holder vs state/auditors controls the methodology and approach. 57

58 Who Should Participate? Every Delaware business entity (estimated over 800,000 are eligible) Those eligible include: Entities that never have filed in past Entities that have previously been subject to audit Entities that particapted in prior VDAs and have new property to report Entities that wish to avoid audit and confirm reporting EXCLUDES ENTITIES THAT ARE CURRENTLY UNDER AUDIT 58

59 What s So Different? Secretary of State vs. Division of Finance runs program No risk of audit, if compliant for successive three years and no fraud or willful misrepresentation Truly self initiated and collaborative Streamlined process: Nine-month average period Adminstrator compensated on hourly basis, no contingent fee 59

60 Critical Dates Must indicate intent to participate in program by June 30, 2013 to achieve maximum savings (lookback to 1996), or by June 30, 2014 for 1993 lookback After the initial application, state and holder will agree on timetable that can be modified throughout the process. May submit all at once, by property type or on legal entity basis Must complete submission (in its entirety) no later than June 30,

61 What Is The Current Status? Despite outreach program, response rate has been disappointing in first nine months. Suspension of audit notices has been lifted. Over 1,000 letters mailed to date; approximate 10 % enrollment New outreach program, letter campaign and state Webcast scheduled over next month 61

62 Uncertain About Signing On? Consider performing honest internal assessment of compliance, including impact of estimation impact over lookback period Carefully consider impact of an audit vs. VDA including resource committment and burden of proof Determine accuracy of previously submitted unclaimed property reports, if any including zero or nominal reporting VDA is a one-time opportunity to avoid audit 62

63 Uncertain About Signing On? (Cont.) Review business practices to determine past history including treatment and support for: - Voided, stale, dated checks - Customer credits - Third-party providers (rebates, payroll providers, transfer agents) Secure senior management buy-in Understand rules and timeline requirements 63

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65 Jennifer Zimmerman, Horwood Marcus & Berk SHAPING THE FUTURE

66 Horwood Marcus & Berk Chartered Emerging Trends New property types Shortening dormancy periods Reporting deadlines becoming less uniform Earning interest on dollars in their custody, but not paying it without putting up a fight Increasing legislative activity Increasing audit activity, especially in certain industries Increases in number and scope With belt-tightening, states that have been historically lenient are now pursuing interest and penalties for non-compliance. 66

67 Horwood Marcus & Berk Chartered N.J. Retail Merchants Association v. Sidamon-Eristoff U.S. Court of Appeals, 3 rd Cir. Jan. 5, 2012 Case involving the constitutionality of New Jersey s unclaimed property legislation affecting the treatment of stored value cards (SVCs) No stored value card activity for two years = presumed abandoned Issuers of SVCs are required to obtain the name and address of the purchaser or owner of each stored value card issued or sold, and at a minimum to maintain a record of the ZIP code of the owner or purchaser. If the issuer does not have that info, it is assumed that the SVC is reported to New Jersey if the place of business where the stored value card was sold or issued is located in New Jersey (referred to as the place-of-purchase presumption ). In Treasury Announcement (TA ), the state treasurer explained the place-of-purchase presumption also applies when issuer is not domiciled in New Jersey, and the state of the issuer s domicile exempts SVCs from its unclaimed property statute (third priority rule). 67

68 Horwood Marcus & Berk Chartered N.J. Retail Merchants Association v. Sidamon-Eristoff U.S. Court of Appeals, 3 rd Cir. Jan. 5, 2012 (Cont.) Holding for plaintiff: Enjoined enforcement of the place-of-purchase presumption and the third-priority rule, as articulated in TA Holding for state Denied the plaintiffs motion for a preliminary injunction of the data collection requirement Rejected plaintiffs commerce clause claim, substantive due process and federal preemption claims 68

69 Horwood Marcus & Berk Chartered New Jersey Legislative Update New Jersey SB 1928 (effective on June 29, 2012) Represents a practical, compromise approach to resolving a number of the issues surrounding treatment of SVCs under the act (does not address travelers checks or money orders) Repeals the place of purchase presumption Delays implementation of the purchase or owner ZIP code collection requirement for four years No expiration Funds associated with a SVC sold on or after Dec. 1, 2012 shall be valid until redemption and shall not expire. Cash refunds for small balances Beginning Sept. 1, 2012, if less than $5 remains on the SVC after redemption, an owner may request the remaining balance be paid in cash, and the entity must comply. However, there are a few exceptions to this rule s implementation. 69

70 Horwood Marcus & Berk Chartered New Jersey Legislative Update (Cont.) New Jersey SB 1928 (Cont.) SVCs generally escheatable No activity for five years is presumed abandoned (only applies to cards issued on or after July 1, 2010). Bill provides for four exceptions, pursuant to which SVCs would not be treated as unclaimed property. SVC distributed by an issuer to a person under promotional, rewards or loyalty programs for which no consideration is paid SVC donated or sold below face value to nonprofit or charitable organization SVC that is redeemable for admission to events or venues at a particular location SVC issued by an issuer that in the past year sold SVCs with a face value of $250,000 or less 70

