Letter to the UP Adviser
In this month’s newsletter, we have 2 letters to share with our readers that we hope you find beneficial:
Dear UP Adviser,
Thank you for your recommendations (see our January newsletter) and we have discussed internally with our CFO and management team. One follow up question that came up during our meeting was how to go about performing a self-audit or risk assessment to identify our unclaimed property compliance gaps and potential exposure. Thank you in advance for your time.
Scared to Death of Delaware
Dear Scared to Death of Delaware,
I will attempt to summarize how to go about performing the self-audit or risk assessment. However, it may require that we schedule a meeting to discuss the specifics of the self-audit or risk assessment of your company.
Before we get started, one question that comes up (and I’ll not be surprise if your CFO and management team bring up the question) is whether the potential unclaimed property exposure determined from the self-audit or risk assessment could be used to comply with the requirements of “FAS 5” (Financial Accounting Standards Board Statement No. 5 - Accounting For Contingencies)? The answer to this question depends on your facts and circumstance. However, the initial exposure determined during a risk assessment tends to be a rough estimate (which could be initially perceived as unreasonable) that most likely would not satisfy the FAS 5 requirements. That said, your management team, in consultation with your company’s external auditors, will decide on how best to address your company’s potential unclaimed property exposure.
The process for performing the self-audit would most likely consist of records/data gathering, review and analysis to determine your compliance gaps and potential exposure. Some of the records/data may include (i) your corporate structure documents (ii) general ledger trial balance (iii) accounting policies and procedures, including unclaimed property procedures if available (iv) record retention policies and locations of accounting records, if your company’s accounting function is decentralized (v) copies of prior unclaimed property reports filed and proof of payment (vi) list of all bank disbursement accounts (vii) outstanding check reports and voided check registers (viii) accounts receivable aging reports (ix) historical financial records (x) all correspondence from states regarding your company’s unclaimed property compliance.
The primary goal of the self-audit is to review all the relevant accounting records (some are listed above) to determine your company’s compliance with the various states’ unclaimed property laws. The assessment of your compliance gaps could be performed by comparing your current compliance process (or lack thereof) to the states’ expectations. In addition, you may have to perform some analysis to determine your unclaimed property exposure during the audit years, especially when your accounting records are voluminous, inadequate or no longer available.
I bet that you’re now asking yourself about how to get your arms around this self-audit, or better still, asking yourself whether it is time to look for another job. It may be best to see yourself as the hero that is going to save your company all the millions of dollars when the audit is eventually over. Unfortunately, the audit process is going to require a lot of time and effort from you and others before this goal can be accomplished. I look forward to our meeting and let’s plan to discuss further before then.
Good luck to you,
Dear Compliance Advisor:
Help!! Our long time unclaimed property resource/specialist recently retired. Unfortunately, we did not have a backup person and are now struggling with our Spring filings. We definitely need to get a better process in place before the Fall filings are due. What would you recommend?
Struggling in New York
Dear Struggling in New York:
Now is definitely the time to get something in place for the Fall filings. I would recommend that you first get a better understanding of your current process. What is your company’s reporting history to New York and other states? Does your reporting history to the states reflect all of your unclaimed property types? Were all the outstanding transactions, especially from bank disbursement accounts and accounts receivable aging reports, reviewed as part of your compliance process? What is the volume of transactions reported to the states? Is this volume likely to increase or decrease in the near future? Once you get an understanding of the current process and feel comfortable that all the property types are captured, remediated, and reported, you will be able to better assess the compliance options available, including whether or not to replace your retired specialist.
Purchasing unclaimed property software, using a hosting environment, or outsourcing the compliance process are all available options. Your company needs to make a decision about what works best for you. If you are reporting to more than 10 states and your volume is high, I would recommend purchasing software (consider both hosting and non-hosting environments) or outsourcing the process. However, if your volume is low and you report to only a few states, you may be able to use the software provided by the states and keep the process in-house.
I recommend that you get started on the evaluation immediately. Although the Fall filings are due in October/November, the due diligence letters required by the state need to be prepared and sent out around the July timeframe. Now is the time to get started!
Getting Ready for Spring Filings
It’s back - the Spring unclaimed property filing deadlines are quickly approaching. If you thought the Fall filings were confusing, wait until you’ve experienced Spring 2013. Unlike the Fall filings where the state deadlines are either October 31 or November 1, the Spring filing deadlines range from March 1 to July 1.
Below is a summary of dates that we hope you find useful in tracking the Spring due dates:
- Delaware – March 1
- New York – March 10
- Connecticut – March 28
- Pennsylvania – April 15
- Florida – April 30
- Virgin Island – April 30 (Final Report)
- Vermont – May 1
- Illinois – May 1
- Tennessee – May 1
- Maine – May 1 (Gift cards only)
- California – June 14 (Final Report)
- Michigan – July 1
- Texas – July 1
Two notable changes this year are Connecticut and Texas. The Connecticut 2013 filing deadline of March 31 falls on a Sunday and March 29 falls on a state holiday, and as such, the 2013 filing deadline was changed to March 28. In 2011, Texas passed HB 257 that changed the filing deadline to July 1 and the state does not have any statutory authority to grant extensions. The Texas report should include all transactions that are dormant as of March 1, 2013. In addition, Texas will no longer send out the Holder Report and Payment Form 53-119, which are now available online.
We anticipate that there will be more changes in 2013 to the states’ required due diligence requirements and we’ll plan to discuss those changes in subsequent newsletters. Stay tuned!