Friday Lost + Found: Virginia's Billion, Wyoming's Scam Warning

Big Numbers Out of Virginia -- The Virginian-Pilot has an article about an unclaimed property auction currently being hosted by the Virginia Department of Treasury.  Feel free to check it out if you are so inclined.  However, what caught our attention here was the passing reference to how much unclaimed property is currently being held by Virginia:  according to the article, "more than $1 billion is waiting to be claimed."  (That's right, with a "B"). 

Wyoming Warns of Unclaimed Property Scam -- Along those same lines, when there is such a huge pot of money waiting to be claimed, it should come as no surprise that there are people out there who are trying to see if they can get a slice of it, honestly or not.  The Wyoming State Treasurer's Office recently warned residents of a scam whereby so called "finders" identify potential claimants, and contact them, asking for personal information and offering to "help" them reclaim their money for a fee of up to 50% of the value of the property.  Not only is that fee unscrupulous, but the disclosure of personal information subjects the claimant to an increased risk of identity theft.  We've discussed finders before in this space, and while we will forgo the discussion of the relative risks and benefits of finders for today, suffice it to say that 50% is too much.

Breaking News: Delaware Sued Over VDA/Audit Demand

Philly.com has an article from Randall Chase of the Associated Press with the story of a lawsuit by Select Medical against the State of Delaware arising from a VDA initiated with the Delaware Division of Revenue*.  According to the complaint, which was filed in Delaware federal court on Wednesday, Select Medical entered into a VDA with Delaware in 2006.  As a result of its own review, it attempted to close out the VDA in 2008 with a payment of approximately $20k of Delaware (in addition to some $300k filed in other states).

In response to this payment (again, according to the allegations of the Complaint) Delaware initiated an audit of the company, going back to 1981.  As a result of that audit, Delaware demanded an additional $300k from Select.  The lawsuit raises a number of challenges to the Division of Revenue's normal audit practices including:

• the use of estimation prior to the enactment of Delaware's statute authorizing estimation;
• the alleged use of "arbitrary and capricious" estimation methods;
• the inclusion of non-dormant property in Delaware's estimation procedures; and
• Delaware's claimed disregard of the Texas v. New Jersey priority rules.

 The Complaint seeks a preliminary injunction preventing Delaware from demanding the $300k audit assessment, or imposing interest and penalties on that assessment, until such time as the court can review the case.  The case is named Select Medical Corp. v. Cook, et al., Case No. 1:13-cv-00694 in the United States District Court for the District of Delaware.

* Note that the VDA program described in the complaint appears to be the Division of Revenue's VDA program, not the temporary VDA program currently being offered by the Delware Secretary of State.

Friday Lost + Found: Kenya Delays, Steel City Funds, Colorado Small Business Exemption

Kenyan Unclaimed Assets Authority Ordered to Get to Work and Consider How to Use Funds -- The full scale implementation of a Uniform Act style unclaimed property act is apparently still slow going in Kenya.  According to Kenya's Standard Digital News website, the Unclaimed Financial Assets Authority -- the government entity created by the new law -- has been ordered by the High Court to hold its initial meeting and commence work.  This is after earlier delays caused by problems in finding members for the Authority.  Separately, Business Daily Africa is reporting that Kenya's Higher Education Loans Board is negotiating with the UFAA to see if the funds taken in under the unclaimed property act can be used to fund certain higher education expenses, similar to what is done in some U.S. states.

Pittsburgh Unclaimed Funds -- As we've mentioned a few times, cities are also often in possession of unclaimed funds for their residents.  Recently, WPXI in Pittsburgh posted an article that includes a listing of unclaimed property held by the Steel City for its residents.

Colorado Gift Card Exemption For Small Issuers -- On March 15, Colorado's Governor signed House Bill 13-1102 into law.  The law exempts from the Colorado Unclaimed Property Act unclaimed gift cards held by an issuer that sells less than $200,000 of gift cards per year.

 

"Spring State" Reporting Deadlines Approaching

With one exception (we're looking at you, Mississippi) states require holders to report and deliver unclaimed property on an annual basis.   While the deadline in a majority of the states is in the fall (typically October 31 or November 1), there is a substantial minority of states where the reports are due in the Spring,* including Florida, Illinois, Pennsylvania, Tennessee and Vermont.  Of course, there is no rest for the weary unclaimed property professional.  After getting out the spring reports in May, it will soon be time to get due diligence letters out for the fall reporting cycle. 

* Note that the reporting deadlines discussed above are for general corporations.  In many states, life insurers have their own reporting deadlines which tend to fall in May.

North Dakota Gets "Reasonable" About Third-Party Unclaimed Property Audits

North Dakota's Governor signed Senate Bill 2058 into law on March 15th.  In addition to giving the state tax commissioner authority to share personally-identifying information with the state's unclaimed property division it also sets forth that a new provision concerning audits. 

While the North Dakota Unclaimed Property Act (like most state laws based on one of the uniform acts) provides that the state may commence an unclaimed property audit regardless of whether the holder believes it has unclaimed property, the new law clarifies that the state many not "contract for an examination" (i.e., with a private auditing firm) unless the state has "reasonable cause to believe" that a person has failed to comply with the act.

This distinction, while minor, is a welcome addition to the precepts of unclaimed property law enforcement.  In the context of a privately-run examination -- even where the holder has little or nothing to report -- the time, effort, and resources necessary to respond to an audit is tremendous.  Indeed, in some instances, the private auditors may be working on a contingent fee (meaning, they get paid a portion of what they find) and thus have a financial interest in making sure that the audit result is a large amount, regardless of whether that is the right amount.  While the contingent fee nature of the audit should, in theory, protect a compliant holder because the auditor will not want to waste (unpaid) time trying to squeeze blood from a stone, that theory does not hold up to practice.  In reality, some contract auditing firms perform "their" audit by making burdensome information demands upon the holder, selecting items at random to be "tested" from that information, then demanding the holder "prove" that the randomly selected items are not unclaimed property.  Adding insult to injury, should the holder push back on a particularly burdensome, ill-conceived, or irrelevant demand, the auditing firm responds by threatening to inform the contracting states that the holder is being "uncooperative." 

For a variety of reasons (not the least of which is that state employed auditors do not get a cut of what they find) state-run unclaimed property audits tend to be less disruptive and less adversarial.  Accordingly, North Dakota's decision to limit the contract auditors to places where there is "reasonable cause" to believe that noncompliance exists is a welcome step for those holders who are in compliance.