Unclaimed Property: The Essentials of an Effective Compliance Function

Managing unclaimed property compliance involves multiple pieces of the puzzle to come together. Firstly, the statutory requirements vary across jurisdictions and change regularly. Secondly, it likely requires coordination across a variety of departments, divisions or entities, many of which may not regularly interact. These complexities can increase exponentially for organizations with complex organizational structures, decentralized accounting functions or a complicated merger and acquisition history. So what should you concentrate on if you want to ensure your organization maintains compliance?

Key Areas of Focus:

• Ownership: Assign the responsibility to a specific group
• Understanding: Analyze your organization and develop a good understanding of where unclaimed property is created and how you can minimize risk and exposure
• Education: Ensure all areas of the business are educated on the basic requirements of unclaimed property and how their areas are impacted
• Documentation: Document and enforce adherence to policies and procedures

Ownership

Unclaimed property compliance is an ongoing activity. If the responsibility is not assigned to a specific group it is very unlikely that compliance will be maintained. Currently there are 55 U.S. jurisdictions that have some statutory requirements around escheatment and reporting of unclaimed property. Report dates do vary by industry, but in general, the reports are due in three cycles (fall, spring, summer). But you should not be deceived into thinking compliance is merely a cyclical activity. Effectively managing compliance will involve multiple tasks throughout the year. It will be necessary for a specific group to have ownership of this process to ensure the necessary tasks are completed on time.

As long as we are talking about ownership, it is important to reiterate that unclaimed property reporting will necessarily involve coordination among many different business functions (A/R, Payroll, Accounts Payable, etc.). Each business function will need to take ownership of their own responsibilities.

Unclaimed property compliance responsibilities can logically be divided into two categories:

1. Identifying and resolving aged liabilities within your organization
2. Performing statutory compliance activities and adherence to the reporting timeline

Category one activities are ongoing (daily, monthly, quarterly) and are generally going to be the responsibility of the individual functional areas (Payroll, Accounts Payable, Treasury, Land, Claims, etc.)

Category two activities will need to be assigned and owned by a specific group (General accounting, Tax, Compliance, etc.). These activities include tracking the unresolved liabilities and ensuring the required statutory compliance activities are performed (due diligence, reporting, etc.)

One final note on this; the group ultimately assigned the responsibility for category two activities should have two things- a broad awareness and access to the organization, and the delegated authority to enforce adherence to the category one activities (which should be clearly defined and documented in policies and procedures). These two things will be even more important if your organization is highly decentralized.

Understanding

A key, and in many ways primary component of maintaining unclaimed property compliance, is understanding where unclaimed property is generated within your organization. This involves understanding your organization’s legal structure, business functions, and accounting processes. This will be necessary to effectively identify potential unclaimed property, and resolve and report the obligations in a timely manner.

If your organization is new to unclaimed property reporting, there is another essential first step. A detailed analysis and risk assessment of your organization will likely be necessary to begin this process, not to mention resolving any historical exposure.

Education

As mentioned throughout this blog, maintaining compliance with unclaimed property statutes will involve coordination across multiple departments, divisions, and in many cases entities. It will be important that everyone involved has a basic understanding of what unclaimed property is, what the statutory requirements are and how their area is impacted. Making the efforts across your organization to ensure everyone has these basic understandings will pay dividends down the road as their daily functions (and any related unclaimed property issues) may be impacted by future decisions and changes in organizational policies and procedures.

Documentation

Lastly, documentation. As is the case with any complex process, documenting the necessary steps is essential. Every company should have the necessary body of documentation to ensure compliance is maintained. This should include a corporate policy, detailed procedures and corresponding process documents necessary to ensure ongoing compliance. This blog does not address all the details that should go into this documentation, but here are a few high-level points.

• Policies and procedures should address both the statutory compliance activities (category two activities) and the daily and ongoing activities involved with identifying and resolving aged liabilities (category one activities).
• The impacted business functions should be involved with the creation and documentation of the procedures.
• The policies and procedures will need to be regularly updated and maintained to accommodate for the inevitable business and statutory changes.
• The policies and procedures should define and establish the roles and responsibilities needed for the function.

Engaging with an unclaimed property professional can assist you with closing any identified gaps and work with you to create robust, effective and efficient policies and procedures.

Check out MarketSphere’s Knowledge Vault for valuable resources that can help you achieve efficient and effective escheat compliance.