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5/14/19 9:29 AM

Unclaimed Property Fall Reporting Checklist

by David Kidder and Clive Cohen

annual-compliance-clipboardEven though it seems like a long way away, Fall unclaimed property reports will be due before you know it.  With Fall states reports generally having deadlines of November 1, now is the time to create a checklist to ensure you meet the deadlines.  The following, while not in-depth, contains the most important tasks for you to perform.

1. Understand State Requirements

Before starting the process, it is imperative that holders understand existing state statutes and regulations, and determine whether there have been any changes from the previous year that may impact the current year’s filings.  If you use software, you should ensure that you are using the most current update provided by the software vendor. Unclaimed property law is a dynamic environment. Over the last few years, some states have made minor changes to their unclaimed property laws and administrative rules while other states have significantly overhauled their unclaimed property laws.  With all of these changes and more changes likely on the horizon, it is more vital than ever to keep current with the statutory environment.

2. Identify, Gather and Validate

Ensure that are collecting data from all potential sources of unclaimed property.  This will include internal sources such as accounting, tax, payroll, accounts payable, treasury and accounts receivable departments.  It will also include external sources, such as third-party administrators, who do not report unclaimed property on your behalf.  In addition, if you have been involved with any merger or acquisition activity since your last filings, you will need to determine whether these transactions may have included potential unclaimed property which would now be your responsibility to report.  Finally, once data has been gathered, you will need to verify that all appropriate data elements are complete, e.g., does each obligation indicate a name, address, amount, date, identification number and type of property. 

3. Analyze and Remediate

When data has been gathered, your next task is to perform various data analyses.  The first analysis is to ensure that the amounts are actually owed. If they are owed, you should next determine whether an exemption or exclusion applies to the items.  Finally, you should perform a dormancy analysis to identify those transactions that are due to the states for this reporting period.  Be aware of the risks which exist should your company decide to manually identify or calculate dormancy. This can increase a holder’s risk of either reporting properties early and turning funds over to the states before they are due or, worse yet, not reporting all current due items and subsequently reporting properties late and thus opening up your company for potential penalties, interest assessments or audit notices.

4. Due Diligence

Once you have identified those transactions that are truly unclaimed property and are due to the states for this reporting period, you must perform statutory due diligence.  It is important to follow state requirements, that may include first class mailings, certified mailings and, for some states, the sending of emails (where email addresses are available, and the owner has consented to electronic communication).  In addition,  states have different periods during which they require due diligence be performed, along with verbiage and font requirements which must be incorporated into the communication.  An understanding of all applicable due diligence requirements is vital to ensure you follow the statutory requirements.

5. Report and Remit

After due diligence responses have been received, you will now know what transactions need to be reported to the states.  Most states now require reports to be filed electronically, especially if your report exceeds a certain number of reported properties.  Many states still accept electronic reports on CD, as long as they are filed in a format which is readable by the state, which is generally the NAUPA II format.  However, each year more states are requiring report files be uploaded to the state’s website.  Remittance protocols also vary by state, some require electronic remittances (e.g., ACH or wire transfer), others accept checks.

Historically, the states’ practice of linking report and remittance was relatively easy. As long as report detail, summary or face sheet and the remittance, usually in the form of a check were all included in the same packet then you had a certain amount of confidence your report and payment would stay linked and could be reconciled.  With more states moving towards allowing or even requiring remittances be made electronically, it can be more difficult to ensure the report and the remittance stay linked. Here are few tips to help ensure everything stays tied together:

  1. Make sure you are using the correct and most up-to-date remittance instructions for the particular state
  2. Verify the department or financial institution who executes the electronic funds uses the correct instructions and includes the sending and receiving party references in the transfer
  3. Always ask to receive confirmation the funds were transferred out of your account
  4. Follow-up with the receiving unclaimed property department to ensure the funds were received and associated with the correct report.

Again, it is vital to understand each state’s individual report and remit requirements, to ensure that your reporting can be accepted by the states.

6. Record Retention

Today, we are seeing an increase in unclaimed property audits.  One of the best ways to lessen the impact of an audit is to be able to show a consistent reporting history, which means maintaining your annual reports.  This should consist of each report filed (whether by you or on your behalf by a third-party administrator), whether positive or negative, details for all individual transactions included on the report, copy remittance, and also copies of due diligence responses to support the resolution of items not escheated. In addition, if you have excluded items due to a state exemption, you may wish to keep a copy of the relevant state statute, holder handbook or other documentation to support the exclude amount.

The above task list, while not exhaustive, can provide you guidance as to the steps you need to take to ensure your filings are as accurate and complete as possible and will be accepted by the states.

Topics: Compliance, Due Diligence, Reporting, Audit, Recordkeeping, Best Practices