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Unclaimed Property: Risks Along the Road to Better Compliance at IOFM APP2P Spring Conference & Expo

By: Jim Sadik Jim Weigand |

Jim Weigand and I recently exhibited at the 2022 IOFM APP2P Spring Conference & Expo in Lake Buena Vista, FL at Disney’s Yacht & Beach Resorts.  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: Unclaimed Property: Risks Along the Road to Better Compliance.

In discussing the aspirational concept of eliminating a holder’s unclaimed property audit risk, 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, as well as its management of reputational risk and the consideration of costs associated with the acquisition of new customers.  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, or in responding to typical lookback periods applied in certain “voluntary” settlement programs.  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
  • Paying 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:

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 next year’s IOFM 2023 APP2P Spring Conference & Expo, which will return to Disney’s Yacht & Beach Club Resort at Walt Disney World, on May 15-17, 2023.  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 about upcoming events, please see www.iofm.com/events.

We had a great time at APP2P Spring 2022 and want to thank Diversified Communications and the entire IOFM team for putting together a fabulous educational and networking event, for continuing to elevate the unclaimed property topic as an important regulatory/compliance issue with its members, and for giving all of us the chance to meet in person once again at a beautiful venue. If you have any questions, please feel free to send me an email at jim.sadik@tpctax.com, or Jim Weigand at jim.weigand@tpctax.com.