State enforcement of unclaimed property compliance continues to rise. States are auditing more companies than ever in order to validate that unclaimed property is being reported accurately and completely. To prevent an audit, many holders over-report property, escheating items that are not actually unclaimed property, or may not be reportable to the states. However, this practice could cause red flags.
The two most common transaction types that are not considered to be unclaimed property are accounting errors and exclusions/exemptions.
Accounting errors are not unclaimed property. Unfortunately, errors in accounting systems do occur that cause items to appear to be outstanding or unresolved, when in fact they are not. This leads to the potential for over-reporting. Examples of accounting errors include:
- duplicate payments
- voids that were never processed
- misapplied payments.
Prior to reporting, research should be performed to identify and correct accounting errors and avoid over-reporting.
Many state statutes include provisions that exclude certain transactions from the definition of unclaimed property, or specifically exempt the property from reporting. An example of a state exclusion appears in the Kansas unclaimed property law, whereby: