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Flourish in a Flash: Breakage and Escheatment Post COVID

Please note: transcripts are computer generated

Kristen Thiry 0:03

All right. Well welcome everybody to another episode of flourish in a flash. Our Live podcast streaming on YouTube will the audio will also be available on our normal channels on Spotify and iTunes. But we are very excited to be going live today with some special guests. We're talking about breakage and a shipment in the current environment. So what does that look like, given the COVID crisis? We're on the middle of and what's that going to look like after the fact? So I'm very excited to be joined today with Kimberly DeCarrera, from DeCarrera Law, Len Llaguno, from KYROS Insights, and Robert Peters, Duff & Phelps, LLC So welcome, everybody. Thank you for joining me.

Thanks. So maybe, um, if you guys could each just go around and and introduce yourselves. Tell us a little little bit about your background, what you do, and we'll we'll kick it off with with Bob.

Robert Peters 1:06

Well, thanks so much. Thanks for having me and the others, Christine. So I'm Bob Peters. I head up Duffin Phelps, unclaimed property practice. I've been practicing in the area for over 30 years. We represent clients of all sizes and scale in connection with both planning and administrative and compliance. One of the areas that I personally have spent a considerable amount of time as assisting clients, as well as expert witness testimony in a number of matters involving gift cards, gift card planning, both in the unclaimed property in the accounting and the tax issues surrounding gift cards. So thanks for having me in. Love to join in the discussion.

Kristen Thiry 1:56

Thanks for thanks for joining us. So Kimberly, how about you tell us a little about your background.

Kimberly DeCarrera 2:01

Hi, Kristin. Thanks for inviting me on. So my name is Kimberly de Carrera. And I am based in Atlanta, Georgia. I have been playing property for over a decade now, but as a lawyer so I have a special privilege of having attorney client privilege with my clients. But like Bob, I work with a lot of clients of different sizes across various industries, with compliance for unclaimed property. I do the audits in the VDA defense as well for clients that are just trying to get into compliance. And then I work with our gift card program. So we set up the gift card programs, their legal structure, their accounting structure, and then make sure that they stay in compliance with state unclaimed property laws and the IRS tax rulings and regulations there.

Kristen Thiry 3:01

Fantastic, and Len, what about you?

Len Llaguno 3:04

Sure. No, it's good to be here. Thank you for having me. So I'm letting the you know, Founder and Managing Partner at Kyros Insights. We are an actuarial firm. And we specialize in doing actuarial analytics for loyalty programs and gift cards, programs as as well. So what does that mean? Well, for most of you that have for some of you that have heard of actuaries, and most people haven't, we're the people that typically work for insurance companies, and we crunched the numbers to predict. I mean, crudely, the stereotype is we predict when when people are going to die, which is obviously very important for life insurance purposes. In my role, we don't work in insurance. We work with loyalty programs, as I mentioned, or gift cards. And in that capacity, we're trying to predict when when points or gift cards are going to get used. And so the actuarial toolbox is really, really useful for that sort of exercise. And as far as we're aware, we're the only actuarial firm globally that's solely focused on on using actuarial theory to solve these problems for loyalty programs and, and gift card companies, all we do. And so I'm a credentialed actuary, myself, I've been practicing in this area for over a decade doing this sort of highly specialized work. Yeah. And excited to have a conversation about it today.

Kristen Thiry 4:16

Fantastic. Well, thank you all for joining. We're really excited to have you participate and get some perspective on that, really, what does this what does this current situation mean, for gift cards and for loyalty programs, you know, both now and in the future? And, you know, one of the things that that, you know, at flourish we've been talking a lot about, is the fact that gift cards are being promoted right now as kind of this savior for, you know, small and medium businesses in the current Coronavirus crisis and, you know, as a means to sort of help help support your local small businesses, your local merchants, you know, to get a gift card, what is something that maybe some of those businesses need to be aware of, if they're starting to push gift cards now that they might not be as familiar with when it comes to the requirements and then the achievement regulations.

