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Practical and Tactical Strategies to Minimize Your Unclaimed Property Exposure

By: Jim Sadik |

Robert Tucci and I recently exhibited at the 2021 IOFM APP2P Spring Conference & Expo in Lake Buena Vista, FL at Disney’s Coronado Springs Resort.  APP2P connects accounts payable executives, leadership members and their teams, to focus on issues impacting their departments including A/P disbursements, procurement, payment automation, fraud, sales & use tax, and unclaimed property related audit, risk and compliance issues. True Partners was excited to connect with many accounts payable professionals via our exhibit booth and during our general session presentation titled: Practical and Tactical Strategies to Minimize Your Unclaimed Property Exposure.

Key Takeaways from the session were:

  • The acceleration of electronic vendor payments will have a shrinking impact on the volumes of issued checks, the instances of checks that are outstanding or otherwise voided as a result of non-presentment, which may ultimately lessen the future instances where disbursement checks end up resulting in reportable unclaimed property.
  • Owner outreach efforts are of great importance to a company’s compliance process.  Whether it be the adherence to statutory due diligence requirements (which are not uniform), early efforts to contact payees who are very recently unresponsive to disbursement mailings, or the usage of more modern techniques to locate and verify the authenticity of property owners, this Q&A underscored the trade-offs between efforts to return property to owners (and at what cost) v. the transfer of custody of property to the states as a convenience, and the very spirit of the unclaimed property compliance process:  the return of property to its rightful owner;
  • Voided accounts payable checks as well as outstanding checks can factor into a company’s compliance obligations, and often represent unseen reporting and audit risk.  The ability to efficiently determine and document why disbursements are voided plays an important role in a company’s defense against unclaimed property audit assessments;
  • Record retention policies that are established in accordance with generally accepted industry practices and other regulatory requirements may not be sufficient to best aid a company in defending itself during an unclaimed property examination.  While it may not be practical for a company to radically change its retention practices going forward, the ramifications and unique audits risks of not maintaining sufficient records was emphasized; and finally
  • Pay careful attention to voluntary settlement opportunities which may reduce or eliminate the punitive application of late reporting fines and interest penalties.

Some often asked questions were on the minds of conference attendees and we wanted to share some of those with you, in case you might have the same questions:

Q: Should companies maintain records that support why disbursement checks have been voided in the normal course or business?

A: It is a best practice to maintain support that can confirm why checks are voided, whether as a result of the re-issuance of a stale-dated check, the subsequent sending of funds electronically, reporting the funds to a state on an unclaimed property report, or for any other reason that would support the final disposition of the obligation.  This documentation process may be complicated pertaining to acquired companies, where original disbursements were made from bank accounts not under a company’s control, and where the access to back-up documentation may be limited or non-existent years into the future.

Q: How long should a company maintain supporting documentation, in case a company is ever audited for unclaimed property?

A: Ideally, a general rule of thumb is to maintain accounting, treasury, due diligence and unclaimed property reporting documentation for fifteen (15) years to cover a reporting period of ten (10) years for jurisdictions with a five (5) year dormancy period.  This meets the provisions of both Delaware and the guidelines in the Revised Uniform Unclaimed Property Act (RUUPA) of 2016.

Q: What parameters are auditors utilizing to schedule accounts payable transactions as unclaimed property?

A: Generally, all outstanding checks may be deemed unclaimed after reaching a certain age (typically 3 or 5 years after the issuance date).  In addition, auditors will likely schedule all checks that were voided more than 30 days from the original issuance date.  While this is an aggressive tactic, without proper supporting documentation, the initial presumption is that these transactions represent unclaimed property.  Less stringent parameters are often available when settling past due obligations under various states’ voluntary disclosure agreement (VDA) programs.

See True Partners at other future AP & P2P events, including the upcoming IOFM 2022 APP2P Spring Conference & Expo at Disney’s Yacht and Beach Club Resort at Walt Disney World, on May 15-17, 2022.  We highly recommend this event to accounts payable and other financial professionals who are interested in learning more about operations, automation, fraud, risk, and compliance issues impacting the accounts payable functions in organizations.  For more information please see the conference website at https://events.iofm.com/conference-spring/.