Build a Better Due Diligence Workshop

2014 Holders Seminar - Atlanta 9/17/2014 Build a Better Due Diligence Workshop Presented by: Renn G. Neilson & Angela P. Gholson © 2014 - All Rights...
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2014 Holders Seminar - Atlanta

9/17/2014

Build a Better Due Diligence Workshop Presented by: Renn G. Neilson & Angela P. Gholson © 2014 - All Rights Reserved

UPPO Presentation Disclaimer Use of the Unclaimed Property Professionals Organization, Inc., (UPPO) name of copyrighted materials in this presentation does not constitute an endorsement by UPPO of a member, vendor, product or service. The content represents the opinions of the author and not necessarily those of UPPO. This information is not intended as legal advice and should not be used to replace the advice of legal counsel.

© 2014 - All Rights Reserved

UPPO Antitrust Statement UPPO has a policy of strict compliance with U.S. federal antitrust laws. UPPO members and/or meeting attendees cannot come to understandings, make agreements, or otherwise concur on positions or understandings, make agreements, or otherwise concur on positions or activities that in any way tend to raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing models, methods, systems, and applications, as well as certain cost matters that do not lead to an agreement or consensus on prices or fees to be charged. However, there can be no discussion as to what constitutes a reasonable, fair or appropriate price or fee to charge for any service or product. Information may be presented with regard to historical pricing activities so long as such information is general in nature and does not include data on current prices or fees being charged in any trade area. Any discussion of current or future prices, fees, discounting, and other terms and conditions of sale, which may lead to an agreement or consensus on prices or fees to be charged, is strictly prohibited.

© 2014 - All Rights Reserved

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2014 Holders Seminar - Atlanta

9/17/2014

Today’s Agenda •Wrongful Escheatment •Due Diligence Requirements •Timing •Fraud Prevention •Leading Practices •Internal Due Diligence •Asset Retention •Technology Initiatives

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 Wrongful Escheatment    



Not properly conducting due diligence could lead to wrongful escheatment liabilities Could result in large liabilities for unclaimed property items that do not have a fixed value (e.g., stock) Azure Ltd. v. I-Flow Corp., 210 P.3d 1110 (Cal. 2009) A.W. Fin. Servs., S.A. v. Empire Res., Inc., 981 A.2d 1114 (Del. 2009)

Illustrates the extent to which states have shifted the administrative and compliance burdens to holders

Due Diligence Is Not Always Mandated  Two states have no or limited due diligence requirements  

Pennsylvania - no statutory due diligence requirement Delaware – only required for securities and related property (e.g., stocks, bonds, dividends, and distributions) valued at $250 or more

© 2014 - All Rights Reserved

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2014 Holders Seminar - Atlanta

9/17/2014

Due Diligence Is Not Always Mandated  Due diligence minimums 

  



Letters only need to be sent if the property’s value equals or exceeds the due diligence minimum amount most states follow the model act  $50 Illinois  $10 Texas  $250

No minimums  CT, MS, NY, PR

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Due Diligence Is Always A Good Idea  Good business practice      

Re-establishes communication with customers Promotes goodwill with customers, shareholders, and employees Owners may be upset if you do not contact them may get letters from other holders may get letters from you for states where required especially true in states with a claim fee (e.g., Texas 1.5% if value over $100) © 2014 - All Rights Reserved

Due Diligence Is Always A Good Idea  May reveal something is NOT unclaimed property  Internal fraud control tool  Promotes the goal of reuniting owners with their property

© 2014 - All Rights Reserved

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2014 Holders Seminar - Atlanta

9/17/2014

How Due Diligence Letters Should Be Sent  Generally, USPS First Class mail is required or will satisfy the requirement 

Important to look closely at each state’s rules because there are many exceptions

 

New Jersey - certified mail return receipt requested New York first class mail; second letter must be sent certified mail return receipt requested if no response to first letter and the property is valued at more than $1,000

