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11/19/14 9:49 PM

Balancing the Risks and Costs of Unclaimed Property

by Don DeCelles

Two of the most common concerns related to unclaimed property are the risk of noncompliance and the cost of complying. These two concerns conflict. You can spend significant sums of money to make sure you comply—getting records perfect, assigning a staff member to master state statutes, performing better-than-expected due diligence, and executing reports. However, spending all that time and money can defeat the purpose of ensuring compliance, which is to avoid the financial burden of penalties, interest and past-due escheatment.

By contrast, in an effort to reduce escheatment amounts, you can look for every possible exemption and deduction. Costs might go down, but if you go too far you could risk noncompliance.

When it comes to risks and costs of unclaimed property compliance, it pays to find balance.

Identifying genuine risks of unclaimed property

Every holder organization faces a unique unclaimed property situation. Some companies have neglected compliance to the point that remediation consists mostly of damage control. It’s common for companies to perform due diligence, but the records they use to generate due diligence can be incomplete and full of errors, making it difficult to fulfill their responsibilities. Many companies are making best efforts to comply, but they aren’t sure they’re meeting every requirement and fear they might be audited.

When evaluating the risks unclaimed property present to your company, it’s important to take into consideration your unique circumstances. You can get advice from colleagues in other companies within your industry but keep in mind their situations might be different from yours and their advice could be disadvantageous.

For example, a colleague might convince you it’s necessary to completely revamp your records system to accommodate unclaimed property needs. Perhaps she says this because her own company’s records software is outdated. If your own company’s software has recently been updated and you have sound policies in place to keep data clean, software should not be on your list of potential unclaimed property risks.

Rather than basing an assessment of your company’s unclaimed property risks on conjecture, analyze your specific situation. You can assign personnel to study the unclaimed property environment and compare your situation with other holder companies. A professional exposure assessment identifies your specific risks by evaluating your unclaimed property issues, records management process, due diligence and reporting history. 

Identifying effective spending for unclaimed property

Determining the specific risks your company faces will give you clues as to where dollars would best be spent to meet statutory requirements and dispense with unclaimed property issues at a minimal impact to your company.

The costs of unclaimed property tend to exist on a spectrum of inaction and action. If you do nothing, odds are high you will be notified of an audit and find yourself paying high costs in penalties, fees, interest and past-due escheatment. If you do too much, you run the risk of over-escheating – once again, high costs!

To find a happy medium for your company somewhere between these two extremes, you must determine how to remediate your unique risks without paying for unnecessary actions. You can imagine how valuable it would be if you could be a fly on the wall in other companies to see how they are handling unclaimed property issues and the results they’ve experienced. You might begin to see a pattern, which would give you a better idea how you should manage your particular challenges for best results.

Unfortunately, other companies don’t often share their mistakes and it’s not likely you will gain the trust of other holder companies in order to learn from their successes and mistakes. The next best thing is learning from those that have helped other companies through mistakes and successes: professional unclaimed property advisors. 

Finding the sweet spot of compliance

By assessing your own risks, you could be creating a false sense of security and adding one more risk to your list of potential negative impacts on your company. The sweet spot of compliance is where you find the most knowledge and experience. Professional unclaimed property consultants, such as those at MarketSphere, have worked with hundreds of clients. Many of those companies have faced unclaimed property situations similar to those faced by your company.

In addition, the fact that consultants have worked with hundreds of companies facing situations unlike yours means they can provide a well-rounded depth of perspective to help you make better decisions about your risks and solutions.

The costs of using a professional advisor frequently can be offset by a reduction in unclaimed property liabilities—without risking either overpayment or under-compliance.

Take time to analyze potential risks and costs to determine your company’s compliance sweet spot.