71 Horwood Marcus & Berk Chartered Delaware Cases Staples Inc. v. Cook, 35 A.3d 421 (Del. Ch. 2012) Issue: Whether certain rebates issued by Staples, Inc. to business customers were escheatable to the state of Delaware. Facts: Staples challenges Delaware s estimation techniques. It presumes any check outstanding for greater than 90 days to be unclaimed. Analysis: Staples argued that the rebates were not unclaimed property under Delaware s escheat statute because the UCC statute of limitations as to the rebates had run against the rightful owners. Holding: The statute of limitations was not relevant, and unclaimed rebates issued by office supply store as rebate checks to business customers were subject to escheatment as abandoned property. 71

72 Horwood Marcus & Berk Chartered Delaware Cases (Cont.) McKesson Corp. v. Cook, C.A. No CC (Del. Ch. 2009) Facts: McKesson challenged GRIR as unclaimed property. Holding: Dismissed in August

73 Horwood Marcus & Berk Chartered Delaware Legislative Update Delaware SB 272 (signed into Law in July 2010) Eliminates GR/IR, or goods received not invoiced, from the definition unclaimed property Statutorily authorizes Delaware s use of estimation techniques Establishes an administrative appeal process Delaware SB 258 (signed into law in July 2012) Statute of limitations for VDAs to be moved from 1991 to 1993 or 1996, depending on date of administration VDA program is administered by SOS, not state escheator, until

74 Horwood Marcus & Berk Chartered Delaware Legislative Update (Cont.) Delaware HB 2 (signed into Law in January 2013) Clarifies the existing duty of the state escheator to protect confidential information by confirming that the existing duty covers the entirety of Chap. 11 Provides holders that elect into a voluntary self-disclosure prior to June 30, 2013 up to one additional year (until June 30, 2015) to enter into an agreement and make payment or enter into a payment plan Provides that a holder that has previously entered into a voluntary disclosure agreement prior to June 30, 2012 may enter into the new voluntary disclosure program with respect to any related party that was not included in an earlier voluntary self-disclosure, or with respect to property types and/or periods that were not included in a prior voluntary self-disclosure agreement 74

75 Horwood Marcus & Berk Chartered Other State Legislation: Reduced Holding Period IN: HB 1083 (effective 7/1/10) - holding period for certain property changed from five to three years. SD: HB 1270 (effective 7/1/12, applies to reports due in 2013 going forward) - holding period for all property changed to three years, except traveler s checks. TX: HB 257- holding period for certain property changed from five to three years (effective 2011), and due date for filing report changed from Nov. 1 to July 1 (due diligence letters out by May 1) (effective January 2013). 75

76 Horwood Marcus & Berk Chartered Other State Legislation: Third-Party Auditors NC: HB 462 (effective 7/1/12) - prohibits use of third-party contingent fee auditors ND: SB allows third-party contract audits for unclaimed property in those situations in which the administrator has reasonable cause to believe there is non-compliance 76

77 Horwood Marcus & Berk Chartered Other State Legislation MI: HB 4563 (effective 5/24/12) - limited business-to-business exemption MI: HB 5577 (effective 8/1/12) - reduce record-retention requirement for B2B transactions to five years, and period in which MI can bring action for B2B transactions from 10 to five years MN: VDA Program (launched October 2012) - provides holders the opportunity to report past-due property without interest and penalties. The lookback period under the VDA includes 10 reporting years, plus three years of dormancy. MN: HB 1244 (introduced March 5, 2013) - Minnesota is seeking to enact a modified version of the Uniform Unclaimed Property Act of MS: HB 249 (introduced 2013) - reduced dormancy periods, require annual filings and increased penalties 77

78 Horwood Marcus & Berk Chartered Industry Focus: Insurance Companies February 2013: John Hancock Companies hit with a class action lawsuit regarding their life insurance death benefit payments policy. In addition to Hancock, states have settled with MetLife, Prudential, AIG and Nationwide. Beneficiary location laws: The National Conference of Insurance Legislators (NCOIL) passed a resolution that supported a model law that: (1) requires insurers to perform a good-faith effort to seek out and locate beneficiaries and provide the necessary claim forms and instructions; and (2) in the event that the benefits go unclaimed, must notify state treasury departments to properly escheat the funds. 12 states proposed or adopted legislation or similar legislation in last 16 months: AL, KY, MA, MD, MT, ND, NM, NV, NY, RI, TN, and VT More to come... 78

79 Horwood Marcus & Berk Chartered Industry Focus: Securities 10/25/2012: New audit initiative Verus Financial LLC (Verus), the contract audit firm recently known for conducting multi-state unclaimed property examinations of the insurance industry, has begun to focus its audit activity on companies in the securities/financial products and services arena. It is issuing notices on behalf of more than 20 states for these audits. 79

80 Horwood Marcus & Berk Chartered Promotional Coupons Or Gift Certificates? Groupon and LivingSocial Discounted promotional coupon or gift certificate? Application of the Gift Card Act Application of states unclaimed property laws Who is the holder? What is the reportable amount, if any? Class action suits States continual challenge to fit new property types, not previously contemplated by the acts, into the rules for abandonment 80