From analyzing data to performing due diligence, unclaimed property can be a complex undertaking. Clearview Group helps streamline the process with analytic review, annual reporting, audit defense, VDA assistance and the development of policies and procedures.
Every year, businesses are required to report “unclaimed property,” or unclaimed financial obligations. These obligations can include uncashed payroll and accounts payable checks, customer credit balances, gift cards, dormant checking or savings accounts, as well as dividends and stocks. The risks of non-compliance could result in fines and penalties being imposed, especially today, as states are more incentivized to initiate audits and increase unclaimed property assessments. As a result, companies need to develop a proven and documented system for handling dormant and open liabilities properly.
Baltimore-based consultancy Clearview Group can help companies create this system by connecting them with the firm’s experienced state and local tax professionals. Clearview’s team can identify a company’s areas of need, develop a comprehensive plan to get the company into compliance and help maintain that compliance in the future.
Creating a Documented Process for Data Collection
First, organizations need to create a thorough written process for mitigating all potential sources of unclaimed property.
“There is no right or wrong way to capture liability,” said Eric Mauldin, a Principal within Clearview Group’s State & Local Tax (SALT) practice and Practice Leader of the Unclaimed Property division. “A documented process helps outline how you will track the liability and ensure the property is appropriately handled. In addition, if you ever go through an audit or self-audit, one of the first questions asked is whether or not you have documented policies and procedures in place. If you do have procedures and are properly following them, you will look a lot better in the eyes of the state. A documented process will also help protect your company from fraud.”
While having a tried-and-true system for unclaimed property is important, Mauldin notes that it is just as essential to ensure the procedures are flexible and up to date. Unclaimed property laws are constantly changing, which is why companies need to not only understand the current state statutes and regulations, but also be cognizant of any changes to the law that may impact the current year’s filings.
Handling Stale-Dated Liabilities
When determining what is and is not unclaimed property, there are several different methodologies to handle state-dated liabilities, but the key, Mauldin says, is keeping track of all liabilities on the books.
“When it comes time to escheat unclaimed property, you don’t want it to be a hit to your liability and bottom line,” Mauldin said. “That is why you should never write off uncashed liabilities or unused credits as income unless you are sure the liability is not owed. In a Delaware VDA, any liability that has been open for at least 90 days is potentially considered unclaimed property — if you have a check that has been open for 90 days, for example, you will need to show the state how the item was remediated. If you cannot resolve an item or reunite the funds with the owner, don’t write them off as income. One suggestion would be to put them into a separate G/L account and wait for the item to become dormant per state law. Clearview Group works with each company to figure out the most efficient process for dealing with stale-dated liabilities.
Performing Due Diligence
Once companies have identified transactions that are unclaimed property and are due to the states for the current reporting period, they are required to attempt to contact the owner via due diligence mailing. It is important to follow state requirements, which include first-class mailings (in most cases) and, for some states, certified letters.
“When it comes time to report, nearly every state mandates due diligence, depending on the dollar amount of the dormant item — you have to send one letter per individual or company to give them a chance to claim the property after it becomes dormant,” Mauldin said. “We always recommend developing a program where you reach out to these customers, employees or vendors before the credits or checks become dormant. There are many ways to resolve these liabilities, but the key is communication.”
Using State-Approved Software to Help with the Compliance Process
After the due diligence process has been completed, it is time to report the remaining unresolved and dormant items to the states. Most states require reports to be filed electronically and uploaded directly to state websites. There are 53 jurisdictions in the U.S. that have unclaimed property laws, and each state has different exemptions, dormancy periods, due dates, due diligence requirements, payment requirements and more. Clearview Group helps its clients navigate these different requirements with state-approved software.
“The software we use captures everything based on the state, as well as whether or not there has been any change to the laws,” said Mauldin. “There is free software out there, but you get what you pay for —the software we utilize helps you keep track of any changes going on in the industry. Professional consultants generally use the paid software, as they don’t want to miss anything or have their clients targeted for audit.”
Mauldin says it is important for companies to create an annual compliance timeline. “Not all states have the same deadlines for corporations,” he said. “It is important to have that plan in place so you can stay ahead of deadlines moving forward.” This can be a part of the previously mentioned policies and procedures.
Once the unclaimed property process is successfully finalized, companies must maintain records and documentation for a minimum of ten years. Today, unclaimed property audits are becoming much more common, and one of the best ways to lessen the impact of an audit is to be able to show a consistent reporting history. Clearview Group will assist companies with annual unclaimed property reporting, whether it be mailing due diligence letters, tracking responses, processing state reports or anything else.
Overall, handling unclaimed property can be a complex process, and Mauldin says it is essential to have an expert on board who understands the specific details. “Unclaimed property isn’t hard, it is just very detail-oriented, because it can go off the rails very easily,” he said. “Clearview Group has the team in place to provide that expertise and ensure clients handle the process properly.”
To view additional educational content regarding Unclaimed Property by Eric Mauldin: