“While the Death Master File is certainly a valuable source of information, it should not be treated as gospel. The SSA itself has noted that there is incorrect information contained within the DMF,” said Keane’s Chief Compliance Officer, Debbie Zumoff. “Just because you get a positive hit when searching an owner’s SSN in the Death Master File does not mean you should move forward with a definitive action on the account or policy. Another step of research or due diligence is always recommended to truly verify that the person is deceased.”

Following the lead of Kentucky and Tennessee, Maryland’s SB 77 would require issuers of life insurance policies or annuity contracts to perform good-faith cross-checks of the insurer’s in-force life insurance policies, annuity contracts, and retained asset accounts against the most recent DMF on at least a quarterly basis to identify death benefit payments. The insurer must then conduct a good faith effort to confirm the death using additional resources and records. Failure to do so can result in a $2,500 fine for each violation in addition to paying restitution of up to the amount of the actual damages.

As the Maryland legislature moves forward with SB 77, a hearing was recently held in Washington to discuss the DMF as well as H.B. 3475, also known as the “Keeping IDs Safe Act of 2011.” This bill aims to prevent the information contained within the DMF from being made public. The impetus for both the hearing and the Bill is concern over the DMF’s accuracy, as well as the increasing number of reports suggesting that the DMF is often used by criminals to perpetrate identity fraud. The hearing was just conducted on Thursday, February 2^nd. Check back often, as we will have news and information as it becomes available.

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The article below is from the National Association of Credit Management Blog.

Budget shortfalls remain widespread in the wake of the financial crisis. One notable, and oft-overlooked, casualty of the worst recession in a generation is lax administration of escheatment and unclaimed property rules by state authorities. Where once companies could often pay little mind to local laws governing unclaimed property, now, as recent studies have shown, enforcement is ramping up as local governments look high and low for ways to fill in budget gaps.

With this in mind, Val Jundt, managing director of Keane consulting and advisory services, recently offered her best recommendations to trade credit professionals beset by this new environment, where stringent enforcement of unclaimed property liabilities is the norm, rather than the exception. “Though accounts receivable credit balances are clearly within the definition of an unclaimed property liability, it has only been within the past 5-7 years that this category of property has become a primary focus for the auditor,” said Jundt. “The responsibility of the credit manager to ensure that the identification, tracking and posting of all customer credit balances is done accurately, and completely, is critical.”

Certain obligations can be very easily overlooked by creditors and their companies, Jundt noted, and being aware of these common mistakes can prevent a great deal of troublesome penalties down the road. “For example, there are often contracts with vendors that allow for certain discounts if paid early, or legitimate offsets due to damaged goods, which could appear to be obligations from an accounting perspective,” said Jundt. “If these items are not documented carefully, the auditors often operate under an ‘assumption’ that a liability exists; often creating an estimated liability that can exceed several thousand, or even million, dollars.”

“Whether the credit is still on the books or has been reduced to a check, the auditor will carefully review this area to identify a potential liability,” she added.

For companies looking to increase compliance and protect themselves from newly-zealous auditors, Jundt offered these helpful hints to get started:

•    Confirm that your department is properly identifying and tracking customer credit balances.

•    Make sure that unclaimed credit balances are being reported as unclaimed property.

•    Follow up on customer credits early and often to resolve them where possible.

•    Document your policies and procedures—and test them to make sure they are being followed.

Val will also be presenting “The ABCs of Unclaimed Property Compliance,” at this year’s upcoming NACM Credit Congress. For more information on the NACM Credit Congress, click here. She will also be leading a special “Added Advantage” NACM teleconference on unclaimed property in April. Click here to find out more, or to register today.

Keane continues to be a leader in Unclaimed Property eduction and guidance and will host a variety of events in the coming year. Check back regularly for updates to our Unclaimed Property Events.

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In the official agreement release, Prudential notes that “in view of the complex issues raised,” there is “the probability that long-term litigation and/or administrative proceedings would be required to resolve the disputes.” As a result of the settlement, Prudential has agreed to enhance its unclaimed property policies to include incomplete or missing social security numbers, transposed letters in first and last names, or transposed digits in birth dates and social security numbers. Prudential’s Chief Communications Officer, Robert DeFillippo, noted that these improvements “will supplement Prudential’s extensive prior efforts” to identify decedents and locate beneficiaries of life insurance policies.

In addition to the modifications of their beneficiary location policies, Prudential has also agreed to restore the value of any affected accounts as well as pay the beneficiaries 3% compounded interest on the value of the held amounts. With California taking the lead on the audit and settlement, Prudential also pledged to comply with California laws and report unclaimed property on an accelerated basis when heirs or beneficiaries cannot be located.

