Elevating Unclaimed Property  Compliance

The proliferation of third-party auditors, states’ realization that significant dollar amounts are involved and an escalation of unclaimed property litigation have increased companies’ likelihood of an unclaimed property audit. Escheat compliance is no longer optional, and being audited is not a matter of if, but when. Unclaimed property audits are disruptive and costly, but limiting an audit’s scope and establishing ground rules can reduce the impact.

MarketSphere’s audit services team:

• Leverages expertise from completing hundreds of audits, including valuable experience working as auditors in previous positions.
• Partners with clients to develop defense strategies specific to their circumstances.
• Helps clients reduce the impact of unclaimed property audits by implementing effective compliance programs, and recordkeeping and finance protocols designed with built-in audit-defense strategies.

In the past, some state administrators could not dedicate resources to enforce unclaimed property statutes. As a result, many property holders were either unfamiliar with their reporting responsibilities or became lax in reporting. Some companies hold years of unreported unclaimed property or have written it off. If an audit reveals noncompliance, holders are often hit with substantial escheatment amounts, penalties and interest. The overall impact is far larger than the original value of the property.

MarketSphere offers a streamlined program to assist nonreporting or under-reporting holders to cost-effectively and efficiently become compliant. Services include:

• Assessing audit exposure by reviewing financial processes, data and reporting history, and identifying methods to become compliant with the least possible risk and cost.
• Mitigating risk by analyzing exposure areas and working with clients to execute customized strategies, including entering into state Voluntary Disclosure Agreements (VDA).
• Filing for the first time with detailed strategies for determining amounts owed to all states, finding legal exemptions, completing due diligence, reporting and remitting amounts due, and establishing policies and procedures to ensure future compliance.

A Voluntary Disclosure Agreement is an essential tool in any company’s unclaimed property mitigation toolbox. VDAs allow companies to become unclaimed property compliant more efficiently with greater control, more favorable review procedures and shorter lookback periods than state-driven audits. In many cases, states waive penalties and interest for VDA participants, significantly mitigating costs.

MarketSphere is well versed in managing and completing the VDA process in all jurisdictions that offer them. Services include:

• Scoping to analyze the company’s entity structure, merger and acquisition history, accounting processes and transaction flows that may generate unclaimed property.
• Quantifying potential liabilities to validate source information against financial records, researching and resolving potential unclaimed property, performing dormancy analysis, and identifying state-by-state exposure to determine the best action and potential need for VDAs.
• Submitting materials conforming to state requirements and answering questions about source documentation, methodology or testing processes.
• Executing closing agreements that include all in-scope entities, property types and review years.

Every company’s situation is different, but nearly every organization must identify potential unclaimed property risks and liabilities to avoid damage to finances, resources and reputations. It’s much better to uncover potential risk before an audit. However, understanding the escheatment laws and nuances practically requires a master’s degree in unclaimed property.

Through a highly consultative risk and exposure assessment, MarketSphere goes below the surface to identify underlying unclaimed property issues. This risk and exposure assessment can:

• Identify gaps, polish compliance processes and policies and mitigate audit risks.
• Establish property escheatment practices, which can reduce management costs, escheatment amounts and audit findings.
• Improve general recordkeeping, streamline day-to-day operations and help protect a company’s reputation.
• Provide process improvement options based on each client’s specific circumstances.
• Offer strategic actions for the most effective insulation from risk.
• Illustrate to senior management the cost of achieving full compliance and the potential consequences for failing to act.

Mergers and acquisitions present distinct unclaimed property challenges. For companies acquiring another entity, understanding the consequences of that entity’s historical noncompliance can help to proactively mitigate inherited risk and provide an opportunity to integrate historical risk into the M&A transaction. For companies that are potential acquisition targets, compliance with unclaimed property laws can assist you with negotiations and make the company a more attractive acquisition target.

Companies that have completed recent mergers or acquisitions often find themselves at greater risk of unclaimed property audits. Consequently, resolving historical issues can significantly reduce the risk of an unclaimed property audit.

MarketSphere helps companies involved in mergers and acquisitions navigate the unclaimed property ramifications of M&A transactions. Services include:

• Evaluating processes, potential liabilities and filing histories.
• Determining pre- or post-acquisition risk and the best steps for compliance.
• Exploring state amnesty/VDA options for mitigating risk, and potential penalty and interest exposure.

Unclaimed property compliance and reporting involve irregular cycles, multiple jurisdictions and various accounting processes, making comprehensive policies and procedures essential. MarketSphere’s professional unclaimed property advisors are experts at analyzing client conditions, identifying best-practice policies and procedures, and helping staff implement them to achieve specific goals.

MarketSphere’s policy and procedure development:

• Identifies process needs by gathering information, reviewing current unclaimed property methods and interviewing key representatives from various departments.
• Creates customized procedures using industry best practices.
• Builds a centralized, transferable compliance function into the client’s operational infrastructure, ensuring continuity.
• Assist with new policies and procedure implementation, including comprehensive unclaimed property training for all affected staff.