Rarely a day goes by that I don’t come across some sort of pop-up or radio ad encouraging me to go online and search for abandoned property in my name. It’s an alluring proposition. The thought that I might have some forgotten money lying around, perhaps funds from an old savings account or a forgotten state tax refund, is exciting, and opportunities abound (use the free ones) for me to claim my abandoned property. What to do with unclaimed property is a simple procedure for individuals. For businesses, however, the issue becomes a bit more tricky, and that is why detailed unclaimed property policies and procedures for unclaimed property are a must for any business.
What is unclaimed property?
Unclaimed property is property held by an entity, including a corporation, partnership or limited liability company (holder), that belongs to another person or entity (owner) When it comes to businesses, unclaimed property includes items such as outstanding payroll checks, outstanding checks to vendors, accounts receivable credits, and customer deposits. Unclaimed property is a legal liability to the owner, and holders have a legal obligation to remit unclaimed property in its possession to the appropriate state(s). Unclaimed property is not a tax liability for the holder.
Any company that has been subject to an unclaimed property audit has a keen understanding of the value of establishing and following strict policies and procedures for unclaimed property. Detailed unclaimed property policies and procedures can assist a company to stay current with filing obligations, potentially decrease the risk of state audits, create and maintain necessary audit defense documentation, and reduce the risk of over-reporting.
How do I establish policies for my business?
Your first step is to ensure that your company has the proper internal controls in place to deal with the accounting for unclaimed property -- namely record retention and tracking of unclaimed property items. In addition, your company must be able to deal with the volume of data and information that could be requested of you during an audit. A clearly documented audit trail training of personnel to maintain the policies and procedures is essential. Policies and procedures should align with business needs and capabilities. Your BGW advisor can help evaluate whether proper procedures are being followed, offer recommendations for how to track unclaimed property, and help monitor reporting deadlines. Though state reports are not overly complicated, you will need to devote administrative resources to the preparation of the reports and the statutory due diligence requirements mandated by your state. Continued evaluation of your unclaimed property policies is necessary as your company grows and as states make regulatory changes to their unclaimed property laws.
I've been selected for audit. What can I expect?
During an unclaimed property audit, the state will insist that you substantiate items reported and, more importantly, demonstrate why an item was not reported as unclaimed property (e.g., a check was reissued and cashed by the payee). Absent a showing, your state may take the position that the amount is owed to it, the state.
Additionally during an audit, you’ll be asked to furnish a written copy of unclaimed property policies and procedures and previous unclaimed property reports that have been filed with the state(s). This will determine your history of compliance. If your company’s unclaimed property policies provide support that such procedures have been properly implemented and followed, the audit will go much smoother. Audits are not pleasant, so do everything you can to lessen the burden should one arise.
In summary, companies that develop and implement appropriate unclaimed property policies and procedures throughout the organization better mitigate liability. Start today by locating missing owners of property on your books, assisting in returning funds, and reconciling accounts and transactions. This may help you avoid complex escheatment reporting down the road. Then begin the process of creating detailed policies and procedures so that your company stays current with filing obligations, decreases its audit risk, and maintains audit defense documentation. As always, we’re here to help.
