Unclaimed Property Audit – Are You At Risk?

This blog was originally created at the request of the Association for Financial Professionals (AFP) organization and posted to their website in August 2019 in a series dedicated to the education of its’ members and attendees of the 2019 AFP Annual Conference in Boston, Oct, 20-23.

The likelihood of an unclaimed property audit has increased in recent years due to several factors, including the proliferation of third-party auditors, realization by states that significant amounts are involved, and the escalation of unclaimed property litigation. Escheat compliance is no longer optional and being audited is not a matter of if, but when.

Situations and events that may bring an auditor to your door include:

• Failure to file or filing late
• Filing negative reports year after year
• Filing incomplete reports or reports that don’t match remittance
• Not filing in the state’s required format
• Not reporting property types that are standard for your industry
• Reporting much less than similar organizations
• Filing to the incorrect state
• Mergers and acquisitions
• Claiming property without being compliant

An audit can be expensive when you consider potential penalties and interest, time and resources. Many audits may take up to two, five, seven or more years to conclude. There are things a company can do to reduce the risk of an audit. Here are 3 tips:

1. Be proactive and determine whether the company has unclaimed property exposure. If it does, understand the options to mitigate this exposure and execute the best strategy.
2. Ensure that you have appropriate policies and procedures in place to mitigate the creation of unclaimed property and to properly maintain compliance.
3. Monitor activities of third-party administrators such as payroll processors, rebate processors and stock transfer agents to ensure that any unclaimed property generated is appropriately handled.

Managing unclaimed property compliance can be a complex puzzle with many different pieces needing to come together. First, statutory requirements vary across jurisdictions and change regularly. Secondly, compliance likely requires coordination across a variety of departments, divisions or entities, many of which may not regularly interact. These complexities can increase exponentially for organizations with complex organizational structures, decentralized accounting functions or a complicated merger and acquisition history.

To ensure an entity has the best unclaimed property compliance profile, it is vital that it maintains  accounting policies focusing on individual areas of the business that may generate unclaimed property and creating specific procedures to identify and re-mediate transactions that may ultimately become unclaimed if not timely analyzed.  The individual areas/departments that will likely need policies include:

• Treasury
• Tax
• Accounts Payable
• Accounts Receivable
• Payroll
• Benefits

Unclaimed property is at the forefront of the states’ mindset and they have more tools than ever to determine whether companies are in compliance with unclaimed property statutes and to identify audit targets. Organizations need to understand the complexities and risks associated with non-compliance. Partnering with an unclaimed property professional can provide holders with guidance to determine exposure, or risk, allowing them to be proactive and lessen potential issues.

Learn more at the AFP conference on Tuesday, October 22 at 8:30am when Heather Steffans and Jon D’Amato from MarketSphere Unclaimed Property Specialists and Linda Tregea from Benco Dental present: ‘Audits, VDAs, Reports – Sounds Like Unclaimed Property.