Unclaimed Property Compliance: Insourcing vs Outsourcing

By Patricia Barganier and Alison Iavarone

Patricia Barganier is the founder of Barganier and Associates LLC — a national boutique firm that specializes in unclaimed property consulting for Fortune 500 companies.  Alison is a CPA and CFE and a Director at Barganier and Associates LLC. Combined they bring over 50 years of expertise to unclaimed property process and reporting.

Barganier and Associates LLC (“Barganier”) assists clients with many types of unclaimed property matters from voluntary compliance, audit defense, consulting and annual reporting. One of the biggest questions a client will have to assess is whether to keep the unclaimed property reporting function inhouse (“insourcing”) versus hiring a consultant to handle the compliance function (“outsourcing”).

When determining the costs of insourcing versus outsourcing, a company may just look at the out-of-pocket costs. In this regard a company may compare the cost of compliance software versus the annual cost charged by the consulting firm hired to prepare the unclaimed property reports. However, there are many more factors to consider other than these fixed expenses.

The following details the expenses and well as opportunity costs to consider as the decision is made related to annual unclaimed property reporting: insourcing versus outsourcing.

Insourcing: What Factors Should be Considered

Oftentimes it is difficult to find someone in an organization who will want the added responsibility of preparing the unclaimed property reports. It may be thought of as a hot potato that no one wants to handle. This hot potato may end up in accounting, tax, treasury, or regulatory compliance. That being said, the employee assigned to handle unclaimed property compliance (“UP Manager”) typically has other responsibilities and priorities which may be more pressing than unclaimed property.

The following issues should be considered before an organization decides to in-source:

• A part-time UP Manager has conflicting priorities and may not have the time to commit to unclaimed property.

• A part-time UP Manager may not have time to keep up with the nuances of unclaimed property law in every jurisdiction and thus may not have the technical expertise required to manage the function corporate wide.

• A part-time UP Manager may move on to other responsibilities and leave a vacuum in the unclaimed property reporting function.

• A part-time UP Manager may not be aware of statutory exemptions and thus may lead to over-reporting of unclaimed property.

• A part-time UP Manager may not have the breadth of experience to define or design the internal processes that minimize UP liability.

Outsourcing: The Benefits

There are many benefits when outsourcing the unclaimed property function to a UP Partner, as follows:

• A UP Partner is fulltime professional organization dedicated to unclaimed property.

• A UP Partner has the subject matter expertise and is constantly keeping up with statutory changes and state updates.

• A UP Partner oftentimes has relationships with state representatives which may assist when matters or issues arise.

• A UP partner will ensure that your organization is not over-reporting your unclaimed property and ensures that your organization takes advantage of all statutory exemptions and reductions.

• A UP partner will analyze data for outliers or discrepancies in the data.

• A UP partner will help assess unclaimed property issues with any reorganization changes.

• A UP partner will help assess unclaimed property issues with new lines of business or business model changes.

• A UP Partner has the breath of experience from several clients and potentially clients in similar lines of business and/or with similar issues.

• A UP Partner frees up internal resource for other matters.

• Finally, using a UP Partner is part of the internal control process implemented by the organization.

The Final Decision

Oftentimes, an organization thinks that outsourcing the compliance function will lead to the loss of a position and may choose not to do so. However outsourcing, as it relates to unclaimed property, is never about losing a position. An internal resource is always needed to be the liaison between the business units and the UP Partner. This person is instrumental in streamlining the compliance process by gathering the data into a single point of contact for the UP Partner.

Risk mitigation is the final item which should be considered as an organization decides to insource or outsource its unclaimed property compliance function. By using a UP Partner, an officer of the company can feel confident signing the annual reports. That the reports are prepare accurately and timely by an organization with subject matter expertise. A UP Partner will stand by the reports and be there should there be an audit in the future. A UP partner will ensure that if penalties and interest are assessed, the amounts will be minimized or possibly abated.

Reach out to the Barganier team today to determine whether an assessment of your organization’s compliance function is warranted. The Barganier team is certain that your organization will find value in our assessment and want to team with Barganier for your unclaimed property needs.