Kimberly DeCarrera 5:09

I guess I'll kick us off here. So one thing, you know, every state has their own laws about what they can and cannot do. Some states, for example, have a cashback requirement. So if there's a small balance, then the retailer will need to provide a refund for the remaining balance. If the customer asked for it, this way that they don't leave that that $2 and three cents on the card that and I'm very aware of some plaintiffs attorneys that are out there searching for stores that are not complying with this rule. So that's a very quick one that you need to be aware of. The other thing would be the unclaimed property implications. So that when a retailer has breakage, that's the unused portion of the gift card, then they could be subject to unclaimed property rules impact to be reported to the various different states.

Unknown Speaker 6:19

Yeah, maybe I'll jump in and add add a thought here. You know, we're at Kyros, we're mostly focused on on kind of understanding that the timing, how many how much of the gift card is going to get ultimately redeemed, and when's that going to get redeemed. And as I think about small businesses today, encouraging their their customers to buy gift cards, that's tremendously helpful in the short term because that that gives them cash in their pockets to help them kind of survive the crisis, right? That's pretty critical. But it's going to create potentially will create another cash flow issue, down the road, right? Because it's not free money, you know, and let's just hopefully in, you know, six months time crisis is over or waning and we're starting to recover and return to back to normal. patrons are coming back customers are coming back and redeeming those gift cards, you still got to be able to be in a position to fulfill them. And there's going to be cash outflows required to be able to fulfill those those, those redemptions. And so I think that's really an important component of sort of risk management that that the small businesses need to keep in mind is okay, well, how many are these actually going to come back? When are they going to come back and be redeemed? And I need to make sure I'm setting aside enough of a reserve today to be able to handle that cash outflow when when it does happen.

Kristen Thiry 7:42

Yeah, and I think, by the actuary side is so important to just to understand, you know, what, what is that prediction, right of like the gift cards that are being bought during this time? What is that breakage? What does that breakage look like? What's gonna be remaining to be subject to a shipment and other things like that? Right,

Len Llaguno 7:59

right. Yeah,

Robert Peters 8:01

Kristen to your point, to your point, and, Len. I think that response to the COVID implications, it's important to understand that, as Len said, during today's crisis, or hopefully ending crisis, the goal of retailers since their stores aren't open and the brick and mortar is definitely to increase the revenue or sustain the revenue. And gift cards are clearly one of those ways to keep not only in touch with the consumer and, and their brand loyalty branding, but also as Len mentioned, to have cash flow. The implication though, is pretty significant as well. Because what I think you're gonna you're gonna see is that the states and this has already happened. The states are looking at enormous deficits, no secret there, and they're not going to want to and it's already been The articles have been published and the state administrators have talked even before this crisis. That unclaimed property is a very perfect area to go after because it's not a tax. It's not a tax on business or individual. And you know what's the better PR campaign then to return quote the breakage, the unclaimed funds if you will to the to the to the either the consumer or to the state and the state's by their estimate, and this is their estimate, then over 95% of all unclaimed gift cards actually higher than that 95 98% of unclaimed gift cards never get reported to the state is unclaimed property that's because Kimberly, Kimberly and myself, you know do our jobs, two thirds of the states you know, technically do not escheat cards but the larger states were Kimberly is in Georgia, New York, New Jersey. It's the address maintained by the company, those cards are or portion are suitable. And the states are going to aggressively not that they haven't already they they've made it known that they're gonna increase the footprint of audits by engaging as they've already done in third party audit firms to go after those vehicles. So it is important that companies if they want to retain the breakage, and many are through the accounting recognition requirements, do so in a manner that doesn't expose them to having to escape the the breakage.

Kristen Thiry 10:39

Yeah, that's a great point. I would love you know, you guys to kind of weigh in on, you know, what do you think the state's positions are going to be after this fact, given that gift cards are being pushed so heavily right now? You know, knowing after a card that came out and all of those things with gift cards not expiring anymore. I know there were a lot of audits kind of kicked off after after that timeframe. And I think You know, given the the current situation we're in, I think a lot of states will be also initiating audits would love to kind of hear from the whole panel on what you guys think is going to be going to be the response from states in relation to auditing and those types of activities by the state.

