Monday, May 23, 2016

Arizona to Take a Closer Look at Contingent Fee Audits

A few days ago, the Governor of Arizona signed House Bill 2343 into law.  The legislation makes some welcome and well-meaning changes to the way that unclaimed property audits (including, specifically, contingent fee audits) are conducted.  For example, the legislation provides that all holders will receive a "notice of rights" (1) making clear that the Department of Revenue makes all final decisions "that any unclaimed property is reportable;" (2) setting forth appeals procedures; (3) notifying holders where they can file complaints regarding auditor conduct; and (4) contact information for designated employees. 

In addition to these changes, the new legislation also signals that Arizona is taking a fresh look at the use of contingent fee audits, and whether there are any practical alternatives.  The law requires the Department of Revenue to issue a Request for Information by the beginning of next year to "explore the feasibility of contracting for audits . . . that are not directly or indirectly contingent on the auditor recovering unclaimed property."  This is obviously an important issue to the holder community.  Because the audit firm's payment at the end of an unclaimed property audit is generally calculated as a percentage of reportable property "identified" by the auditor, it is in the auditor's financial interest to take aggressive and novel positions intended to increase the amount due.  That is not to suggest that all audit firms do so, but the incentive alone is enough to cause many in the holder community to question the fairness of impartiality of these audits.  Hopefully, this is a first step in Arizona to formulating an audit process designed to locate unclaimed property actually due to the state, no more and no less.

Friday, May 20, 2016

Friday Lost + Found: "Show Me State" Searches, "Sunshine State" Slowdown, Upcoming Compliance Webinar

Missouri Legislature Passes Life Insurance Bill . . . . -- The Missouri legislature recently passed House Bill 2150, which would require insurance companies to compare policy information against the Social Security Administration's Death Master File on a semiannual basis.

. . . .While Florida Insurers Seek to Block Bill -- In the same vein, WMFE is reporting that a group of insurers has filed suit in Florida state court seeking to prevent retroactive provision of a law that requires them to undertake DMF searches back to 1992.

UPPO Audit Webinar -- The Unclaimed Property Professionals Organization (UPPO) is hosting a webinar on compliance efforts and avoiding audits.  Among the topics to be covered are state amnesty programs, completing state unclaimed property questionnaires, and fine-tuning compliance procedures.  Further information and sign-up details can be found at the UPPO website.


Friday, May 13, 2016

Friday Lost + Found: California's Audit Haul, Delaware Faces Threats, AARP Says "Open Your Mail"

California Unclaimed Property Audits Bring in Over $1B Per Year -- The Lake Arrowhead, California Mountain News has an article about a recent speech given by California State Treasurer John Chiang.  In addition to discussing the state budget, new technology initiatives, and "his perspective on the 'American Dream,'" Treasurer Chiang gave some information relating to his time as the State Controller.  As reported by Mountain News, Treasurer Chiang claimed that California's unclaimed property program was "broken" when he took over as Controller, and that his focus on "high profile audits brought in $9.3 billion" during his time in office (or about $1.2 billion per year).   To put that number into some perspective, $1.2 billion per year is more than the GDP of at at least 17 countries.

Delaware Online Chronicles Threats to Delaware's Revenue -- In Delaware Online there is an editorial by Harry Themal which outlines some of the "clouds on the horizon" with regard to Delaware's future financial outlook.  Along with many of the same problems that plague other states, the article specifically notes Delaware's vulnerability to fluctuations in revenue from abandoned property and the possibility of future lawsuits (as suggested by Justice Alito's comments in Taylor v. Yee).  As Mr. Themal notes, "[e]scheat has netted Delaware half a billion dollars – an eighth of the budget – so court rulings could be deadly."

AARP:  "Open Your Mail!" -- The AARP recently posted an article entitled "Abandoned Funds May be at Risk" which sounds the alarm over the speed and relative ease with which some states declare investment accounts and securities as "abandoned" property.  While many investors favor a "buy and hold" or similar passive investment strategy, the article notes that investors need to stay in contact with financial institutions (and open their mail) to prevent funds from being deemed "abandoned."

Monday, May 9, 2016

Oklahoma Supreme Court Affirms Dismissal of Suit Challenging Unclaimed Property Program as "Ponzi Scheme"

Recently, the Supreme Court of Oklahoma issued a decision in Dani v. Miller, an attempted class action suit challenging Oklahoma's Unclaimed Property Program as a "Ponzi Scheme."  In that case, an Oklahoma resident filed a number of constitutional and common-law challenges to the Oklahoma Unclaimed Property Act and its administration.  In particular, the plaintiff was challenging Oklahoma's practice (shared by nearly all the states) of only holding a portion of unclaimed property to pay out claims, while using the rest for state revenue.  As the Oklahoma Supreme Court explained:
"[T]he UUPA contemplates and accounts for the fact that not all owners of abandoned property will seek to recover it.  The UUPA therefore creates a system where a reserve is maintained in the Unclaimed Property Fund to pay approved claims and the remainder is deposited to the General Revenue Fund for use by the state."
 The plaintiffs contended that Oklahoma's unclaimed property program was a "Ponzi scheme"* because "the reserve is not sufficient to pay all potential (including not-yet-established) claims and new abandoned property is to be used to pay any established claims exceeding the reserve." The Court rejected this argument on two grounds.  First, the Court held that there was nothing fraudulent or deceptive about Oklahoma's program as its procedures (including the deposit of funds into the states general revenue) were all disclosed (and in fact, mandated by) state law.  Second, the court explained that "[t]he State is not deceiving new investors to pay valid claims, but rather is paying those claims with abandoned property it would be taking in anyway, per the terms of the UPPA.  [The Act thus] operates in such a manner that even if they must wait, owners of abandoned property with valid claims will always be able to eventually recover their previously presumed-abandoned property."  (emphasis added).

While the Court's reasoning seems  sound insofar as it recounts how state unclaimed property programs actually work, notably implicit in the court's decision -- and, in fact, in the operation of the states' programs themselves -- is the idea that the influx of unclaimed property funds will continue forever.  While there may be nothing deceptive or fraudulent in how these programs work, the fact remains that, at least in the first instance, a claimant's ability to recover his or her property is not a function of the state's ability to serve as a custodian or caretaker of unclaimed property, but rather its ability to keep that property coming in.



*  A "Ponzi scheme" named after Charles Ponzi is a fraudulent scheme wherein victims are generally promised a guaranteed return in exchange for an investment, and those investments are used by the fraudster to pay out returns to earlier investors.  Eventually, when the flow of new investments slows or stops, there is no money left to pay returns (or the initial investment) to any investors, and the fraudster has generally taken steps to disappear.  One of the most recent, and well-known, Ponzi schemes was the Madoff Investment Scandal.

Thursday, May 5, 2016

Friday Lost + Found: Airport Accumulations, Bucks on the Bayou, Reporting Refresher

Loose Change Adds Up -- The UK's Daily Mail reports that the Transportation Security Administration collected over $750,000 last year at U.S. airports (and over $4.3 million over the last eight years) in loose change and the like left at security checkpoints.  

States, They're Just Like Us -- WBRZ in Baton Rouge, Louisiana (home of Mike the Tiger) has an article about the unclaimed property held by the State of Louisiana on behalf of various agencies of . . . the State of Louisiana.  According to the story, some of the $700 million held by the State is owed to various government agencies, many of which are operating under limited budgets.

Upcoming UPPO Webinar on Reporting -- On May 18, the Unclaimed Property Professionals Organization is hosting a webinar on the details of unclaimed property reporting.  If you need a refresher in advance of the fall reporting season, signup information is available at the UPPO website.