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Unclaimed Property Audit: Are You at Risk?

Aug 21, 2019

By Heather Steffans, Partner, Strategic Solutions, MarketSphere Unclaimed Property Specialists

The likelihood of an unclaimed property audit has increased in recent years due to several factors, including the proliferation of third-party auditors 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.

REDUCING THE RISK

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 certain actions that a company can take to reduce the risk of an audit. Here are three tips:

1. Be proactive and determine whether the company has unclaimed property exposure—

and don’t forget about M&A activity. 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. Additionally, 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 M&A history.

To ensure that 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 create specific procedures to identify and remediate 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.

STAYING COMPLIANT

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. Organizations need to understand the complexities and risks associated with noncompliance.

Learn more about unclaimed property reporting and all the risks that noncompliance presents at AFP 2019 in Boston. On Tuesday, October 22 at 8:30 a.m., I’ll join Jon D’Amato from MarketSphere Unclaimed Property Specialists and Linda Tregea from Benco Dental for the session, Audits, VDAs, Reports – Sounds Like Unclaimed Property. I hope to see you there.