Kimberly DeCarrera 11:17

Well, if we use the last financial crisis as a model, back in 2008, as we came out of that the state revenue amounts were way down, they were running large deficits. And that's when you saw the auto activity really pick up. So, um, this time, I don't think it's going to even take as long as it did last time, partly because they've already got the infrastructure in place. Already got the audit contracts. They've already got the audit procedures, they're ready to go. They're just waiting for the the starting gun to go off. Right and those audit firms are going to be after you. So I don't think it you Within a couple of months, as soon as kind of the immediate economic crisis and laws a bit, then we will start seeing audits. And that's going to be mostly for stuff that happened pre crisis, right? That's going to be the three to five years to 10 years ago, activity. But that doesn't mean what's going on now, gift cards, those are still gonna be very attractive to others in a couple of years.

Len Llaguno 12:27

And that's maybe we're all chime in, you know, we're always looking in a couple years, you know, that's what we do is x rays, we're looking into the future, right. And so being able to anticipate what that exposure is today that you might have in a couple years is, I think, gonna be very, very important. Because if they're, you know, we're seeing a spike in in gift card issuance. That could be a pretty large exposure or at least a growing one, then then historically, that of what what companies have seen, and so being able to get that right is is going to be challenging, just because the volume is gonna be larger, but Also, the historical patterns of redemptions on gift cards is kind of useless going forward from here, right? Because we live in a new world, where historical patterns were, you know, there's still useful, but certainly not going to be as great of an indicator of future development on on redemptions. And then what we had seen, you know, a couple years ago, right. And so, you know, it's going to be pretty complicated and difficult to try to understand and anticipate that future development in this new world, even after we get back to sort of a normal, normal environment. And so that that will be challenging. The way that we approach that here at Kyros is, you know, there's literally zero empirical data on which you can study to be able to like really infer how things are going to merge in this new world. And so it comes down to being able to set really, really smart assumptions, or the smartest assumptions possible, right. And so you can use, you know, the wealth of data that are produced by by these programs to build pretty sophisticated models to understand and make initial predictions, then you get together with people like Bob and Kimberly and leverage all of their wealth of information to kind of insert professional judgments on top of that layer of analytics straight from the model. And that's a really great starting point that you're going to get right. And then basically, what you got to do is you got to be really good at monitoring. Because in this new world, every month that goes by, you're going to learn something new, right about how things are developing. So you got to have a good infrastructure to be able to monitor and update your assumptions on an on an ongoing basis. That's really kind of the area that we're focused on I Kairos. Now, both with our clients in giftcard space, but also in the loyalty program space where they have similar problems.

Robert Peters 14:41

Now, I think that's absolutely correct one and I think the groundwork has already been laid by the states in terms of what the reaction you're going to see Kimberly laid out. I think it's actually you're going to see it in you already are in two fronts. The first is an expansion of what is going to be constituted is Potentially unclaimed property. The rules historically have been more focused on what are called closed loop type cards, cards issued by a specific merchant, as opposed to open loop cards, which you're applicable and multiple merchants, generally issued by financial institutions. And those to large extent have been viewed as sacred meaning not subject to the unclaimed property rules in general. The other area, which up until recently, and as a result of Kristen, what you mentioned under the card act, which goes back to 2008 are what are now referred to as lap cards, loyalty award promotion cards, which we're all familiar with and you go to stores and you purchase something for $200 and you get a $50 reward card that you can use to purchase all their goods at that merchant or other merchants. That states have already and generally under the card act, as you mentioned, if you meet certain criteria, those are not subject to the unclaimed property rules. However, the states have started to nip away at that. And in fact, my home state of Illinois, where I practice has gone on record of saying that those are no different than closed loop cards. And just because you get a $50 discount, that's no different than if you get $50 in cash. And if you get cash on any gift card, it's deemed to be unclaimed property. And so they've taken probably the most aggressive stance in the country, you're going to see more of that. The other area that we've already seen and is going to continue to be challenged and what Kimberly and I spend a great deal of my time on, is helping companies plan through the structures that they create and to avoid the redeemed balance being a suitable well, that also is going to be challenged because under the fundamentals of the unclaimed property rule, the escape hatches if you don't have an address for the card owner, then the state that has jurisdiction is a state of organization or incorporation. And Kimberly Of course knows and she, she arranges the affairs as we do to incorporate your gift card issuing entity in a state, such as Florida, where I'm speaking from now, or other states, which do not treat it as subject to the unclaimed property rules. The problem is that many companies and think of your common retail many of your viewers may be retailers that happened to collect certain address information. They may not collect the address information of the gift card purchaser when they purchase the card, but they may have that information in other parts of the organization. And the states are smart. They know that if they look and can identify that type of information, then you doesn't matter where you're Incorporated, you go back to the address of the owner. So I think you're gonna see it on two fronts. And companies just have to be mindful of how best to structure their affairs so that they can increase the volume of the cards that do get redeemed, because literally, at the end of the day, that's what they want. They want you to use the card, they want you to have repeat business, because with every card that's used, generally there's an upcharge uplift, which you're familiar with. Yeah. And but to the extent that they're not used, that they rather than the state can keep the breakage.

