Unclaimed Property White Paper Preview




Understanding Unclaimed Property
     
This section provides a well-grounded understanding of just what unclaimed is and how the states view unclaimed property.  Basic topics such as dormancy and terminology are provided, but more important concepts such as "private escheat" are discussed.  

Excerpt:  All states have unclaimed property statutes that require a holder to report tangible and intangible property to the appropriate state if the property ages out and falls through the dormancy period and if, at the end of said dormancy period, the owner still cannot be located ... One of the most basic and often overlooked elements of unclaimed property compliance is a company’s failure to ... Subscribe to UPInfoSource for complete access.
 
History of Unclaimed Property
     
This section provides the history of unclaimed property's development.  The more the holder knows and understands about unclaimed property, the better it can defend itself.

Excerpt:  The modern unclaimed property roots trace back to English feudal law where the Crown imposed its sovereign powers to escheat property in the event a person died without legal heirs or was property was abandoned by its owner.1  The primary differences between British common law and the state unclaimed property provisions which currently exist within all fifty states and three jurisdictions (District of Columbia, Puerto Rico and the US Virgin Islands) are that (1) under the current state provisions the states are intended to serve as “fiduciaries” of the abandoned or unclaimed property until the true owners of the can be located and (2) the modern provisions relate to the abandonment of intangible as well as tangible property.... Subscribe to UPInfoSource for complete access.


Amnesty / Voluntary Disclosure Programs

This section provides an explanation of an amnesty vs. a voluntary filing, issues that should be considered, red flags that can turn a voluntary filing on its head and into a multi-state audit and other nuances of the states.

Excerpt:  All states have significantly stepped up enforcement efforts over the past several years to encourage compliance with the unclaimed property reporting requirements.  These efforts include heightened audit activity, the engagement of third party contingent fee audit firms to conduct multi-state audits and the use of sampling techniques and extrapolations to determine liabilities for years in which records no longer are available. Alongside the stepped up audit activity, the states offer a voluntary disclosure program or amnesty program on an in/formal basis, depending on the state... Subscribe to UPInfoSource for complete access. 

The Ongoing Compliance Process

     
This section provides useful tools and best practice techniques for a stable on-going process.

Excerpt:  The single most effective technique a company can implement in order to reduce its unclaimed property liability is to put into place an effective and comprehensive compliance program.  By spending the time, effort and resources in building an effective compliance process, the company will significantly reduce the cost and exposure later if selected for audit by the state(s) or their third party contract auditors.  The costs averted include ... Subscribe to UPInfoSource for complete access.

Prepaid Stored Value and Gift Card: Rules of the Road

This section provides state-by-state guidelines regarding all forms of gift cards, stored value cards and rewards programs, as well as planning solutions.

Excerpt:  Probably no where in the unclaimed property provisions is there more confusion and controversy than those associated with the issuance and redemption of pre-paid stored value and gift cards.  There are several reasons for this complexity ... Looking back over the past decade, the paper form of a “gift certificate” has exploded into a multi-billion industry where virtually all retailers and most service providers issue at least one, and often times multiple forms of pre-paid gift cards
(End Note 1).  Among the problems facing corporate holders issuing gift cards are that the unclaimed property provisions of most states provide little clarity in distinguishing the rules among the following forms of pre paid cards ... Subscribe to UPInfoSource for complete access.

Voluntary Disclosure & Audit Defense Exposure Analysis

Guidelines and Checklist


This section provides a checklist that identifies the types of information and reports and data downloads necessary to determine a company's unreported liability AND to explain and define why the report, etc. is necessary and what the holder needs to do with the report, etc. in order to process the information and perform an exposure analysis.

Excerpt:  Getting to Know You, Getting to Know All About You   
Conducting a self-review / exposure analysis is not an exact science.  There are numerous variables that will impact how a company should proceed.  A common sense and reasonable approach will prevail.  Keep in mind throughout the process that the states’ perception, either singularly or through their contract auditors, is that the holder has more unreported unclaimed property than what it is owning up to and the bar is high for the holder in proving that its identified unreported property is the total population.  The holder must prove an understanding of unclaimed property and an understanding of the company’s accounting operations.  Answers such as, “Everyone cashes their payroll checks” or “I talked to the vendor and they agree my account is paid in full” are not sufficient to prove an item is not unclaimed property.  See the Section entitled, “Remediation Guidelines” to understand what must be provided. 
     