Digital Currency and Unclaimed Property – What is a Holders’ Responsibility?

Patricia Barganier is the founder of Barganier and Associates LLC — a national boutique firm that specializes in unclaimed property consulting for Fortune 500 companies.  

Recently, I spoke at a conference targeted at the securities industry. One of the overarching themes was unclaimed property specifically as it relates to digital currency and whether there is an unclaimed property reporting responsibility.   To level set, the following provides an overview of digital currency. Following are Barganier’s observations related to unclaimed property reporting of digital currency.

What is Digital Currency?

The term digital currency is used to refer to currency that exists solely in a digital space. It does not have a tangible medium. Transactions are recorded electronically. There are typically two types of digital currencies: virtual currency and cryptocurrency.

Virtual currency is a type of digital money which can be used to purchase goods and services. It has no legal tender status, meaning that it is not recognized as a medium of payment by legal systems such as the Federal Reserve. The most popular form of virtual currency is known as Bitcoin. (Source: Investopia).

Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank (Source: Oxford Dictionary).

How are Virtual Currency and Cryptocurrency similar?

• They are unregulated;

• They are not issued by a bank; and

• They are subject to price volatility.

How are Virtual Currency and Cryptocurrency different?

• Virtual currency has a central repository, cryptocurrency does not.

• Virtual currency is controlled by a creator who developed/created the currency (think of Facebook and the introduction of Libra or other financial institutions issuing other forms of virtual currency.)

• Cryptocurrencies are created with cryptographic algorithm and only exist online.

What is the draw for Digital Currencies?

A third-party intermediary does not need to be involved with a transaction. Therefore, transactions fees are reduced or are non-existent. Further, transactions can be processed instantaneously.

Digital Currency as Unclaimed Property 

At the conference, there was a discussion about digital currency and when and whether the digital currency would become unclaimed property. Most companies have decided to take a conservative position and are following the current regulatory framework related to securities and applying this to digital assets.

This raises questions as most states have not passed or proposed legislation to identify which digital assets are considered unclaimed property and are required to be reported, the period of time that digital assets would be considered dormant, or the method for transferring to a state.

From the holders’ perspective, there are many questions, especially for a non- financial institutions who may be involved in a digital transaction:

• Do holders have the technology to properly age dormant digital currencies?

• How will holders secure the digital assets which are being aged as unclaimed property?

• How will digital assets be reported, in digital currency or converted to US dollars? Does this pose a valuation issue? How will fractional amounts be reported?

• Names and addresses likely do not exist, so the holder’s state of incorporation may get sourced the dormant digital currency. Does the holder’s state of incorporation provide guidance to the holder related to digital currency?

From the states’ perspective, there are many questions:

• How will states define digital assets as unclaimed property?

• In what currency will digital assets need to be reported (US currency or in the digital currency)?

• How will states hold the digital assets?

• How and when will the states liquidate the digital assets?

• How will states value the property when owners come forward?

• How will states perform statutory due diligence?

 There is little guidance available. The Revised Uniform Unclaimed Property Act (“RUUPA”) has provided a definition of virtual currency but is silent on cryptocurrency. States would need to affirmatively pass legislation to incorporate this provision in the state’s statutes.

One State is Taking the Lead

New York is taking the lead on digital assets, as it has in other areas, with the introduction of legislation in 2019 related to digital. Digital assets would be considered escheatable. New York provides clarity with regard to some of the items addressed above. As the states try to figure this out, one can draw conclusions from past experiences to determine the path which may be taken applying current statutes to the new form of currency. But there is still uncertainty.

One thing is for certain, unclaimed property is ever evolving as is technology and the way in which business in conducted. Barganier is available to help holders manage through this maze of regulation, uncertainty and compliance.

What does data security have to do with unclaimed property?

Patricial Barganier is the founder of Barganier and Associates — a national boutique firm that specializes in unclaimed property for Fortune 500 companies.

So what does data security have to do with unclaimed property? EVERYTHING….

“We’ve always known that it’s critical to monitor data regularly because there’s a security risk.”

