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11/4/20 8:50 AM

Unclaimed Property Record Retention: What, Why & How

by Luke Sims & Heather Gabell

Compliance Concept. Word on Folder Register of Card Index. Selective Focus..jpegRecord retention refers to how long important information must remain accessible for future use or reference. Most financial and accounting processes have standards that need to be met because agencies such as the Internal Revenue Service, the Federal Deposit and Insurance Corporation, and the Public Company Accounting Oversight Board all have requirements. You may be familiar with the obligations for these well-known agencies. Do you know what is required for unclaimed property compliance? 

Companies generally maintain a schedule or policy for their escheat records that help define what will need to be kept and for how long. This is a worthwhile practice to meet requirements and have supporting documents available if requested or needed in the event of an audit. 

Creating and maintaining a schedule for unclaimed property record retention isn’t always easy. Unclaimed property retention requirements vary by state and jurisdiction and cause holders confusion about what information must be maintained and how ling they need to archive records. Some holders might decide not to retain unclaimed property records and take their chances during an unclaimed property audit. We don’t want you to fall into this danger zone and have some practical advice that can simplify your escheat record retention policy.

A Few Facts:

◾ Most States’ unclaimed property laws require record retention periods longer than standard tax statutes.

◾ The 1981, 1995 & 2016 Uniform Acts require a record retention period of 10 years plus the dormancy period of the type of property (typically 3 or 5 years).

◾ Statutes are often silent on which records to keep.Key Pieces of Information You Should Know About Your Company’s Unclaimed Property Profile:

1. State of Incorporation..

2. All states where unclaimed property reports are filed

3. Types of property filed (e.g., Payroll, A/P, accounts receivable, gift cards, etc.).

Review the statutes regarding retention for your state of incorporation and compare them to those for the other states where you're filing. Also, review the dormancy periods for the types of property you’re reporting.

You’ll notice that retention varies with each state or jurisdiction, with provisions ranging from 3 to 15 years. The record retention language in the 2016 Revised Uniform Unclaimed Property Act (RUUPA) requires that holders retain records for "10 years after the later of the date the report was filed or the last date a timely report was due to be filed."

Make note of the longest period of time required for retention obligations. This can be used as a benchmark for all for all of your unclaimed property record retention requirements, instead of attempting to manage each jurisdiction separately.

What, Why & How

What type of documentation needs to be retained should also be reviewed for each of the jurisdictions you’re filing in. You’ll see that there are some similar requirements and a few that are specific to a particular jurisdiction. 

Some of the common requirements across jurisdictions include: 

1. The date, place, and nature of the circumstances that gave rise to the property right.

2. The amount or value of the property.

3. The last address of the owner, if known to the holder.

4. If the holder sells, issues, or provides to others for sale or issue in this State traveler’s checks or money orders, a record of the instruments while they remain outstanding, indicating the state and date of issue. 

It’s also recommended that additional documentation be retained, including: 

◾ Verification of reversals, accounting and data errors.

◾ Evidence of timely reporting.

◾ Evidence of due diligence including certified mailings if required.

Due diligence responses.

As mentioned above, some states have additional requirements. Delaware is a good example. In their Regulations, Delaware elaborates on ’the date, place, and nature of the circumstances that gave rise to the property right’, stating: 

“Records to be retained by the Holder include the date, place, and nature of the circumstances that gave rise to the property right. These records may include the following: tax returns (including consolidated and affiliation schedules), organization charts, charts of accounts, unclaimed property filing history (for all states if the Holder is incorporated or formed in the State of Delaware), prior completed and accepted voluntary disclosure agreements (VDAs) and examinations, bank statements, bank reconciliations, outstanding check lists, detail general ledgers, aged accounts receivable reports, aged accounts payable reports, policies and procedures related to record retention, accounting, and unclaimed property, and if applicable, information surrounding gift card issuances and redemptions.”  

Why should you retain unclaimed property records? Most importantly, it’s the law. Equally as important is the necessity of thorough documentation if faced with an audit. Failing to maintain these documents could put you at risk for a lengthy and potentially costly audit, as unclaimed property administrators in some states can estimate your liability owed for those periods where records are not retained, and in others even view payments made based on estimation as a penalty for failure to maintain the records that are required by the state. 

How organizations retain their unclaimed property records is up to them. While there is no specific requirement regarding the media or method used, in today's environment, digital retention is likely the most cost efficient and effective retrieval method available. Regardless of how you choose to store your documentation, the key to success is to have a baseline policy and procedure that undergoes a review for legislative changes on a regular basis.

Professional Guidance

Integrating unclaimed property record retention requirements into your organization’s overall record retention policy doesn’t have to be a headache. Taking the time to complete a review of the jurisdictional requirements and establishing a standard for your company can save you from potential unsatisfactory results during an audit.

If you need help getting started, seek out a professional advisor who has the experience and resources to work with you to create a policy that works best for your company. An advisor can also conduct periodic reviews and provide updates to your policy to ensure statutory compliance is maintained.

 

Topics: Compliance, Recordkeeping, Best Practices