Kristen Thiry 18:44

Yeah, exactly. And actually brings up a good point. We actually had a question come in that that was basically saying, you know, so many merchants are afraid of escheatment and therefore, you know, purposely put measures in where they don't view the the customers location. In that end user data. Um, so is it is that you know, like in your recommendation, would that be the best practice? Or would it be better to maybe have customers register and have a registered account where they store that card or something like that, so that, you know, we can better tie it together? Because really, you know, Bob, to your point, you know, studies show that about 59% of the value of the art, but a customer spend 59% over the value of the gift card, and redeem it. So, yes, yes. So ultimately, it's better for the merchant to get the customer to use it. So what would be kind of that balance between knowing who the customer is and potentially being subject to a shipment versus being a little bit blind to it and being like, Hey, I'm in an escheatment friendly state. I don't have to worry.

Robert Peters 19:47

I'll go first here and then Kimberly, and when by all means chime in, but I think this is the yin and the yang between the marketing and the the lender, actuary. Kimberly, attorney and music consultant. Let's say this is the way you do it to have to minimize the seat. But at the end of the day, the goal is to maximize, right the revenue for an organization. And the marketing folks will tell you, you want to collect as much data as humanly possible to keep that kind of activity with the customer. However, there's a way to do it where you can minimize, not eliminate. And Kimberly who knows this as well, there's a way that you can minimize, if you will, the exterior risk of scrutiny. But the reality is that I think that in those circumstances, generally the market folks prevail, because they want to accelerate the contact and the connectivity with a customer but but certainly that is just one of the data points that one can monitor and can you know, track you know the effect and it absolutely has an effect on the overall breakage.

Kimberly DeCarrera 20:57

I would say that when it comes to planning again, Gift Card program, you want to reach out to experts like myself or Bob or let that have a better kind of a full circle approach to setting up the program. Right that you can take in the considerations for marketing. Yes, I can give you a legal structure that is the best answer for unclaimed property. That'd be the best answer for your business as a whole. So you want that full circle approach to your gift card program to me, we're really worried about the top line number, right? We want that top line number to go up with the minimum expense on the at the bottom. So yeah, so that we get the spread as high as possible, and that will lead to the best results for the company. Yeah.

Len Llaguno 21:49

Yeah, I couldn't agree more. And like, you know, me being an actuary, we love data, more data we have the better, right. And so I'm always an advocate for Collecting that sort of that sort of information. And I could tell, I could tell you from my work with with loyalty programs, and we work with, you know, many of the world's largest loyalty programs, where you have to know the identity of the person, right, that's how the loyalty program works, you're tracking their behavior, all of their transactions. And then that turns out to be an incredibly rich data source from which you can do very, very sophisticated analytics, with just one example of the type of thing that you can do is you can build these models to understand customer lifetime value, right at the individual member level, which is saying, hey, how much profit is, you know, Kristen going to generate for for this company over the next, say, five years? Right? How much profit is Kimberly going to generate? Or how much profit is Bob going to generate gonna be different numbers for each one of us, and some of you are going to be really valuable? And some are not going to spend a lot, right. The way it always turns out is you end up seeing that 20% of your customers are going to generate 80% of your profits over the next couple years. Right? The problem is and like you've done this for so many programs, do it The 8020 rule, you always say, the problem is, most companies don't have a really good way of identifying today, we've got 20% it. If you have that data, if you have that concept of identity and contract that doesn't necessarily need to be like their specific address, but you know, it's the same person, you can track all the transactions, you're suddenly in a position where you can build models to identify who that 20% is today, that's really going to move the economic needle in the future. And you can then focus your resources and your precious marketing dollars really kind of in the areas that are gonna that really matter, instead of wasting a lot of that spend on members or customers that really aren't going to kind of move the economic needle. So I think there's a tremendous amount of value in getting that data. So I'm always an advocate for that.

