AAC-25-14-00009-P Creation of Administrative Process for Determinations of Erroneous Payments of Abandoned Funds

6/25/14 N.Y. St. Reg. AAC-25-14-00009-P

NEW YORK STATE REGISTER

VOLUME XXXVI, ISSUE 25

June 25, 2014

RULE MAKING ACTIVITIES

DEPARTMENT OF AUDIT AND CONTROL

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. AAC-25-14-00009-P

Creation of Administrative Process for Determinations of Erroneous Payments of Abandoned Funds

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Addition of Part 131 to Title 2 NYCRR.

Statutory authority:

Abandoned Property Law, section 1414

Subject:

Creation of administrative process for determinations of erroneous payments of abandoned funds.

Purpose:

To afford due process when a payment of abandoned funds is determined to have been in error for various reasons.

Text of proposed rule:

Part 131 is added to Title 2 of NYCRR as follows:

Part 131.

Rules and Regulations for the Scheduling, Adjourning and Conduct of Administrative Hearings Relating to the Recovery of Erroneous Payments and Overpayments made by the Office of Unclaimed Funds

§ 131.1 Background

WHEREAS, section 1406 of the Abandoned Property Law provides that the Comptroller, shall have the full and complete authority to determine the validity of abandoned property claims and to provide claimants with notice of his determination; and,

WHEREAS, section 1406 further provides that a claimant may, at any time within four months of such a determination by the Comptroller, apply for a hearing and a redetermination of his claim, and that the Comptroller, after an appropriate hearing on notice before the Comptroller or a person designated by him, shall make and serve a final determination; and,

WHEREAS, from time to time where a claim for abandoned funds has been previously paid, the Comptroller may determine upon audit and review that such payment was erroneous in whole or part due to misrepresentation, fraud, or mistake; and,

WHEREAS upon a determination that an erroneous payment has been made, the Comptroller may advise the claimant/payee of such determination and make a demand of the claimant/payee for repayment; and,

WHEREAS such demand constitutes a determination by the Comptroller under section 1406 thus entitling the claimant/payee to a hearing and redetermination; and,

WHEREAS, section 1414 of the Abandoned Property Law authorizes the Comptroller to make such rules and regulations as he may deem necessary to enforce the provisions of the Abandoned Property Law;

THEREFORE, it is hereby determined that the following regulations shall be promulgated to determine the procedures which shall be observed and the rules which shall be followed for the scheduling of and conduct of such hearings.

§ 131.2 Notice of determination of erroneous payment

(a) When the Comptroller determines that a claim previously approved and paid was approved and paid erroneously, in whole or in part, due to misrepresentation, fraud or mistake, the Comptroller shall issue a determination in writing to that effect together with a demand for repayment. The Comptroller shall also advise the claimant/payee that he or she may within four months of such determination request a hearing and redetermination and provide information as to whom such request is to be sent.

(b) If the claimant/payee does not, within four months of the issuance of a notice pursuant to subdivision (a) of this section, either make payment in full or request a hearing and redetermination, then the determination that an erroneous payment was made shall be final, and the Comptroller may take any lawful action, including but not limited to recovery through the State Wide Offset Program pursuant to sections 171-d and 171-f of the New York Tax Law.

§ 131.3 Notice of hearing

(a) Where a claimant/payee makes a timely written demand for a hearing and redetermination, the Office of Unclaimed Funds, or its designee, shall notify the claimant/payee or, in the event the claimant/payee is represented by counsel, the claimant/payee's counsel, of the date a hearing will be held. The hearing shall be scheduled within a reasonable time following the receipt of such timely written demand.

(b) All notices of hearings shall specifically and plainly state the following:

(1) the time, place and date of the hearing;

(2) the purpose of the hearing;

(3) the right of the claimant/payee to be represented by counsel;

(4) the procedure for obtaining an adjournment and its consequences; and

(5) the consequences of the claimant/payee's failure to appear at a scheduled hearing.

(c) The notice shall be accompanied by a designation by the Comptroller of a hearing officer pursuant to section 1406 of the Abandoned Property Law. The seal of the Comptroller shall be affixed to such designation.

(d) The notice and designation shall be mailed by certified mail to the claimant/payee or to the claimant/payee’s counsel or other authorized representative not less than three weeks before the date of the scheduled hearing.