How Due Diligence Letters Should Be Sent  Most states do not allow deductions for postage    

Exceptions: New York certified mail deduction Texas cost of postage Illinois first class postage, stationary, and envelopes

How Due Diligence Letters Should Be Sent  California allows electronic communication with prior consent   

In other states, email follow-ups are a good idea electronic addresses may be less likely to change than physical addresses can help resolve issues before statutory due diligence

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2014 Holders Seminar - Atlanta

9/17/2014

How Due Diligence Letters Should Be Sent  Some states require notice by publication 



Delaware – financial institutions, life insurance companies, and courts must publish owners’ names and last known addresses in specified newspapers New York – Financial institutions, utilities, insurance companies, and corporations holding condemnation awards must publish owners’ information (e.g., advertise)

Timing  Most states follow uniform act – letters must be sent not less than 60 days and not more than 120 days before the report is due 

There are many exceptions:



some state drop the 60 day requirement, so just 120 days before report – AZ, CO, MN, OK, UT, WI

 

There are many exceptions (Cont.) : Texas – must be mailed by May 1 to owners of property to be included on July report Washington – between May 1 & August 1 California – 6-12 months before report New York – varies based on the property and holder; default is 1st letter within 90 days of report, 2nd letter within 60 days of report

Timing

  



Earlier is better

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2014 Holders Seminar - Atlanta

9/17/2014

Preventing Fraud  Fraud is not a defense to not escheating property  Unless the state requires the specific value of the property to be listed, you should consider indicating that the value is in excess of $x, where x is the state’s due diligence minimum  Consider requiring returns to be notarized to claim property  Consider not requiring for returns stating nothing is owed  Weigh anti-fraud measures v. ease of responding

Due Diligence Leading Practices  Internal Due Diligence (non-statutory due diligence) 



Designate key contacts to lead research efforts within each applicable business unit (AP, Payroll, Accounts Receivable, etc) Send email correspondence to payees in advance of state mandated due diligence letters

Due Diligence Leading Practices  Asset Retention  

Offer choices on the letter to allow the recipient to indicate whether or not they are owed funds Payee may indicate that funds are not owed or that the obligation has been previously satisfied. In this situation, the funds will be retained by the holder.

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2014 Holders Seminar - Atlanta

9/17/2014

Due Diligence Leading Practices  Asset Retention 

Identify and research large dollar items prior to compliance season



Identify potential duplicate payments, active customers, or obligations that may already have been settled



Track evidence of customer contact across the organization to avoid escheating active customer funds such as a dormant bank account (online account logins, email correspondence, etc.)

Due Diligence Leading Practices  Potentially Increase Response Rates    

Offer coupon incentive with mailing (ex. Use coupon by XX date and receive 10% off purchase) Consider sending double sided letters in English and any applicable foreign language Canada: English and French Puerto Rico: English and Spanish

Due Diligence Leading Practices  Potentially Increase Response Rates  

Utilize third party address locator to identify more accurate customer addresses Ensure your letter is clear and to the point to avoid customer confusion

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2014 Holders Seminar - Atlanta

9/17/2014

Due Diligence Technology Advancements  Partner with IT  Set up UCP system to send data feeds of letters directly to print vendor  Reduce staff having to manually fold letters and stuff envelopes  Insert barcodes on response letters for faster processing  Partner with internal or external data imaging vendors  Avoid having staff manually open letters  All customer/payee responses will be imaged and stored for future reference (customer inquiry or state auditor)  Build workflow queue to display responses on screen eliminating use of additional paper/printing

Due Diligence Technology Advancements  Create a website to allow customers to logon to click and claim their property. 

Website can allow the option to upload supporting documentation for accurate validation of claim

Questions

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2014 Holders Seminar - Atlanta

9/17/2014

Contact Information Renn Neilson – Partner Baker Botts L.L.P. [email protected]

Angela Gholson – Managing Director KPMG LLP [email protected]

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