Does your organization have very old, unliquidated obligations lingering on the books, some with little or no corresponding support documentation? If so, you are not alone. Unclaimed property is often the 101st of 100 things to do. As a result, it’s not unusual for companies to suddenly find they are facing an audit with no records to support their position. Whose fault is this?
Some might say the corporate officer in charge of the department where unclaimed property originates should be the target of blame when things go wrong. However, when a department has never had to deal with unclaimed property before and no state has tried to audit the company, it’s understandable that it isn’t a priority.
Others might say whoever manages taxes and/or compliance would be the ones to blame. After all, they know the ins and outs of tax processes. Even though unclaimed property isn’t a tax, it functions similarly. However, in these departments, there are so many other concerns, unclaimed property can seem like an afterthought.
Stop looking for someone to blame and get a team together to corral unclaimed property
If a horse escapes a pen, no one stands around discussing whose fault it was that she got out. Everyone on the ranch pitches in to find the horse and fix the gate.
That’s how your organization should look at unclaimed property when you are suddenly facing back payments, penalties and interest. It’s a waste of time to look for blame. You should be forming a team to find the problems and plug the holes where possible…minimizing damage and corralling unclaimed property, so you don’t end up in this situation again.
What goes wrong with abandoned and unclaimed property?
One of the problems with unclaimed property is that it can sit there in your accounts without causing problems for years. If you have never reported or have underreported, the states might not identify you as a non-reporting unclaimed property holder until they are focusing on your industry. Organizational events also can trigger interest by the states. A couple of examples are mergers/acquisitions or new business of certain types.
When you do decide to report your company’s unclaimed property to come into compliance, or if one or more states finds a reason to check your status, your non-reporting history can result in back payments, penalties and interest. If you are audited, inadequate records, inaccurate accounting, inadequate computer systems and missing unclaimed property procedures can cause the audit to last longer than necessary, costing your organization in work hours and dollars.
In some cases, if a non-reporting history results in a finding of intentional negligence, your company’s reputation could take a hit. At the very least, owners who find out you have been holding on to their property for years could become disgruntled and spread the word.
Common mistakes resulting in abandoned property or unclaimed property problems:
- Not understanding what unclaimed property is or how it’s generated
- Not knowing how to resolve items before they become unclaimed property
- Not understanding or following proper reporting procedures for every state, not reporting to all relevant jurisdictions, reporting to the wrong jurisdictions—or not filing at all
- Not including all appropriate property types in reports
- Accounting incorrectly, which can lead to mischaracterizations of transactions
- Lack of records or inadequate records
- Not establishing proper policies and processes to organize and document unclaimed property efforts
- Inadequate computer systems with no way to track potential unclaimed property
- Not performing due diligence or performing inadequate due diligence
How to solve unclaimed property problems
Once you realize the horse is out of the pen—or could escape if the gate’s not fixed—you can take action. Unclaimed property action in your organization should begin with training. First, learn what unclaimed property is. Second, determine which states you must report in and learn their regulations. Some companies create an unclaimed property coordinator position to centralize all efforts.
Once this is done, you can formulate unclaimed property policies and procedures. This will help ensure all property types are found and reported accurately. Then, when an audit becomes a reality, you will be ready. If you already have received an audit notice, you can still begin the process and probably reduce the damage.
Keep in mind unclaimed property is complex, with hundreds of statutory changes each year. Seeking assistance from a professional unclaimed property advisor can create significant value and ensure appropriate risk mitigation to help you keep your unclaimed property horse in the corral.