As acknowledged in Prudential’s official agreement release, there are a variety of complex issues at hand. These issues will continue to be discussed and debated by both the states and the insurers. As additional states propose more stringent beneficiary location policies, life insurance companies will be pressed to verify decedents through the use of the Death Master File or comparable sources. Check back often, as this is likely only the latest highlight in this ongoing debate.

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While the DMF continues to be the most robust and reliable resource for verifying deceased policy owners, the amount of data included within the DMF will be decreasing. As of November 1^st, the Social Security Administration (SSA) stopped disclosing any records it acquires from the states to insurers or the general public. This information will only be available to federal agencies in the future. To put this in perspective, of the 2.8 million deaths reported to the DMF annually, only 1 million of those records will be available to the general public going forward. The SSA has not identified the specific reason for these limitations, but there are several factors involved. Although the DMF has been in existence since 1980, it was only recently discovered that the SSA is prohibited from disclosing the death records it receives from individual states.  Another contributing factor is the increased misuse of the DMF for identity fraud purposes.

Despite these new limitations which reduce the “completeness” of the Death Master File, the DMF will continue to be viewed as the standard and insurance and unclaimed property regulators are likely to continue requiring its use.  Specifically, it is very likely that more states will follow the lead of Kentucky and Tennessee to mandate the use of the DMF to verify potential beneficiaries, as suggested in model legislation created by NCOIL in November. So, while the DMF will continue to be a valuable and required resource for the life insurance industry, it is important for insurers to identify alternative sources and verification methods to more fully identify the population of deceased owners. As an outsourced solutions provider, Keane leverages a variety of resources and methodologies that go well beyond the DMF to identify deceased owners and locate beneficiaries across multiple industries. Check back in the coming weeks, as the ongoing review and analysis of the life insurance industry continues.

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In a recent article titled “Unclaimed Property: Are You at Risk,” featured in the November/December issue of Practice Management Solutions, Dorothy Flynn, CEO at Keane Unclaimed Property, talks about some of the common red flags organizations should become familiar with in order to protect their clients and companies. The red flags include address accuracy, client’s life status, account activity and overall data quality.

By becoming familiar with these red flags, companies can ensure that they are meeting new regulations, mitigating problems as soon as possible and continuing to service their clients as best they can.

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Here you will find valuable knowledge pertaining to Arizona State escheat and unclaimed property laws.

Should there be a specific question that we fail to answer here, we’re ready and willing to provide our insight.  To submit your inquiry and get more information, fill out this brief form below or get in touch directly with the Arizona Unclaimed Property Unit.

Aspects of Arizona Unclaimed Property and Escheatment Law

Listed here are several aspects of Arizona unclaimed property and escheatment law to keep in mind in order to avoid interest and penalties:

• Failure to pay or deliver property in the proper time period (scroll down) results in interest at 1.5% per month or fraction of a month from the date which the property should have been paid or delivered.
• The end result of failure to pay or deliver property altogether is a civil penalty of 25% of the value of abandoned property.
• If no report is submitted, there will be a $100 fee each day late up to $5,000.

Recent Adjustments to Arizona Escheatment Law

Unclaimed property laws in Arizona have been subject to some changes recently:

• On December 23, 2009, SB 1003 went into effect and shortened many of the dormancy periods enumerated in the Arizona Unclaimed Property Act.
• On April 23, 2010, HB 2111 was signed to revert the dormancy period for traveler’s checks back to 15 years.
• Effective July 20, 2010, the HB 2453 will return the dormancy period for securities property from the recently passed 2 year dormancy period to 3 years.  Bond property dormancy period will remain at 2 years, but the interest on that debt changes to 3 years.

Other Links & Resources

Arizona Department of Revenue: About Unclaimed Property

Arizona Revised Statutes on Unclaimed Property

Contact Information for Delaware State Bureau of Unclaimed Property

ARIZONA
Department of Revenue
Unclaimed Property Unit
PO Box 29026
Phoenix, AZ 85038-9026
1-602-364-0380
1-877-492-9957

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Debbie Zumoff, Chief Compliance Officer at Keane Unclaimed Property, recently spoke with John Cummings, Editor of Business Finance and Author of the BizTaxBuzz Blog, about escheat audits and why they seem to be in the future of so many companies.  Click here to read the whole post. 

