The Unclaimed Financial Assets: Progress, Challenges and the role of Accounting professionals By: FCPA Kellen E. Kariuki, MBS Chief Executive Officer June 14, 2017
UFAA mandate & role The Unclaimed Financial Assets Authority (UFAA) is a statutory organization established under the National Treasury pursuant to the Unclaimed Financial Assets (UFAA) Act No. 40 of 2011. The primary mandate of the Authority is to obtain unclaimed financial assets from holders of such assets, safeguard and reunite the assets to their rightful owners. 2
Objectives and functions of the Authority Receive unclaimed financial assets Manage the Unclaimed Assets Trust Fund Investment of the funds Make payments out of the Trust Fund to the rightful owners Advise the Cabinet Secretary on pertinent issues regarding UFA Undertake examination of the records of the holder upon reasonable notice to determine the extent of compliance. 3
Progress at UFAA Authority now fully set up and fully functional Received Kshs 9B in UATFA and >200 MN units of Shares. UFAA Regulations gazzeted detailing how to file reports and lodge claims Online reporting portal for holders Over 40% of lodged claims paid out 4
Challenges at UFAA Education & Awareness Compliance Incomplete records Legislative/Reporting inconsistencies, No recognition of UFA in IFRS & IAS 5
Role of A/C Professionals in UFA Regime cont d Understanding UFA Act, 2011 Assist holders in identification of qualifying UFA when preparing financial statements. Ensure accurate and timely reporting on all categories of UFA, remit UFA to UATFA at CBK and or, reporting Nil returns. Assist management in re-unification prior to remitting funds to UFAA Development of process and procedures for continuous filing of UFA as and when they fall due to avoid. Internal staff capacity building on UFA matters. Calculate, process/provision and pay any penalty(s) due to non compliance 6
Unclaimed Financial Assets : Compliance 7
Process of Identifying the Assets unclaimed financial assets means assets that (a) have been presumed abandoned and have become unclaimed assets under the provisions of this Act; (b) have been transferred to the Authority as unclaimed financial assets; (c) have been deemed under any other law to be unclaimed assets and payable to the Authority, and includes all income, dividend or interest thereon but excludes any lawful charges thereon; 8
How assets become unclaimed One or more of these requirements must be satisfied for an assets to become unclaimed assets: i. the records of the holder do not reflect the identity of the person entitled to the assets; ii. the holder has not previously paid or delivered the assets to the apparent owner or other person entitled to the assets iii. the last known address, as shown on the records of the holder, of the apparent owner is in a country that does not provide by law for the escheat or custodial taking of the assets or its escheat or unclaimed assets law is not applicable to the assets and the holder is domiciled in Kenya. 9
Asset Assets vs period of abandonment Ownership interest (Shares and Dividends) Travellers cheques / money holders Cheques, draft or similar instruments Demand, Savings or matured time deposit Life or endowment Insurance Policy or Annuity contract Deposit for utility services Determination or Order by Court of refund by holder Assets from dissolved business entity Assets held in fiduciary capacity Gift certificates or credit memos Unpaid wages Assets held in safe deposit box Assets held by court or Government department 10 Period 3 Years 2 Years 2 Years 5 Years 2 Years 2 Years 2 Years 2 Years 2 Years 5 Years 1 Year 2 Years 1 Year
Unclaimed Financial Assets Regulations, 2016 The Authority has come up with UFA Regulations 2016 to operationalize the UFA Act, 2011. The Regulations covers mainly the Holders reporting process and claims process by use of various Forms. The claimants / beneficiaries are expected to fill Forms 4A or Form 4B or Form 4C or Form 4D, and Form 5 to enable the Authority to process the claims and attach identity details together with holders written remittance confirmation. 11
Time of Reporting Holder(s) of any UFA shall file the reports to UFAA and remit equivalent value of funds on or before 1 st November of each year for the twelve-month period ending on the immediate preceding 30 th day of June. The Authority may extend the filing date up to sixty days after the deadline, IF an estimated payment is paid on or before the deadline of 1 st November. The holders are expected to provide a soft and a hard copy of the report. The hard copy report should be forwarded with a letter dully signed by the CEO/ MD. Soft copy of report are filed online using the format in UFAA Regs, 2016 12
Benefits of Compliance i. The Authority assumes custody and responsibility for the safekeeping of assets. ii. Anyone who remits Unclaimed Assets to the UFAA in good faith shall be relieved of all liability to the extent of the value of assets paid or delivered to the Authority. iii. Where the holder pays or delivers assets to the Authority in good faith, then the Authority shall defend the holder against the claim and indemnify the holder against any liability on the claim. 13
Benefits of Compliance cont Enhances shareholder/customer relations; Minimizes corporates deadwood Reunites and reactivates missing owners with their assets and clients with their deposits; Reduces operating expenses/overheads; Eliminates regulatory/non-compliance risks Reduces risk of operational fraud, in addition to class action suits given the assertive, and increasingly litigious nature of the Kenyan consumer; Obviates embarrassing and awkward questions 14
Consequences for Non Compliance The Authority may exercise powers prescribed under Section 31 in the event that a holder is not complying with regards to due filing procedures. Penalties that can be instituted are: i. The holder shall pay to the Authority interest at the current monthly rate of 1% above the adjusted prime rate per annum per month on the assets or value of the assets from the date the assets should have been paid or delivered. ii. The adjusted prime rate shall be based on the Central bank of Kenya average rate during the twelve-month period ending thirtieth day of September. 33(2) 15
iii. iv. Consequences for Non Compliance The resulting current monthly interest rate based on the twelve-month period ending thirtieth day of September shall become effective on the first day of January of the following year. 33(3) A person who willfully fails to render any report or perform other duties required under the Act shall be liable to pay penalty of Kshs 7,000 but not more than Kshs 50, 000 for each day the report is withheld or the duty is not performed.33(4) v. A person who willfully fails to pay or deliver assets to the Authority as required under the Act shall be liable to pay a penalty equal to 25% of the value of the Assets that should have been paid or delivered.33(5) vi. These penalties under subsections (1), (4) and (5) shall be recoverable as a civil debt summarily. 16
Summary of Roles & Responsibilities Holders UFAA Claimants Identify UFA as stipulated in UFA Act, 2011 File reports on UFA (both soft & hard copies) Institute Strong Internal Controls Receive Safeguard Re-Unite General Administration of UFA Regime in line with (UFA 2011) Maintain searchable database on reported UFA, Claim Proof of identity Continuous search of UFA Right to perpetual Reunification Reunification Reunification Reunification 17
Unclaimed Financial Assets : Summary 18
Our call to A/C Professionals Risk Assessment i. Identify compliance issues and areas of potential exposure relating to UFA law Quantification of Actual Liability i. Quantify liability by i. Asset type ii. Retrospective Voluntary Disclosures i. Endeavor to resolve any outstanding compliance issues with UFAA ii. Comply in preparation of financial statements Policies, Procedures and Process Improvements i. Development of customized written policies and procedures and enhance compliance processes ii. Contribute to the review of UFA Act, 2011 and Regulation, 2016 19
Q & A 20