The data requested in the “Unclaimed Property Checklist” that accompanies this Section is designed to meet two objectives: (1) to make sure that the Preparer (person conducting the self-review) becomes very knowledgeable about the procedures, etc. of each accounting area and (2) to gather and process reports necessary for identifying and quantifying past-due unclaimed property ... 
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Internal Compliance Review Guidelines and Checklist

This section provides a checklist that identifies the types of information and reports and data downloads necessary to determine a company's unreported liability AND to explain and define why the report, etc. is necessary and what the holder needs to do with the report, etc. in order to process the information and perform an exposure analysis.

Excerpt:  The purpose of the Internal Compliance Review is to provide a level of assurance that the company’s on-going unclaimed property compliance function is operating as designed.  The frequency of an Internal Review will be determined by the holder, but should occur at least every two years to confirm unclaimed property policies and procedures are being followed.

Practice Tip:  Reference the Internal Compliance Review Checklist... Subscribe to UPInfoSource for complete access.

Mergers and Acquisitions Due Diligence Guidelines and Checklist
    
This section provides a checklist that identifies the types of information and reports and data downloads necessary to determine a company's unreported liability AND to explain and define why the report, etc. is necessary and what the holder needs to do with the report, etc. in order to process the information and perform an exposure analysis.

Excerpt:  The purpose of the Mergers and Acquisitions Due Diligence is to determine the level of compliance the acquired entity has in place and, if none, a relatively expedient approach to estimate a high-level liability.  To the extent each item on the check list can be completed is dependent upon (1) whether the personnel of the acquired entity are aware of the pending acquisition and (2) how quickly, if at all, the acquired entity will be merged into the acquiring entity.  

Practice Tip:  Reference the Unclaimed Property Checklist – Mergers & Acquisitions ... 
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Multi-State Audits, The Basics
    
This section outlines how the holder should prepare for the audit, including a special section on the third party firms and possible holder defenses.  

Excerpt:  The concept of unclaimed property is fairly simple and the issues themselves are easy to understand.  What companies initially struggle over is that the statutes and application of same are so unusual and unlike anything ever seen.  It makes a person think:  “I must not be understanding this”, when in fact you do.  Another matter companies struggle with is the concept of for-profit audit firms, paid on a percentage of identified liability, auditing under the authority of the state(s).  And the risk:  the auditors won’t leave until they find something even if they have to make something appear out of nothing. 

Batten Down the Hatches     
Unclaimed property is not a tax.  But when under audit it feels and acts like a tax.  An unclaimed property audit will take a number of years to complete, at least... Subscribe to UPInfoSource for complete access.

Managing a Multi-State Unclaimed Property Audit
    
This section provides a detailed knowledge transfer of what the holder should expect and lots of practice tips so that the holder can be well prepared for a multi-state unclaimed property audit.

Excerpt:  The methodology employed by the third-party audit firms will vary depending on the standard audit procedures, if any, used by the third party firm and will vary further depending on the individuals conducting the audit.  The methodology chosen for this section is the standard audit procedure employed by the third party firms known to audit on behalf of the states more often than any of the other firms. Following this audit program will more than sufficiently prepare the holder for the multi-state audit.
   
Following are the events that take place during an audit and recommendations for handling the audit objectively. ... 
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Remediation Guidelines
    
This section outlines the types of documentation that are necessary to show an item as having been appropriately resolved for valid business purpose, including accounts receivable for both current and non-current customers.

Excerpt:  The following explains the type of supporting documentation necessary for sufficient remediation of items in the disbursement accounts.  Supporting documentation includes ...
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Extrapolation Methodology and Tables
     
This section provides an explanation of extrapolation techniques used by the states to determine a holder's prior years' unreported unclaimed property liability.  An extrapolation template is provided along with an explanation of each computation, the source of each computation and the use of each computation.  Also addressed are the many uses of the extrapolation tables.

Excerpt:
It's About the Economy ... Oops, I mean, State of Incorporation


An extrapolation of prior years' liability is performed when records are not available (or are insufficient) to determine the amount of reportable unclaimed property relating to periods included in the audit cycle.  In general, the state of incorporation will be the primary state interested in utilizing an extrapolation methodology to determine the liability for earlier periods (under the 2nd priority rule) since all other... Subscribe to UPInfoSource for complete access.