§ 131.4 Conduct of hearings

All hearings shall be conducted in an orderly manner in order to ascertain the substantive rights of the parties. The hearing officer, duly designated by the Comptroller, shall preside. The Comptroller may designate to serve as hearing officer either a qualified private party or a member of the staff of the Department of Audit and Control who has had no prior involvement in the claim. All witnesses shall testify under oath (or by affirmation) and a record of the proceedings shall be made and kept either by means of stenographic recording or tape recording at the discretion of the Comptroller. Where the total amount being demanded exceeds $ 1,000, a transcribed copy of such record shall be made and furnished to the claimant/payee or when the claimant/payee is represented by counsel, to the claimant/payee's counsel, and the cost of the preparation of the record shall be borne by the Office of Unclaimed Funds. Where the total amount being demanded does not exceed $ 1,000, a transcribed copy of such record shall only be made and furnished upon the request of the claimant/payee or the Office of Unclaimed Funds with the cost of transcribed copy of the record to be borne by the party or parties requesting such copy. The claimant/payee or the claimant/payee's counsel, the representative of the Office of Unclaimed Funds and the hearing officer may examine and cross-examine all parties and witnesses appearing at any hearing. All costs incurred by the claimant/payee in retaining counsel and/or presenting witnesses shall be the sole responsibility of the claimant/payee.

§ 131.5 Presentation of the payee's case

The claimant/payee shall state his or her case upon commencement of the proceeding. The claimant/payee will have the opportunity at that time to offer proofs to support the claimant/payee’s position that the Comptroller’s determination of an erroneous payment is incorrect and to call and examine any and all witnesses on behalf of the claimant/payee. Upon being sworn in, the claimant/payee may testify on his or her own behalf. In addition to the presentation of the claimant/payee's case, the hearing officer may hear argument and entertain motions for dismissal or for other appropriate relief.

§ 131.6 Presentation of the case of the Office of Unclaimed Funds

Upon completion of the claimant/payee’s case, the Office of Unclaimed Funds shall have the opportunity to offer proofs in opposition to the claimant/payee’s case. The Office of Unclaimed Funds may call and examine any and all witnesses on its behalf.

§ 131.7 Briefs and memoranda of law

Briefs and memoranda of law shall be prepared and submitted upon request therefor by the hearing officer. The costs of such preparation and submission shall be borne by the party preparing the same.

§ 131.8 Adjournment of hearing and scheduling of subsequent hearings

(a) In the absence of unforeseeable circumstances, a request for adjournment of the first date of any hearing must be submitted to the Office of Unclaimed Funds at least two business days or 48 hours, whichever is longer, prior to the scheduled date of such hearing.

(b) The adjournment of the initial hearing will be granted by the Office of Unclaimed Funds with the understanding that the claimant/payee or the claimant/payee's counsel, within 20 days after the adjournment, shall advise the Office of Unclaimed Funds of such date or dates convenient for the rescheduling of a hearing. Failure to advise the Office of Unclaimed Funds of such date or dates will result in a hearing being scheduled by the Office of Unclaimed Funds without further consultation with the claimant/payee or the claimant/payee's counsel.

(c) Any request for an adjournment made during the course of a hearing shall be addressed to the hearing officer who shall have sole authority to grant or deny such request. If an adjournment is granted, the hearing officer shall schedule the date of resumption of the hearing upon consultation with the parties if the hearing officer so desires.

§ 131.9 Failure of claimant/payee to appear

The failure of the claimant/payee or the claimant/payee’s representative to appear at a scheduled hearing without a timely and proper adjournment pursuant to section 131.8 of this Part will result in a finding that the Comptroller’s determination of erroneous payment was correct and the Comptroller may take any lawful action, including but not limited to recovery through the State Wide Offset Program pursuant to sections 171-d and 171-f of the New York Tax Law.

§ 131.10 Decision and review

(a) Upon completion of the presentations of the claimant/payee and the Office of Unclaimed Funds, and upon submission of all evidence in connection therewith, the hearing officer shall render a written decision upon the merits. Such decision shall set forth findings of fact and conclusions of law or reasons for the decision.

