The Key to Unclaimed Property Compliance

It is no secret that Unclaimed Property is a function within a company that nobody wants to own.

Many businesses ask: who should oversee this function? The Tax Department? The Controller? Shared Services? Unfortunately, there is no clear-cut answer.

Plus, if you ask ten different companies, you will likely get ten different answers.

In many instances, this responsibility gets passed around like a hot potato as employees change jobs, companies merge, offices move, and system conversions are implemented.  As a result, maintaining compliance becomes more difficult.

The solution? Written policies and procedures.

Why are Policies and Procedures so Important?

Your business should have properly developed and written policies and procedures because they:

• Increase the likelihood that a holder will get into and remain in compliance.  
• Establish everyone’s individual roles so that the transition is relatively seamless in the event of employee turnover.
• They’re one of the initial documents an auditor will request during an audit. Providing meaningful policies and procedures and proving that they’re being followed can enhance your standing with the auditor.

In recent years, more states have started requesting companies’ written policies and procedures as part of their VDA program. For example, Delaware now issues Verified Report Notice requests to companies, many of which have already completed a VDA in that state and are filing annual reports. One of their first requests as part of this new initiative is to see and review the company’s policies and procedures.

“We recently assisted a company with a Delaware Voluntary Disclosure Agreement engagement, and the client was able to produce their written document as part of the project and also proved that they were adhering to their policies.”

“We recently assisted a company with a Delaware Voluntary Disclosure Agreement engagement, and the client was able to produce their written document as part of the project and also proved that they were adhering to their policies,” said Eric Mauldin, Director in State and Local Tax. “This went a long way towards establishing credibility throughout the VDA project with the State and led to a more favorable outcome for the client.”

While developing these processes can be a bit painful and time-consuming, the long-term benefits far outweigh any initial headaches. Fraud is a common occurrence within unclaimed property, so while it’s important to establish a central point of contact, it’s equally important to develop the segregation of duties so that multiple employees are involved. This, then, removes the burden of an individual having too much responsibility.

What Should Your Policies and Procedures Cover?

Your policies and procedures document needs to be unique to your company. However, your initial write-up should:

• Specify the types of unclaimed property that need to be reviewed based on the types of liability that originate in your company (accounts payable, payroll, accounts receivable, etc.).
• Explain the process for handling each liability when it reaches a certain number of outstanding days (60 days, 90 days, 180 days, etc.).
• Determine the appropriate general ledger accounts for moving any escheatable items and how they are reconciled.
• Ensure state requirements are followed (due diligence letters, aggregate thresholds, reporting due dates, etc.).
• Define roles and deadlines for each individual employee responsible for any part of the process.
• Establish record retention policies.

“After a lengthy multi-state audit, we had a client realize they needed a written document or policies and procedures to be able to mitigate any unclaimed property, remain in compliance, and avoid a future audit,” said Mauldin. “With our help, a comprehensive document of policies and procedures was composed. To this day, the client continues to use this document as the starting point for compliance, and all property is appropriately captured and escheated as needed.”

“With our help, a comprehensive document of policies and procedures was composed. To this day, the client continues to use this document as the starting point for compliance, and all property is appropriately captured and escheated as needed.”

Once your policies and procedures document is established, be sure to review your policies at least annually to capture unforeseen circumstances, like a change in your company structure, accounting system conversions, state law updates, etc. While your policies and procedures will generally remain the same, it must be a fluid document to remain current.  

And who knows, maybe it can help the process run so smoothly that unclaimed property won’t be such an unpopular subject!  We can dream, right?

Get started establishing your company’s unclaimed property policies and procedures.