Unclaimed Property: Self-Audit Notices on the Rise

As states gain access to a wealth of benchmarking data, they can now more accurately identify companies suspected of underreporting or not reporting unclaimed property. This has led to a significant increase in unclaimed property notices being sent out to companies of all sizes ranging from $5M to multiple billion dollars. The states have learned that they can initiate more audits while incurring fewer expenses by sending out self-audit notices. While these notices don’t seem intrusive at first glance, there are some key points that companies should be aware of:

Short Response Deadlines

Typically, companies have 30-90 days to respond to a self-audit notice. If a company does not respond or the review is deemed insufficient, the state can turn the company’s name over to its contracted third-party auditor for a full audit that could subject the company to late-filing penalties and interest.

Expedited Review and Due Diligence Process

The time to complete the self-audit is very short for the extensive review expected. Some states expect companies to complete the full review and due diligence process in as little as four months.

Detailed Testing Procedures

Most states have detailed testing procedures, which companies are expected to complete. These procedures may include reviewing the following:

• Quarterly or monthly outstanding check reports and void reports, third-party void reports (i.e., ADP), undeliverable wire/ACH payment reports
  • State requirements could require a company to support checks voided 30 days after issuance.
• Quarterly accounts receivable aging reports, unapplied cash accounts, suspense accounts, aged customers, or unknown deposits, etc.
  • States expect the self-review should encompass aged balances on a customer account and amounts removed or “written off” from a customer account.

Extended Lookback Period

The lookback for a self-audit is usually 13-15 years. If records are unavailable, the state could require an estimation of liability for any years where records do not exist.

Third-Party Auditor Reviews

Most states use third-party auditors to review the self-audit submissions for completeness.

Given the expectations and risks, companies should begin having discussions now with the accounting process owners. A proactive game plan to address unclaimed property can help your company mitigate historic risk and ensure that, in the future, the processes and compliance are in place to minimize future exposure and state notices. Based on the proven success that the states are having with these self-audits; it is not a matter of “if” a non-compliant company will receive a letter but more of “when.”