Wednesday, January 28, 2015

Note to States: The DMF is Not Infallible

Since the widespread audits of life insurance companies' unclaimed property compliance became public knowledge in 2011, there has been copious ink spilled on discussion regarding the Social Security Death Master File.  The macabre-sounding index is not the central plot point of a horror movie, it is a database file maintained by the Social Security Administration that tracks deaths reported to the SSA.  That information, in turn, is used for a number of purposes by government agencies and private industry. 

In more recent years, the DMF has also become a new (if controversial) tool of unclaimed property auditors and states seeking to recover property that does not otherwise meet the black-letter presumption of abandonment set forth in state unclaimed property laws.  (The propriety of such a practice is a topic for another day).  At a minimum, however, Fox has an article that proves that resort to the DMF is not panacea for the states or holders. According to Fox, a 94 year old Ohio man is being stopped from filing his taxes because the IRS thinks he's dead.  The culprit?  According to the article, the reason that the IRS refused to accept the return "was because the filer was dead according to the Social Security Administration."

While similar errors can likewise happen with holder records, the article is a reminder that no test or tool is infallible, and generalizations made by auditors and states during the audit process are just that -- generalizations that must always be subject to rebuttal.   

Wednesday, January 21, 2015

Unclaimed Property Laws Even Trip Up Government Entities

Private companies are not the only ones with the obligation to comply with unclaimed property laws.  In many states, the escheat laws also apply to state, municipal, and local government entities.  For example, under the Uniform Unclaimed Property Act of 1995, property held by a "court, government, governmental subdivision, agency, or instrumentality" is escheatable 1 year "after the property becomes distributable."  (Section 2(a)(11)).  Just like private entity holders, government entities have an obligation to report and remit unclaimed property to the appropriate state agency, and, just like private entities, government organizations can be audited.

According to an article in the Albany Times-Union, one recent audit by the New York State Comptroller's Office of Columbia County, New York discovered nearly $50,000 in unclaimed property that should have been, but was not, reported and remitted to the state.  According to the article, most of the property came from mortgage foreclosure proceeds, abandoned bail funds, and other court deposits.  This is not an isolated incident.  A few years ago, we mentioned a California grand jury who made similar findings of noncompliance relating to several municipalities in California.  Similarly, a review of the Philadelphia Sheriff's Office uncovered up to $50 million that should have been reported to the state.

Both private companies and government agencies need to ensure that they have appropriate policies and procedures in place relating to unclaimed property.  More importantly, they need to make sure that those policies are followed.

Friday, January 16, 2015

Friday Lost + Found: Lone Star Gift Cards, Wisconsin Auction, Delaware Followup


Texas Announces $12M in Unclaimed Gift Cards Available -- NBC 5 (Dallas/Fort Worth) is reporting that the Texas State Controller's office has about $12 million in abandoned gift cards awaiting reclaim at state offices.  The article even has a document from the Controller's office indicating the businesses that have reported such funds.

Wisconsin Dept. of Revenue Unclaimed Property Auction -- People deposit all kinds of stuff in safe deposit boxes -- jewelry, stamps, coins, collectibles -- and sometimes they abandon them.  That stuff eventually makes its way to state unclaimed property offices.  But what does the state do with those items?  In some cases, the answer is auction the items to the public.  The Wisconsin Department of Revenue is currently running an online auction until January 20.  Items can be viewed and bid upon online.

Delaware Legislation Proposed With Task Force Recommendations -- Our last post talked about the recommendations of the Delaware Abandoned Property Task Force and wondered aloud if any action would be taken in response to the group's recommendations.  Recently, Senate Bill 11 was proposed in the legislature, which would adopt some of the Task Force's recommendations.

Monday, January 5, 2015

New Year, New Delaware?

Happy New Year from the staff here at Escheatable.  In case you missed it over the holidays, the Delaware Unclaimed Property Task Force recently issued its recommendations on making the Delaware audit process more fair, efficient and transparent.  Delaware Online has a copy of the complete (and annotated) report and it is well worth a read for those with Delaware audits in progress or looming.  Highlights include recommendations to shorten the look-back period for audits, increase audits done by state employees (as opposed to third-parties), and to modify certain audit and appeal procedures.

Note that while the Task Force's recommendations are generally a positive development, they are in no way binding on the State, the Department of Finance, or the third-party audit firms employed by the state.  Instead, the report will be shared with state legislators and officials in the hope of spurring a legislative solution.

Monday, December 15, 2014

Another Audit-Related Delaware Lawsuit

Earlier this summer Temple-Inland commenced a lawsuit against the State of Delaware, challenging the findings of a Kelmar-initiated unclaimed property audit, especially as to how estimated liabilities are calculated.  In particular, Temple-Inland alleges that Delaware made an audit demand in excess of $1 million for estimated historical unclaimed property liabilities after having identified only about $150 in actual liability.  Delaware promptly moved to dismiss that litigation, and that motion is still pending in a Delaware federal court.

Now, it looks like Delaware has another lawsuit on its hands.  Late last week, Osram Sylvania, filed suit against Delaware in the same federal court arising out of another Kelmar audit.  This time, according to the allegations of the complaint, Delaware seeks in excess of $2.2 million on an actual liability of less than $22,000.  As in the Temple-Inland case, Osram alleges that Delaware's audit and liability estimation methods violate holders' due process rights and the Supreme Court's holding in Texas v. New Jersey as to both the mechanics and the retroactive nature of that process.

One notable item in the filing is an allegation as to the fees Kelmar earns from auditing holders.  According to the complaint, Delaware earned in excess of $53 million from Delaware from unclaimed property.  Since most audits are conducted on a "contingent fee" basis - that is, the auditor's fee is a portion of property collected.  That's a lot of (presumably, other peoples') money.