Unclaimed property: What accounts payable teams need to know to minimize bad outcomes in the annual compliance process

While nearly all organizations need to be thinking about unclaimed property, it is often the accounts payable (AP) team that sees the issues first. Principal Jim Sadik shared key insights in how to minimize bad outcomes during the annual compliance process during our session at the Institute of Finance & Management’s (IOFM) 2023 APP2P Spring Conference & Expo.  

The top 4 issues AP teams should be aware of that might create financial risks in complying with annual reporting requirements are: 

1. The inclusion of past due unclaimed property on annual filing reports exposes holders to potential interest and penalties, which can amount to material unfunded obligations depending on the jurisdictions involved. Companies should carefully consider their options before simply reporting past due property and hoping that states will automatically grant waivers. 
2. Filing smaller or negative reports just for the sake of filing something, or filing only obvious or specific types of property, can impact a company’s ability to take advantage of waiver opportunities that may be offered by certain states. 
3. M&A transactions raise issues pertaining to predecessor company obligations that may become the responsibility of the buyer, and the passage of time will impact the ability of a buyer to resolve them, especially when considering record retention issues, staffing changes, and a lack of awareness of an acquired company’s compliance history. 
4. How paying careful attention to voluntary settlement opportunities may offer relief from the worst possible punitive application of late reporting fines and interest penalties. 

Additionally, below are some frequently asked questions from AP teams regarding unclaimed property:  

Q: How long should a company maintain supporting documentation in the event a company is ever audited for unclaimed property? 

A: A general rule of thumb is to maintain accounting, treasury, due diligence and unclaimed property reporting documentation for 15 years to cover a reporting period of 10 years for jurisdictions with a 5 year dormancy period. This meets the provisions of both Delaware and the guidelines in the Revised Uniform Unclaimed Property Act (RUUPA) of 2016. 

Q: Should companies maintain records that support why disbursement checks have been voided in the normal course or business? 

A: It is a best practice to maintain support that can confirm why checks are voided, whether as a result of the re-issuance of a stale-dated check, the subsequent sending of funds electronically, reporting the funds to a state on an unclaimed property report, or for any other reason that would support the final disposition of the obligation. This documentation process may be complicated pertaining to acquired companies, where original disbursements were made from bank accounts not under a company’s control, and where the access to back-up documentation may be limited or non-existent years into the future. 

Q: What parameters are auditors utilizing to schedule accounts payable transactions as unclaimed property? 

A: Generally, all outstanding checks may be deemed unclaimed after reaching a certain age (typically 3 or 5 years after the issuance date). In addition, auditors will likely schedule all checks that were voided more than 30 days from the original issuance date. While this is an aggressive tactic, without proper supporting documentation, the initial presumption is that these transactions represent unclaimed property. Less stringent parameters are often available when settling past due obligations under various states’ voluntary disclosure agreement (VDA) programs. 

Baker Tilly is a proud sponsor of APP2P which connects accounts payable executives, leadership members and their teams, to focus on issues impacting their departments, including A/P disbursements, procurement, payment automation, fraud, sales & use tax, and unclaimed property related compliance, audit, and risk issues.  

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.