Robert Peters 23:47

I was just gonna finish up by saying the one thing Kristin, that, you know, the folks who are writing in shouldn't do. They shouldn't be fearful of entering into or expanding a gift card or Awards Program. As you just summarized, it's probably among the most successful means of increasing customer loyalty which lend tracks to the specifics and expanding your revenue base. So, they one thing they should not be fearful of is using the programs to their advantage but structuring in a manner that minimizes their risk.

Kimberly DeCarrera 24:28

I think Lynne is why the neighborhood sports bar has been emailing me with coupons and my loyalty program there and start eating again

Len Llaguno 24:39

would be correct.

Kristen Thiry 24:42

so Len, if somebody were interested in kind of tracking, you know, what that loyalty looks like, obviously, collecting their, their addresses something we're talking about in relation to Shimon, but more broadly, as far as like that, that engagement and that loyalty side goes, what are some data points that They should be collecting on these customers to kind of get at that data.

Len Llaguno 25:05

Yeah. So first thing you need is just some generic concept of identity. Right? So that's like just a member number. It doesn't have to come with address. It doesn't have to come with like really anything else. It's really just something where you can tie all remembers transactions to do that data to that identity, right? And then really, what what's the most predictive of what's going to happen in the future is historical transactional behavior. Right? So demographic information, like your age, your gender, your marital status, becomes less and less valuable, the more transactional history we have. So that information is still really useful. At the beginning, though, when we're talking about members that just joined the program. You don't know a lot about them. You that's where those those sorts of variables become become helpful. I'll be honest, a lot of a lot of the customers that I work with don't have that information. Because, you know, usually when people sign up for programs, it's like, you know, just get them in the door. And we don't want to have this gigantic form that they have to fill out. And so, you know, it's like, they might have a field for that. But it's 90% missing, right? So it's not not that great. The one thing that that then becomes really useful just channel channel by which they you acquired, acquired that customer. If you have that level of information, then you can start looking at reports to understand the basically the customer lifetime value of all the members that joined in a given channel. And that way, you can really optimize your channel mix and your acquisition strategy based off of the value generated by that channel, as opposed to just focusing on the marketing cost of that channel, or the acquisition cost of that channel. Because you very well could have a very expensive acquisition channel that is just like generates really, really valuable customers. And in that case, like spending that money on the acquisition makes perfect sense. But if you know they're not generating, if you're not looking at your acquisition strategy from a customer lifetime value perspective, you might just stay away from that channel because it's a very expensive channel, right? So that that has turned out to be a really, really Good data point, in the absence of any other sort of social and demographic information, that's well populated.

Kristen Thiry 27:07

It's great. That's super helpful. You know, and I think that a lot of merchants, you know, do collect parts of that data. You know, I think we're always advocating for collecting more at flourish Nick, can he you know, so I think those are, those are really important points. Because if we do really want to make sure that we're getting what's statistically the the data, you know, the extra 59% lift, um, you know, I think that's going to be key of of making sure that you have some of that data so you can communicate to those customers, and you know, who those most profitable customers are, because you're right, if there's a certain population of customers that you're getting from an expensive acquisition channel, but they're your most successful customers, like it's worth spending the extra money on that channel versus, you know, others that maybe don't produce as profitable customers. So I think that's a really good point.

Bob, I wanted to come back to a comment that you made about promotional cards, you know, post kind of the the card changes and kind of talking about that one question we had from our audience during some of our sessions last week, was that many merchants are using more tried and true, like gift card for promotions versus promotional cards. And what do you think you know it given that those don't expire? And that those are held to kind of different regulations? What do you think the impact is gonna be to kind of break it into shape and in the long term for using more traditional gift cards for promotions, in this current environment versus more traditional, you know, promotional or award cards for those types of promotions.