(b) A decision shall be in the form of a recommendation, signed by the hearing officer, to the Office of Unclaimed Funds. Within 10 business days of receipt of such a recommendation, the Comptroller shall make a written final determination with respect to such decision. The final determination shall set forth findings of facts and conclusions of law or reasons for the determination, provided that the final determination may adopt the findings of fact and conclusions of law or reasons as set forth in the decision of the hearing officer. The Comptroller's final determination shall be served upon the claimant/payee or the claimant/payee's counsel by mail, provided that where such determination in whole or in part affirms the Comptroller’s determination of an erroneous payment, the determination shall be served by certified mail upon the claimant/payee, or where the claimant/payee is represented by counsel, then upon the claimant/payee's counsel.

(c) Any decision of a hearing officer or any determination by the Comptroller shall be deemed final upon the date of the mailing of such decision of determination.

Text of proposed rule and any required statements and analyses may be obtained from:

Jamie Elacqua, Department of Audit and Control, 110 State Street, Albany, New York 12236, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

45 days after publication of this notice.

Regulatory Impact Statement

1. Statutory authority: Pursuant to section 1414 of the Abandoned Property Law the Comptroller is authorized to make regulations to effectuate the Abandoned Property Law.

2. Legislative objectives: To provide an administrative process whereby a claimant/payee may submit evidence and testimony to challenge the Department of Audit and Control’s determination that a payment of Unclaimed Funds previously made to a claimant/payee was induced by fraud, mistake or misrepresentation or otherwise made in error. Because Tax law section 171-f requires an that a taxpayer be afforded the opportunity for an adjudicatory proceeding prior to the utilization of the State Wide Offset Program (hereinafter referred to as SWOP), the enactment of this rule will allow the Department of Audit and Control to utilize SWOP to collect from the claimant/payee any payments made by the Office of Unclaimed Funds that have been determined to have been made due to mistake, misrepresentation or fraud or otherwise made in error.

3. Needs and benefits: The Office of Unclaimed Funds returned $412 million of unclaimed funds to its owners in 2013. See Press Release from the Office of the State Comptroller, Thomas P. DiNapoli, January 3, 2014. Thousands of payments made are made, but on occasion the Comptroller through audit and oversight, may determine that a payment was induced through the mistake, fraud, misrepresentation of a claimant/payee or otherwise made in error. Once that determination is made the Office of Unclaimed Funds seeks to have such payment returned to the Abandoned Property Fund.. Sometimes the claimant/payee will refuse to repay and the cost of obtaining an enforceable judgment far outweighs the amount owed to be repaid. By adopting these regulations, there is a two-fold benefit. First, the administrative hearing process provides a more formal process in order for the claimant/payee to provide challenge the Comptroller’s determination using sworn testimony or a presentation of proofs. Secondly, the formal administrative hearing process qualifies the Comptroller to utilize SWOP to recover from the claimant. SWOP is a program whereby debts owed to the State of New York are collected via offset from State tax refunds payable to the claimant/payee. SWOP is a cost effective method of collecting debt and it is expected that the Office of Unclaimed Funds will be able to collect $XYZ, which may have been otherwise uncollectable.

4. Costs: a. Costs to regulated parties for the implementation of and continuing compliance with the rule: There are no capital costs to any claimant/payee as a result of the proposed rule. The Office of Unclaimed Funds would only request up to the amount erroneously paid from the claimants/payees who were erroneously paid. If the claimant/payee elects to challenge the Comptroller’s determination in a formal hearing, the costs to the claimant/payee might, as outlined in greater detail below, include: travel and lodging costs for the claimant/payee and any witnesses; costs for any certified documents (such as certified copies of death certificates or letters testamentary); attorney’s fees (where the claimant/payee elects to retain an attorney); and costs for transcribed copies of the record of the hearing (where the amount at issue is less than $1,000). Travel and lodging costs for New York residents will be relatively nominal in most cases since the Department affords hearing sites in nine sites located throughout the State, and, therefore, in most cases, the resident would only need to drive or take public transportation to the nearest site, which in most cases would only require a day trip. Additionally, travel costs for any witnesses the claimant/payee wishes to appear on their behalf (which again, for New York residents will be relatively nominal). However, if lodging and food are required, we estimate that lodging and meals could conceivably cost the claimant/payee up to $150. The cost of obtaining certified documents to support the claimant/payee’s case could cost up to $100. If the claimant elects to be represented by an attorney, we estimate that attorney fees could be $2,000 or more. Further, if the amount of the payment at issue is less than $1,000 and the Comptroller does not elect to engage a stenographer, as allowed per the proposed rule, the claimant/payee can choose to have a stenographer present and bear the costs for such stenographer. The Office of Unclaimed Funds would have to pay fees for engaging a hearing officer and for providing a transcript, which costs roughly $1,000 per hearing, based upon the current costs of holding denial hearings (note the Office of Unclaimed Funds is not required to provide a stenographer if the amount seeking to be repaid is less than $1,000). The costs are calculated on estimates of the cost and number of past fair hearings held by other divisions in the Department of Audit and Control.

