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Unclaimed Property Audit

Tim Northup's Profile

There has been a recent increase in attention given from States on unclaimed property.  It appears that states are looking at unclaimed property as a source of either cash flow or revenue or both.  The state of Michigan is requiring every business to attest to whether it has unclaimed property (i.e. outstanding payable checks, accounts receivables credits, returns etc..) that are sitting dormant, greater than 3 years old.  These instruments must be turned over to the local state that the receiver resides in. 

I am curious if this attention is growing in other states as well as interested in hearing from anyone who has gone through an audit and their experience with it.

Thanks,

Tim

Answers

Anthony Enlow
Title: Director
Company: BDO USA LLP
(Director, BDO USA LLP) |

Unfortunately this is gaining attention form the states as a source of revenue. One firm I am familiar with actually does this as a service for corporations, maintaining and reporting on unclaimed property by state. The Company is the Keane Company, www.keaneunclaimedproperty.com does a good job in this regards and I know the CFO well. My experience with them is that they are very thorough. Just my two cents worth.

Becky Warburg
Title: Contract Accountant
Company: Premier Business Solutions
(Contract Accountant, Premier Business Solutions) |

How can the state lay claim to this money? If a vendor held a check for more than 6 months, I would void it out. Same goes for a customer. Why would companies turn these funds over to the state? And how can they be forced to?

Kurt Kipfer
Title: CFO Emeritus
Company: International Medical Group, Inc.
(CFO Emeritus, International Medical Group, Inc.) |

I suggest you quickly get familiar with your state's escheat laws. We may not like them, I don't. They are tedious, tend to be technical, and, of course, each state has different sets of laws with different timelines and reporting requirements. Generally speaking, you are legally bound to reissue payables to the intended parties and if you are unsuccessful, you must report this information and the funds to the state.

Another harsh reality of life, unfortunately.

Becky Warburg
Title: Contract Accountant
Company: Premier Business Solutions
(Contract Accountant, Premier Business Solutions) |

Thank you for the info. I work, and have always worked, in small organizations where it's very rare that a check to a vendor doesn't get cashed. It may get lost in the mail, but always reissued. On the customer side, overpayments would be applied to future balances. We don't "keep" the money. It seems to be an issue if the balances sit for an extended time period. It seems Maryland (where I work) and several other states have an exception for business-to-business transactions.

Randal Shields
Title: Consultant/CFO
Company: Randal Shields, CPA
(Consultant/CFO, Randal Shields, CPA) |

Becky,

As others have mentioned, all states have them.

I understand your comment about voiding out the check, taking it back vs. income. Generally what the state laws are looking for regards whether the payee on the check was/is entitled to the money.

Let's presume the expense is valid, for whatever reason the payee never cashed the check, 6 months later you write this off the outstanding check list. You likely just violated that state's escheat laws.

In the instance where you have to void and replace a check, this is not an issue. Where you void the check without reissuing, to retain the funds the reason for voiding the check was the payee was not entitled to payment. Could have been the wrong payee and reissued to another. Could be the AP invoice was a duplicate and the AP system did not check with data entry, this would be valid to void.

Kevin Kelso
Title: Controller
Company: The Arc of Delaware
(Controller, The Arc of Delaware) |

Unclaimed or Abandoned Property revenue, especially in states that have a large financial corporate presence (NY, TX, CA & DE) is a huge piece of the local revenue pie. With each state & US territories having it's own set of rules that can be modified very easily as state Treasurers eyeball the potential bounty, an unknowing company can easily be found in violation of the reporting requirements. Having had to file these reports for all 50 states & US territories for a large nationwide financial institution, I can advise that staying on top of these requirements can be a daunting task. Certain states are not as forgiving as others (TX, CA) while others can be quite accomodating. If a company has more abandoned properties to track then would be comfortably downloaded to Excel, they would be well advised to purchase or lease abandoned property software or use a 3rd party. Banks & financial institutions are well aware of these regulations. We used CHECKFREE's APECS software (now owned by FISERV)& it was a valuable investment because the service constantly monitors each states compliance changes & updates the software for reporting. Beyond the obvious things like dormant accounts and uncashed checks, states also require unclaimed stocks, bonds and other financial instruments to be included in both the reportinng and to be remitted to the state. Some states have banded together to fund a 3rd party auditor to come into a company and find unreported property. I have heard they can be quite ruthless in that a portion of their fee is tied to how much they find. Therefore, it goes without saying that you should seek legal counsel as soon as an audit letter of this nature is received. Each state has different interest penalties that can be assessed on the number or amount of unreported properties.

Martina Beverly
Title: n/a
Company: n/a
(n/a, n/a) |

The following sites might be more consumer/beneficiary orientated, but provide states and provincial contact information & websites made accessible through the National Association of Unclaimed Property Administrators (NAUPA):

http://naupa.org/
http://missingmoney.com/

I provide financial counseling to individuals and highly recommend checking the above websites, and state treasurers’ sites. If individuals owned real estate, I further recommend checking the county’s site for possible unclaimed property tax balances.

Your state’s escheat laws should be accessible online.

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