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10/6/16 1:13 PM

Advice for Midmarket Companies – the Next likely Unclaimed Property Audit Target

by Greg VerMulm

In the past 15 or 20 years, it’s no secret that the states and their third-party unclaimed property auditors have been targeting large business entities with potential substantial amounts of unclaimed property in order to engage them in multistate audit processes. Now, a good percentage of these companies have completed audits and the pool of larger auditable companies has shrunk. It has become apparent that the states are now extending their audit efforts to midmarket companies.

Through audit trends that we are seeing in the industry, we've noticed an increase in requests for service from midmarket companies.

A midmarket company can be defined in many ways. For our purposes, MarketSphere defines a midmarket company as a business entity with revenues between $250 million and $3 billion. These companies tend to have:

  • less robust policies and procedures in place
  • fewer available resources to handle unclaimed property compliance requirements
  • less knowledge of unclaimed property processes and strategies

Because midsize companies are more numerous, there may be a tendency to believe the odds are lower that any given company will be audited. However, the states now have better protocols for identifying noncompliant entities than ever before. The fact remains that unclaimed property compliance is a statutory requirement in 55 U.S jurisdictions and various Canadian provinces. If a company fails to file or misfiles, it’s likely not a matter of if, but when, it will get a “knock on the door” from an unclaimed property auditor representing one or more states.

Unique Unclaimed Property Challenges of Midmarket Businesses

Unclaimed property is a compliance function and can reside in almost any department including, Tax, Payroll, Finance, Accounts Payable or General Accounting, just to name a few. Midmarket companies tend to have smaller departments, which makes unclaimed property compliance more of a burden. Furthermore, other compliance functions tend to be more rigorously audited or verified by the states, so unclaimed property often falls to the bottom of the list.

Because midmarket companies are likely to have less-experienced personnel, less time to manage an extra function and fewer existing unclaimed property resources, the effort to come into compliance and the potential problems can be greater:

  • With fewer policies and procedures in place, midmarket companies may find they need a greater amount of time to create policies and procedures from the ground up.
  • Records management may be less sophisticated, which could hinder remediation efforts and require large amounts of time to resolve.
  • Midmarket companies may decide to improve inadequate records systems to meet unclaimed property needs, which involves additional costs.
  • Knowledge and experience levels of personnel may be lower than in larger companies, which could lead to unclaimed property reporting mistakes.
  • Both unclaimed property compliance and audit management may demand a greater proportional amount of a midmarket company’s time, resources and cash.Cost and resource management in general can be greater concerns for smaller companies, so adding a demanding business function like unclaimed property to the mix can be more of a challenge in many ways.

Unclaimed Property Compliance and Audit Advice for Midmarket Companies

In general, MarketSphere unclaimed property specialists’ advice for midmarket companies is the same as for our larger clients. First and foremost, we suggest these companies become proactive about unclaimed property. Don’t wait until you are notified of an audit to analyze your potential unclaimed property liability. Learn as much as you can about unclaimed property online, from colleagues and through associations such as the Unclaimed Property Professionals Organization (UPPO).

The next step toward compliance should always be assessment of liability and identification of legal exemptions. MarketSphere offers these services, as well as consultation on smart unclaimed property strategies for any business size. This allows the company to make beneficial decisions for the future, rather than simply churning out reports, without the costs and logistic challenges of onboarding experienced in-house personnel and resources.

Larger companies can throw people, hours and money at the challenge of unclaimed property, but midmarket companies must be more efficient and effective in the use of resources to come into compliance with unclaimed property laws. For more specific steps toward compliance, contact MarketSphere or download this ebook.

Topics: Compliance, Staffing