Forewarned is Forearmed: An Exposure Assessment Roadmap

At MarketSphere, when we work with our clients to complete abandoned and unclaimed property due diligence, prepare reports and advise them in audits, we always include one aspect of advice that can substantially change a company’s overall unclaimed property liabilities: exposure assessment. It’s not enough to take action—you can’t do justice to your unclaimed property management program without first getting a clear and realistic picture of your situation and formulating appropriate remediation. Another way to put it: forewarned is forearmed.

What happens if a company doesn’t assess the situation before acting? Any number of complications could ensue:

• You could expose records that otherwise wouldn’t need to be reported as unclaimed property.
• You could miss unclaimed property that should be reported, risking penalties in the event of an audit.
• You could inadvertently make mistakes in calculating unclaimed property or process it in an inappropriate manner, potentially risking criminal charges
• You could draw too much attention to your company, inviting additional states to join in on an audit.
• Records and workflows could demand too much time and cost your company more than necessary in personnel hours.

Your unclaimed property specialists can draw on experience with hundreds of clients to help you find problems, drafting a document that records your potential exposure in a very concrete way and advising on ways to remediate the problems. You can use this exposure assessment to support requests for work hours, materials, technology and other resources to minimize the negative impact of unclaimed property on your operation.

How to help unclaimed property specialists conduct your exposure assessment

In essence, an exposure assessment consists of documenting your current situation and calculating your potential liabilities related to unclaimed property. To assist in this process, we usually recommend that we meet with individuals within each business unit who are knowledgeable about the types of transactions carried out in their part of the organization.

For each business unit, the types of property documented will vary. Depending on the department and functions within the department, required documentation might include:

• AP, AR or payroll processes and methods
• how credit balances are typically generated
• near-term follow-up steps when checks don’t clear or amounts remain on the books
• reconciliation processes
• void/reissue processes
• credit/memo and refund processes
• steps followed to move stale-dated items
• steps performed in a last-contact mailing or other contact with customers to notify them of a balance
• steps followed to identify exempted items
• steps followed to determine which state to report unclaimed property to
• steps followed to report/remit unclaimed property to the proper jurisdictions

Once we’ve received documentation of your processes, we will help you:

• quantify potential unclaimed property liabilities, including potential penalties and interest if the property we find includes past-due amounts
• identify potential areas of exposure, including significant amounts of past-due property, past filing history that could identify your company as an audit target, business processes that might not adequately safeguard you from improper reporting, past write-off practices and other processes that could require re-establishment of liabilities before computing escheat liabilities.

Finally, to guide your next steps, we prepare an assessment report with remediation recommendations, including:

• Process flows and descriptions of the company’s past and present handling of potential unclaimed property
• Description of possible exposures related to past and/or present process breakdowns in proper handling of stale-dated items
• Assessment of the potential financial exposure to all states, with special consideration and emphasis on those states that utilize third-party contract auditors and/or have a history of aggressive enforcement of penal provisions of the unclaimed property laws
• Recommendations of alternative remediation strategies for the company to consider based on your business objectives

Consultative collaboration allows identification of unclaimed property efficiencies

The key to maximizing the effectiveness of your exposure assessment is communication with your unclaimed property specialist. This ensures that you will find as much property and as many issues as possible, so you and your advisors can remediate the issues BEFORE reporting more than you have to—or underreporting and exposing your company to penalties and interest that can add up to many times the original assessment.

Ask about MarketSphere’s collaborative style of unclaimed property service. Also, visit our website to download the JustRight Compliance—and get a feel for whether you have been reporting more or less than you should.