Two of the downsides to not reporting unclaimed property are penalties and interest, which can quickly add up and even double the amount of underlying liability. For most companies, this can mean big losses. However, there are number of audit risk red flags that companies can look out for when it comes to unclaimed property. These include not reporting all property types, using inappropriate dormancy triggers, failing to perform state-mandated due diligence and many others. If companies are aware of these red flags upfront and keep them in mind when it’s time to file unclaimed property each year, they can better prepare for and defend against escheat audits and significantly reduce risk to their organization.

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“Many are unaware of the significant compliance and audit risks it poses for businesses,” said Gail Warner, President of Keane Unclaimed Property. “Now, as states increase enforcement efforts, companies are looking to understand the risks involved, how to come into compliance, and what they need to prepare if they are audited.”

The complimentary online Audit Risk Assessment Questionnaire evaluates unclaimed property risk and offers valuable insight into unclaimed property compliance and how to survive an audit. Keane Unclaimed Property will interpret participants’ answers and develop a personalized, high-level assessment of the company’s risk. Upon completion of the assessment, participants will receive:

• An Audit Risk Summary Report based on their company’s unique situation
• Up to 30 minutes of complimentary consultation with one of Keane Unclaimed Property
• A Starbucks Gift Card as a thank you for participating

To take the online Audit Risk Assessment, visit www.HolderAdvocate.com/AuditRisk.

For more information about how Keane Unclaimed Property can help you, contact Scott Regan (610) 232-0738 or sregan@keaneco.com.

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This is an issue I have discussed in the past - as the states face tighter budgets and decreasing revenue, they have looked to other sources, like unclaimed property reporting and audit proceeds, to help make up the difference. It is a risk that can have a material impact on your company’s cash flow and financial well-being.

My colleague at Keane Unclaimed Property, Laura Lane, shared with me the information that was recently disclosed by the Delaware Economic and Financial Advisory Council (DEFAC). DEFAC meets six times a year to set forecasts for the State’s finances and shares the minutes of those meetings online.

The minutes of the the June 15, 2009 meeting were recently posted and contain some interesting insights into how the abandoned property law impacts the state budget. For example, for the fiscal year ended June 30, 2010, the forecast for “Abandoned Property” increased from $330 million to $350 million. Additionally, the minutes indicate that the $20 million increase is attributable to the settlement of ONE large case. Large indeed!

This makes unclaimed property or abandoned property the third largest source of revenue for the State of Delaware. It is not just a large contributor to the state’s revenue – its one of THE largest and most significant.

It’s a harsh reality for companies that are incorporated in Delaware – the ones that are most at risk. It’s not clear exactly where the state thinks the money will come from, but it is difficult to imagine that they could maintain and grow the amount of money collected year-over-year without continuing to aggressively enforce their statutes through audits (and assessing fines and penalties). This is a clear illustration of why companies must be well prepared by reporting properly on an annual basis and ensuring that they have identified and corrected any accounting practices that would raise the eyebrows of the auditors.

While you may not be aware of your vulnerabilities, the states are. They’re so confident that it’s in the budget.

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I’m picking up where Peter left off last week regarding the topic of unclaimed property audit and how it relates to risk management and compliance.

The words audit and risk go hand in hand. The word “audit” alone makes anyone in a corporate finance or risk management department cringe and begin vigorous preparations (and palpitations!). But in the case of an unclaimed property audit, that natural reaction tends to be a mix of confusion and uncertainty. It’s much more important now that companies understand the drivers of unclaimed property risk because audits are on the rise. Depending on state laws (and the extent of some state’s budget woes), unclaimed property offers states an attractive source of alternate capital (you see, much of the money states collect from companies is often used on state programs that would otherwise not happen or would require the use of additional tax dollars).

Compliance and audit resources will continue to be under a heavy burden. The question is not “if” a company will get selected for an unclaimed property audit, but rather when, and then how prepared will they be? Most companies remain unprepared for this eventuality, even as their own capital resources have become increasingly crucial to survival. Every dollar matters right now – and companies must do everything in their power to mitigate unnecessary costs that can result from fines, fees and continued audits.

However as with any audit, preparation, understanding and attention to detail are absolute musts. Measuring your risk level through an assessment, therefore, is the first thing that needs to happen (and the thing companies are least likely to understand how to do!). The good news is there are ways to mitigate your company’s liabilities to reduce the risk of audit in the first place. As with any risk, proactively managing the issue ahead of an audit can mean significantly reducing cost, time and resources.

Not surprisingly the companies that have put the proper controls and review processes in place are the ones who stay out of trouble. I’ll talk in more detail in later posts about unclaimed property compliance, audits and regulations, and offer some examples of companies that are effectively managing this issue.

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