b. Costs to the agency, the state and local governments for the implementation and continuation of the rule: The Office of Unclaimed Funds would have to pay fees for engaging a hearing officer and for providing a transcript roughly $1,000 per hearing (although it could elect to appoint an employee of the Department as a hearing officer) based upon the current costs of holding denial hearings. SWOP will be cost neutral to the agencies.

c. Information, including the source(s) of such information and the methodology upon which the cost analysis is based: Cost estimates are based upon the cost and number of past fair hearings held by OUF and other divisions in the Department of Audit and Control.

5. Local government mandates: Except in the unlikely case when a local government has obtained unclaimed funds through mistake, misrepresentation or fraud, these rules would not impact a local government.

6. Paperwork: None.

7. Duplication: None.

8. Alternatives: The only other significant alternative considered was to continue our current method of making written demand for repayment. Such alternative was discarded as the Office of Unclaimed Funds would likely continue to have the same difficulties collecting some of the smaller amounts and then would not be able to utilize SWOP.

9. Federal standards: None.

10. Compliance schedule: Immediately. Currently the Office Unclaimed Funds already holds hearings for denials of abandoned property claims and the same methods and resources would be used to hold hearings for repayments.

Regulatory Flexibility Analysis

1. Effect of rule: The rule will affect both small businesses and local governments. Five hundred small businesses made claim to abandoned funds in the last fiscal year, with an estimate of about five percent or less resulting in a determination of an erroneous or fraudulent payment. One hundred local governments made claim to abandoned funds in the last fiscal year, however, there have been no determinations that any payments to local governments were erroneous. It is estimated that in the future, a determination of an erroneous or fraudulent payment will happen 0%-1% of the time when a local government makes claim to abandoned funds. The effect of the rule is that any claimant/payee, including small businesses and local governments, will have the opportunity to have a more formal administrative hearing process where the claimant/payee can provide his/her/its rebuttal to the Comptroller’s determination using sworn testimony or a presentation of proofs, and the Comptroller can present its case to the claimant/payee in the hearing process. The Comptroller will also be able to utilize the State-Wide Offset Program (SWOP), where debts owed to the State of New York are collected via offset from State tax refunds payable to the claimant/payee.

2. Compliance requirements: Although the claimant/payee is not required to engage in any additional reporting, recordkeeping, or other affirmative acts, the claimant/payee can submit evidence and testimony to challenge the Comptroller’s determination that a payment of Unclaimed Funds was made in error or induced by fraud, mistake, or representation.

3. Professional services: No professional services are necessary for small businesses or local governments to comply with the rule. However, the professional services of an attorney may be utilized if the claimant/payee chooses to be represented by an attorney for purposes of the hearing. Additionally, if the amount of the payment at issue is less than $1,000 and the Comptroller does not elect to engage a stenographer, as allowed per the proposed rule, the claimant/payee can choose to have a stenographer present and bear the costs for such stenographer.

4. Compliance costs: There are no capital costs to any claimant/payee as a result of the proposed rule. If the claimant/payee elects to challenge the Comptroller’s determination in a formal hearing, the costs to the claimant/payee might, as outlined in greater detail below, include: travel and lodging costs for the claimant/payee and any witnesses; costs for any certified documents (such as certified copies of death certificates or letters testamentary); attorney’s fees (where the claimant/payee elects to retain an attorney); and costs for transcribed copies of the record of the hearing (where the amount at issue is less than $1,000). Travel and lodging costs for New York residents should be relatively nominal in most cases since the Department affords hearing sites in nine sites located throughout the State, and, therefore, in most cases, the resident would only need to drive or take public transportation to the nearest site, which in most cases would only require a day trip. However, if lodging and food are required, we estimate that lodging and meals could conceivably cost the claimant/payee up to $150. We estimate that the cost of obtaining certified documents to support the claimant/payee’s case could be up to $100. Claimants/payees are not required to be represented by an attorney, but, of course may choose to retain an attorney. If a claimant/payee chooses to be represented by an attorney, we estimate that attorney fees could be $2,000 or more. Further, as stated above, if the amount of the payment at issue is less than $1,000 and the Comptroller does not elect to engage a stenographer, as allowed per the proposed rule, the claimant/payee can choose to have a stenographer present and bear the costs for such stenographer. The Office of Unclaimed Funds would have to pay fees for engaging a hearing officer and for providing a transcript, which costs roughly $1,000 per hearing, based upon the current costs of holding denial hearings (note the Office of Unclaimed Funds is not required to provide a stenographer if the amount seeking to be repaid is less than $1,000). The costs are calculated on estimates of the cost and number of past fair hearings held by other divisions in the Department of Audit and Control.

