A bill signed into law on Thursday will protect lost property in Arizona from being used as a revenue generator for both the state and aggressive contractors, according to proponents.
House Bill 2343, signed by Gov. Doug Ducey on May 12, requires a clearer appeals process for companies facing audits from a contractor attempting to identify unclaimed property that hasn't been turned over to the state, such as life insurance payouts.
“We have no issue with government outsourcing certain functions to the private sector,” Garrick Taylor, senior vice president of Communications for the Arizona Chamber of Commerce, told Arizona Business Daily. “We are just concerned that contingency-based contracts are (incentivizing) the wrong behavior.”
Under Arizona law, unpaid property due to someone--which can range from a few dollars left in a closed bank account to a life insurance policy payout for which the beneficiary has not been located--must be turned over to the state by the company that holds the money. The state, in turn, lists it on missingmoney.com to be searched for, and claimed, by the rightful owner.
Taylor said that though the stated aims of collecting the property has been to reunite owners of unclaimed property, many states have used unclaimed property as a revenue generator. After a period of time, the unclaimed money is allowed to be placed in the state’s general fund.
The Arizona Department of Revenue periodically performs audits of companies in order to find money that companies have not yet turned over. Taylor said that the chamber and other proponents of the latest bill fear that when an audit is conducted by a company that is paid based on the value of the money recovered, it incentivizes “overly aggressive” collection tactics. He notes that the Department of Revenue stopped contingency-based audits for tax purposes for exactly that reason.
“Nobody likes being audited,” Taylor said. “If the guy on the other side of the table is going to be compensated based on how much he is able to recover you might begin to question the overall motive and incentives of that auditor--that is really what we are getting at.”
Though the latest bill does not stop contingency-based contracts, it does require that the Department of Revenue clearly communicate the rights available to a company facing an audit.
Despite the laws softer wording, Taylor applauds the broad effort in drafting the legislation, which he said included input from the chamber, the companies performing the audits and the Department of Revenue.
The bill passed the Senate in late March on a unanimous vote of 29-0 with one senator not casting a vote. The House passed the amended version of the bill May 7 with a 40-16 vote, with four representatives not voting.
Taylor said early coverage, including an Op-Ed in the Arizona Republic from Laurie Roberts, suggested the bill was intended to keep people from claiming money rightfully due to them.
“As states have stepped up their enforcement of unclaimed property laws in recent years, insurance companies are fighting back with bills like H.B. 2343,” Roberts wrote in the Feb. 17 editorial.
But Taylor argues that the opposite is actually true.
“We just want the focus in audits to be about reuniting owners with their property,” Taylor said. “Not with ensuring auditors are racking up (more) in contingency-based contracts.”
Taylor said the movement is actually part of a national effort to push similar reforms in every state. In Illinois, for example, new rules regarding contingency contracts have allowed property company Verus Inc. to collect a 12 percent commission on unclaimed property found within the state. In particular, companies like Verus are using the Social Security Administration Death Master File (DMF) to hunt down potentially unclaimed life insurance payouts. Insurance companies in Illinois, however, have filed a suit against Verus, arguing that the DMF is unverified and inaccurate.
A letter sent last week by Harold Kim of the U.S. Chamber’s Institute for Legal Reform to Ducey urged passage of the bill, even with the amendments.
“Although H.B. 2343 does not include a prohibition on the use of outside contingency fee contracts, (it) does include common sense reforms to the Arizona Department of Revenue’s unclaimed property audits,” Kim wrote.
Additional reforms identified by the letter included the Department of Revenues express approval on any recommendation by a contractor, and a requirement that the department look into non-contingency-based contracts by the beginning of 2017.
A letter of support from Arizona Manufacturers Council on May 7 further noted the importance of using an unclaimed property contractor's past accuracy in determining whether it would get future contracts.
Despite applauding the bill’s passage, Taylor alluded to the possibility for further reform by proponents.
“Let’s see how this early reform works,” he said. “And if there is need for additional tweaks, we would happily revisit this issue.”