Article

Ten best practices for unclaimed property compliance

Feb. 1, 2023 · Authored by Cathleen Bucholtz, Michelle Moloian

On the surface unclaimed property (UP) compliance reporting seems straightforward. Companies often believe they are in compliance and protected from audit risk, but upon closer inspection many companies find that they lack the required historical documentation to verify their compliance practices when they come under audit. To help ensure your company is truly in compliance, we encourage you to benchmark your policies, communication, and monitoring protocols against this list of 10 best practices for unclaimed property compliance. 

1. Know your audit risk

There has been an increase in the number of audit firms working on behalf of ALL states. Unfortunately, more audit firms means more audits. Today’s reality is that UP is a source of significant revenue for many states, and they are targeting companies like yours. Sensitize your team to be on the lookout for audit letters, invitations to participate in voluntary disclosure programs, and other state UP notices. 

2. Assign responsibility for UP compliance

VP of tax, CFO, controller, internal legal counsel and others often oversee high level risk issues, disclosures, accruals and compliance. Therefore, it is important to get their involvement with UP. Secondary responsibility commonly falls to the tax teams since they have an infrastructure in place to address multistate reporting. Make sure to designate an escheat coordinator to work with the various departments that may generate potential UP including, but not limited to, accounts payable, accounts receivable, payroll, and potentially human resources and risk management. 

3. Identify “hidden” unclaimed property

Most companies understand that unresolved liabilities such as uncashed checks, unredeemed gift cards or customer credit balances can result in UP, however there are other not-so-common areas that need to be considered. Keep an eye out for liabilities assumed in an acquisition, self-insured third party benefit plans, small dollar write-off accounts, mineral interests and more. Audit firms are experts at finding “hidden” unreported areas of exposure, so this step is critical. 

For a comprehensive list of potential unclaimed property, visit the National Association of Unclaimed Property Administrators (NAUPA) website at: unclaimed.org/reporting. 

4. Develop effective policies and procedures

Policies and procedures should include high-level narratives of the company’s policy regarding UP. The narratives should address the organization’s reporting responsibility, summarize the reporting process, assign an escheat coordinator, describe areas where UP may arise within in the company, set materiality limits and record retention rules. For each policy related to specific areas or departments within a company, there should also be detailed procedures. The policies should also work in tandem with the company’s standard accounting or record retention policies. 

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.