Record retention refers to how long important information must be retained 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 escheat 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 must be retained and how long 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 that are longer than the record retention periods used in standard tax statutes.
• The 2016 Revised Uniform Unclaimed Property Act requires a record retention period of 10 years after the date the report was filed or due to be filed.
• 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. Listing of all states where reports are filed.
3. Types of property filed (e.g. Payroll, A/P, accounts receivable, gift cards, etc.)
Review the statutes regarding record retention for your state of incorporation and compare them to the other states that you’re filing to. Also, review the dormancy periods for the types of property you are reporting. You’ll notice that record retention varies with each state or jurisdiction, with provisions typically ranging from three to fifteen years. Make note of the longest period of time required for retention obligations. This can be used as a guideline for all of your unclaimed property record retention instead of attempting to manage each jurisdiction individually.
What, Why & How
What type of documentation that needs to be retained should 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, including proof of payment.
• 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. The Department of Finance’s Abandoned or Unclaimed Property Reporting and Examination Manual elaborates on ’the date, place, and nature of the circumstances that gave rise to the property’, 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.” 
When creating a retention policy, use the same standard for all jurisdictions; don’t try to manage each separately.
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. The failure to maintain such documentation could put you at risk for a lengthy and potentially costly audit, as estimation and extrapolation techniques may be utilized for those periods where records are unavailable in order to estimate your unclaimed property liability. In a state with a 10-year record retention requirement, if the property type in question has a 5-year dormancy period, the holder must account for 15 years’ worth of records.
How organizations retain their unclaimed property records is up to them. There are no specific requirements regarding the media or method to be used. However, 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 which includes a review for legislative changes on a regular basis.
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.
*Content contained in this article is considered accurate as of the publish date.