5. Economic and technological feasibility: There are no economic or technological issues to complying with this rule. Note any technological resources needed for conducting a hearing (i.e. video conferencing hardware), will be provided by the Department of Audit and Control.

6. Minimizing adverse impact: The approaches suggested by the Legislature in SAPA § 202-b(1) were not considered. It does not appear that the rule will have an adverse economic impact on small businesses or local governments.

7. Small business and local government participation: Notice of this proposed rule making will be posted on the Comptroller’s website in the form of a press release in order to ensure any small business and local government which wishes to participate in the rule making process has adequate notice of the proposed rule.

Rural Area Flexibility Analysis

1. Types and estimated numbers of rural areas: This rule will affect all rural areas.

2. Reporting, recordkeeping and other compliance requirements; and professional services: There are no reporting, recordkeeping, and other compliance requirements. A claimant/payee in a rural area who receives notice of an erroneous payment, if they elect to have a hearing, may engage an attorney if they so choose. Additionally, if the value of the payment seeking to be repaid is less than $1,000 and the Comptroller does not elect to engage a stenographer, as allowed per the proposed rule, the claimant/payee can choose to have a stenographer present and bear the costs for such stenographer.

3. Costs: There are no capital costs to the claimant/payee. If the claimant/payee elects to challenge the Comptroller’s determination in a formal hearing, the costs to the claimant/payee might, as outlined in greater detail below, include: travel and lodging costs for the claimant/payee and any witnesses; costs for any certified documents (such as certified copies of death certificates or letters testamentary); attorney’s fees (where the claimant/payee elects to retain an attorney); and costs for transcribed copies of the record of the hearing (where the amount at issue is less than $1,000). Travel and lodging costs for New York residents should be relatively nominal in most cases since the Department affords hearing sites via teleconference in nine sites located throughout the State, and, therefore, in most cases, the resident would only need to drive or take public transportation to the nearest site, which in most cases would only require a day trip. We note that, in more remote rural areas, where the nearest regional office may be some distance away, costs of travel and lodging could conceivably be higher, the sites should not be more than three to four hours’ travel by car. However, if lodging and food are required, we estimate that lodging and meals could conceivably cost the claimant/payee up to $150. We estimate that the cost of obtaining certified documents to support the claimant/payee’s case may cost up to $100. Claimants/payees are not required to be represented by an attorney, but, of course may choose to retain an attorney. If a claimant/payee chooses to be represented by an attorney, we estimate that attorney fees could be $2,000 or more. The Office of Unclaimed Funds would have to pay fees for engaging a hearing officer and for providing a transcript, which costs roughly $1,000 per hearing, based upon the current costs of holding denial hearings. Additionally, as stated in the section above, if the amount of payment at issue to be repaid is less than $1,000 and the Comptroller does not elect to engage a stenographer, as allowed per the proposed rule, the claimant/payee can choose to have a stenographer present and bear the costs for such stenographer. The costs are calculated on estimates of the cost and number of past hearings held by other divisions in the Department of Audit and Control.

4. Minimizing adverse impact: The approaches suggested by the Legislature in SAPA § 202-bb(2) were not feasible nor relevant. It does not appear that the rule will have an adverse economic impact on claimant/payees in rural areas since a claimant/payee can participate in a hearing throughout the State in the Comptroller’s regional offices.

5. Rural area participation: Notice of this proposed rule making will be posted on the Comptroller’s website in the form of a press release in order to ensure that a person or entity in a rural area who wishes to participate in the rule making process has adequate notice of the proposed rule.