In light of yet another recent data breach, by a financial institution nonetheless, it has become even more critical for professionals in the unclaimed property business to think about the implications of data security on the information that is collected and reported to the state agencies. That is, not only data security internally to our own organizations, but also data security of the state agencies or auditors that participate in the unclaimed property compliance process.

The type of data collected to remit an accurate unclaimed property report forces one to consider which departments will and should be “touching” that data. This includes the input of data, the transfer of data, and the storage of data as it is being prepared and as it is remitted to a client or state. Here are a few data security questions to ponder:

• How is data stored while it is aging for future reporting?

• How is data transmitted internally and externally?

• How is data stored after the reports are prepared and submitted to the jurisdictions?

Why now?

Barganier has always known that it's critical to monitor and analyze data regularly as there is a security risk from a theft or fraud perspective. Now Barganier are seeing that it is just as important to protect that data from the risk of a technology breach.

As a result, Barganier is reflectively thinking about how our clients are served. Barganier is making a significant investment in our technology, our people, and our processes. Our approach and investment provide for a scalable solution that is often used at major corporations.

As Barganier serves major corporations through audit defense, annual filings, and other specific unclaimed property functions, Barganier looks at itself as a unique partner for Fortune 500 organizations and takes our responsibilities seriously. Barganier views ourselves as an extension of the major corporations we serve and should be held to the same data security standards.                 

Barganier’s Investment in Technology

“As part of our investment in IT security, we are preparing Barganier for a SOC 2 compliance audit ”

As part of our investment in IT security, Barganier is undertaking a total reorganization of its processes. While we have been HIPAA compliant for our healthcare clients, we are raising the standards even higher. This 90-day process includes over 70 areas for review and enhancement. The outcome of which is to prepare Barganier for a SOC 2 compliance audit documenting implementation and adherence to the highest data security standards. This is only one of the significant investments being made.

Another significant investment is training our professionals on data protection and monitoring.

Finally, Barganier has increased its levels of cybersecurity insurance which is in addition to the more typical professional liability insurance.   

Demand From the Market Place

In years past, Barganier has seen interest from our healthcare related clients for strong data protection compliant with HIPAA standards.  Recent data breaches have brought the need for stronger protection to every industry. This is no longer an isolated issue to just a few industries. Everyone has a responsibility to protect client data. Our clients are demanding data security and Barganier is delivering.  

Consequently, Barganier’s implementation of SOC 2 compliance and strong IT security training are important steps in our obligation to serve Fortune 500 and other clients.

Barganier hopes to be able to partner with your organization in managing and complying with its unclaimed property obligations.

Welcome to Barganier. Today we start our next chapter.

We may look a little different and our name is a little quicker to say, but in every way we are still the company that you have depended on for your unique compliance challenges over the last 30 years. Except now, we’re leaner, stronger and more prepared than ever for the future.

You may have noticed our new logo too. We’re glad. Barganier, just like the financial services industry, changes and evolves over time to maintain consistent excellence. The mountain range itself signifies our high standards of quality and service, but also refers to our skill and ability to lead our clients to the summit of their own financial goals and objectives. We’ve already been to the top and will spot the pitfalls and dangers that lie ahead. The mountains themselves are financial metrics created by the ebbs and flows of our industry, but they also represent our ability to navigate those ebbs and provide our clients with the consistent high level of service they have come to depend on.

What hasn’t changed and will never change, is our attention to detail and the platinum level service we provide our clients. Now, more than ever, our combination of advanced technology and decades of experience provide a high level of value and personalized service that can respond quickly to the unique compliance needs and financial challenges of our clients. We do one thing and we do it very well. We just have a new look.

With this rebrand, we’re committing ourselves to the future. To innovation and the highest level of expertise in the industry. As our client, you have the distinct benefit of working with a company that is committed to leading the way forward. Barganier is not just a resource in unclaimed property compliance, it is a source of truth. Which is why our founder, Patricia Barganier, continues to headline multiple industry events each year.

Yes, we’ve changed. But, so has the world around us. That’s why Barganier has chosen to commit itself to the future. To innovate. To grow. That’s why, like the mountains of Jackson Hole, Wyoming, Barganier is here to stay. If you’re willing take the first step with us, we’ll lead you to the final one.