Q&A: Simplifying and Removing the Mystery Behind Unclaimed Property Compliance and Reporting

Many states have become more aggressive when it comes to audits targeting unclaimed property and compliance reporting. Organizations need to effectively manage a wide variety of state laws governing unclaimed property compliance, as well as identify and report unclaimed properties to numerous jurisdictions.

SC&H Group’s Unclaimed Property experts are trusted advisors and advocates who proactively help organizations minimize unclaimed property exposure and ensure that reporting is accurate.

Following is a Q&A with Patricia Hopper, Principal at SC&H, as well as Eric Mauldin and Jennifer Arias, both Senior Managers at SC&H, who provide key insights into the challenges and solutions regarding unclaimed property compliance.

Q: What is “Unclaimed Property”?

A: Unclaimed property looks, acts and feels like a tax, but it is completely different and very complex. Essentially, larger enterprises are required to report unclaimed financial obligations, which are also known as “unclaimed property.” These could include old un-cashed payroll and vendor checks, customer credit balances, gift cards, dormant checking or savings accounts, as well as dividends, stocks and investment properties.

In other words, unclaimed property is any financial obligation that is due to another party, such as customers, vendors, employees and investors. These third parties are often located in other states, and companies are required to report these unclaimed properties in those jurisdictions.

Q: Tell us about the Unclaimed Property compliance process.

A: This is a highly complex process that impacts every part of the organization and many companies don’t fully understand how non-compliance can impact their bottom-line. If this process is not managed properly, it could result in fines and penalties for non-compliance.

By way of example, if your company is headquartered in New Jersey, but is incorporated in Delaware and you have unclaimed property with a vendor who has an Idaho address, you are obligated to report this to the state of Idaho. The correct reporting state is determined by the address of the person or business your company owes money to regardless of where your company actually has a business presence. If you cannot locate an address for a property owner, your company would be required to report the liability to Delaware.

This obligation to report property without a known address to a company’s state of incorporation can often times unknowingly create a significant audit exposure. Unclaimed property audits can be highly invasive and with no statute of limitation, investigations can date back to 1981. This means that companies need to provide reporting and accounting records for the last 30 years, which is highly time-intensive, costly and cumbersome.

Q: Tell us about the costs associated with an “unclaimed property” audit?

A: The reality is that the liability under audit, especially when compared to completing a voluntary compliance program, can be astounding.

Depending on the type of audit – especially ones that go back to 1981 – the combination of unclaimed property audit findings and related penalties and interest can be devastating. Audit assessments in the millions are not uncommon. By taking a proactive approach, the costs for going through a voluntary compliance process are minimal when compared to the longer time span, fines and legal/consulting fees incurred under an audit.

For example, a Delaware incorporated company with business operations in about 10 states recently completed a multi-state audit that spanned back to 1981. After several years under audit, their final assessment exceeded $4 million, plus they were assessed nearly $600,000 in interest. Had this company proactively managed their unreported liabilities through state voluntary compliance programs, their liability would have been approximately $740,000, there would not have been any interest assessed and the process would have likely been completed in 12-18 months, significantly reducing their outside costs and internal resource drain.

Q: Tell us about SC&H’s expertise in this arena.

A: We offer a combination of specialized expertise along with highly personalized services that are geared towards guiding clients through the voluntary compliance or audit process. We have team continuity that allows us to establish deep relationships with our clients that last years at a time – and simply put, we care about our clients’ outcomes.

SC&H also provides complete transparency with clients, and we focus on education. We believe that the more informed the client, the better the outcomes. To help educate our clients, we provide reports that are both highly detailed and easy to follow in everyday language. SC&H also keeps copies of all reports, which makes it easier to respond to upcoming audits and ongoing compliance reporting.

Q: Tell us about the unclaimed property services you offer.

A: Our unclaimed property professionals represent companies under audit with all of the major third-party, multi-state audit contractors. We manage the audit process with a cost-effective approach that minimizes our clients’ exposure. Furthermore, we offer very cost-effective solutions when compared to larger firms. The SC&H team is also often called in to do ‘clean up’ after larger firms that, lacking the same expertise and depth of experience, had not fully met the client’s needs.

Our wide range of services include:

  • Audit Defense
  • Management of the new Delaware SOS VDA Program
  • Multi-State Voluntary Compliance Assistance
  • Diagnostic Review and Risk Assessment
  • Annual State Reporting
  • Policies and Procedures
  • Education Training Seminars

To learn more about SC&H’s Unclaimed Property Services, click here.