Robert Peters 28:40

Yeah, you know, I think to the it's quite frankly, to the general consumer, including those of us that are even highly sophisticated. When you have a gift card or a rewards card, you can't really tell the difference. And of course, that's why the kardec came along and said, you know, look if you if you're going to have a reward card, and not be subject to this Rules, you got to be clear, it's got to be marked on the card or on the website. If it has an expiration date, it has to be clear that it's got an expiration date. And, you know, I would be surprised if you see more of the traditional gift cards, versus what you're beginning to see is all kinds of modifications. You know, that a, it's got a fixed expiration date, but it's got tremendous rewards, you can marry it with other type of points, programs. You know, you can even use the reward program or the gift card for redemption of certain things that sound like cash. And if they are cash, then it's not a gift card. So I you know, I would question and Glenn might have a better sense of this. I would question that you're going to see more and more in the traditional, I think it's going to go the other direction. I think you're going to see more of the hype. A type of the rewards program that has features of both. And that's the thing that's going to cause the confusion. The stakes are going to be you know, let's say assertive doesn't mean that you can again but Kimberly's point is you can structure your operations to be clear and minimize it. But you know, the whole notion of rebates particularly post COVID any any reward card or cash gift card that's associated with a redemption or a rebate is going to be exceptionally attractive and that's right on the lawn of whether or not the card is redeemable for cash. And as many of your viewers know, that's when you trip the wire that if it's redeemable for cash, then all bets are off and the quote the breakage is subject to the unclaimed property rules. It's probably worth noting that the one thing that's really critical is that you know Post 2018 the counting rules changed regarding revenue recognition. And most companies now are not only banking on it, they're recognizing revenue on the under redeem portion. And the first requirement is that in order to recognize revenue on the under name portion, the amounts can't be subject to the state unclaimed property rules. And for some companies, the fear is that they'll be caught flat footed, where they are recognizing or are offering new types of programs that they think sound and look similar to the existing programs but don't qualify for the revenue recognition requirements. But I I'd be curious Kimberly, would you think and land I think you're going to see more in the direction of hybrid cards with more options rather than than the traditional stored value card or a gift card,

Kimberly DeCarrera 32:07

I would say that are basically the precedent that we're going to be looking at is a Groupon type of situation where we've got a promotional value and we have a gift card value combined into one product. And it's gonna take, you know, very sophisticated planning, and then execution of the program to make sure that you can recognize that revenue. You don't follow the unclaimed property is cheaper.

Len Llaguno 32:40

Yeah, I think just building on that concept of recognizing the revenue because that's kind of the area where we play a lot, right is is figuring out how much can you recognize right and how much is breakage and then how much do you recognize that over over time? Yeah, the scary part here is, you know, you recognize revenue for like three, four years at a rate making some awesome is about breakage, and then all of a sudden the state comes in three years later, you're like, No, no, no, we need all that money back. And you've got, you know, 10s of millions of dollars that you got to find somewhere in your business. huge financial risk. Right. And I think that's, that's going to create a lot of a lot of challenges for companies, and rightfully so they should be thinking about how to mitigate that that today.

Kristen Thiry 33:22

Yeah, you know, one interesting point about the breakage accounting rule that went in place in 2018. So there's another woman in the industry, Brenda Gill, Patrick, who, every year since then, has been putting together this amazing breakage report where she comes through all of the filings from all of the publicly traded merchants that we know of out there who have gift card programs to try to see if they're following that accounting rule. And look at what that breakage number to kind of get a ballpark because I know Len, you and I have talked about this before in the gift card industry. We don't have any sort of ballpark of what the standard breakage looks like. And so she's kind of put

Robert Peters 33:57

That's secrett, right.

Kristen Thiry 33:58

Yeah. You know, it's the secret sauce, apparently, you know, um, so, so she's been putting together this this report and it varies so drastically and what you said Bob about, you know, not having to report what is subject to achievement on that is really interesting cuz that was always an outstanding question when she was putting that report together and sort of publishing those findings was what portion of this money that's being reported in this, you know, in these filings is actually subject to achievement. So, it sounds like according and I'm not an accountant, I'm not an attorney, you know, it sounds like according to the the accounting law that are the new accounting practice that you should not be including the funds that are even in that.

Robert Peters 34:43

No, it's pretty it's it's not, it's not very clear, because it's in the historic accounting literature. Okay. And so the presumption that's built into the new rules, which is the accounting standards codification 606 for those who are taking notes is That the presumption is it's not owed to the state or to other third parties. And then you apply all of that accounting recognition and lens point is is spot on, is that, you know, these companies can be issuing cards or hybrid type vehicles, if you will, and and could be surprised because once you know, once it's determined that it could be your is subject to a sheet as opposed to just that the owner of the car doesn't redeem it after the expiration of a certain period of time, then then the revenue recognition is not acceptable. And I don't want to go down the path of what happens but, you know, best case they have to modify their estimates as Len would do. In the worst case they have to revise for previously issued financial statements.

Kimberly DeCarrera 35:57

I'm actually gonna throw another worst case scenario There is that they have a whistleblower lawsuit. And they had three times

Robert Peters 36:05

Yeah. Yeah, yeah. Yeah. Yeah, we can speak intimately about that. But that's part of the other risk is, you know, companies that have executed at the time maybe sound strategies not to have their product their products subject to a sheet, only to be overturned, supported by the court in a with one or more whistleblower campaigns. So, as with any type of planning activity, companies have to make their own, if you will, evaluation of the level of risks and accrue to them the minimum the maximum number somewhere in between, of what may be the real liability associated with those activities.

Kimberly DeCarrera 36:58

I do want to point out it's not a You set it up, and then you run the program forever and ever, right? I think that every year or as major developments happen, that you need to continually go back and like Lynn probably does in his work, you go back and check the assumptions, right? Go back and you make sure that your strategy is still a sound, based off of the new developments, the new changes in law, the new court cases, the new litigation, the new audit situation, right? The entire environment can change that you might need to tweak or even radically change your gift card program.

Len Llaguno 37:38

Yeah, and the one thing I found really interesting about that, you know, I don't work in the legal aspect of it, like like you guys do. But what I find interesting is how difficult that actually is to keep track of all that because it's state by state by state and not one governing body that's defining the rules. So you're trying to track so much at the same time and wrap your mind around It's it's incredibly, I mean, one of the reasons like I would never want to do that. That's why you guys are just right, to do those difficult things. But yeah, I think that's important to point out for the audience here who may not be so familiar with it. It's it's actually quite difficult to do that. Right.

Kristen Thiry 38:17

And it's always changing. You know, we're always hearing something new about New Jersey, you know, they're always they're always changing their records and everything. So, I do think yeah, I mean, I think it's really important to call out the fact that it is definitely not senator and forget it, you know, when it comes to achievement and breakage, but just in general, with a gift card program, that's something again, we're always trying to be proponents of, you know, that it's not just something you can, you know, put in place and never have to touch again, there's a lot of ongoing sort of maintenance and, you know, just management of the program. So, definitely

Robert Peters 38:54

That's Kristin one point that you know, you're raised is that companies don't have to operate in the dark here. One of the things you know, despite, you know, the great advice of Kimberly and, and others, is that if companies are in the midst of designing a specific program, and for example, you mentioned a state like New Jersey, not to separate them, most not all, but most of these administrators are sensitive to the concerns even though they're out there to get revenue, and it's a matter of relationships is what but they will render, maybe not a formal legal opinion, Kimberly, but they will oftentimes review the transactions, you can certainly step forward in what's called a voluntary compliance program and put forth your facts so it's not like companies, you know, have to rely either a on the, you know, expert advice of others, without knowing exactly what is at stake. They can and You know, maybe should, in certain circumstances avail themselves to the states themselves. You do it in other areas in the sales tax in the income tax area. That's that's not to say that companies are precluded from doing the same thing in the unclaimed property area.

Kristen Thiry

That's a great point. I think that sounds scary to some merchants to opening themselves up to that. But if you get the guidance and have support on your side, that's a good way to make sure you're complying and not at risk for potential litigation. Thanks everybody!

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