10 Best Practices for Unclaimed Property Compliance
The Expert: Michelle Moloian

print this article
Michelle Moloian

Unclaimed property compliance reporting requirements may seem simple to some tax practitioners, but the lack of proper historical documentation can cause problems during an audit.

Question: How can companies ensure they are in compliance with unclaimed property reporting requirements?

Answer: On the surface, unclaimed property (UP) compliance reporting seems straightforward. Companies often believe they are in compliance and protected from audit risk, but upon closer inspection many companies find they lack the required historical documentation to verify their compliance practices when they come under audit. To help ensure that your company is truly in compliance, we encourage you to benchmark your policies, communication, and monitoring protocols against this list of ten best practices for UP compliance.

  1. Know Your Audit Risk

There has been an increase in the number of audit firms working on behalf of all states. Unfortunately, more audit firms mean more audits. Today’s reality is that UP is a source of significant revenue for many states, and they are targeting companies like yours. Sensitize your team to be on the lookout for audit letters, invitations to participate in voluntary disclosure programs, and other state UP notices.

  1. Assign Responsibility for UP Compliance

The vice president of tax, the CFO, the controller, internal legal counsel, and others often oversee high-level risk issues, disclosures, accruals, and compliance. Therefore, it is important to get their involvement in UP. Secondary responsibility commonly falls to the tax teams, since they have infrastructure in place to address multistate reporting. Make sure to designate an escheat coordinator to work with the various departments that may generate potential UP, including, but not limited to, accounts payable, accounts receivable, payroll, and potentially marketing, human resources, and risk management.

  1. Identify “Hidden” UP

Most companies understand that unresolved liabilities such as uncashed checks, unredeemed gift cards, and customer credit balances can result in UP; however, other not-so-common areas need to be considered. Keep an eye out for liabilities assumed in an acquisition, self-insured third-party benefit plans, small-dollar write-off accounts, mineral interests, and more. Audit firms are experts at finding “hidden” unreported areas of exposure, so this step is critical.

For a comprehensive list of potential UP, visit the National Association of Unclaimed Property Administrators (NAUPA) website at www.unclaimed.org/reporting.

  1. Develop Effective Policies and Procedures

Policies and procedures should include high-level narratives of the company’s policy regarding UP. The narratives should address the organization’s reporting responsibility, summarize the reporting process, assign an escheat coordinator, describe areas where UP may arise within the company, and set materiality limits and record retention rules. For each policy related to specific areas or departments within a company, there should also be detailed procedures. The policies should also work in tandem with the company’s standard accounting or record retention policies. Not having such a policy may expose your company to undue risk; for example, Delaware has enacted a “compliance review” initiative aimed at companies that may have filed reports that appear incomplete, inaccurate, or fraudulent or are irregular and inconsistent. These companies may receive a compliance review letter from the state escheator requiring such companies to submit a copy of their UP policies and procedures among other documents.

  1. Develop a Compliance Calendar

Just like tax-filing calendars, a UP compliance timeline is critical for smooth, efficient flow of processes and should govern activities for all departments and individuals involved. Since UP has various reporting periods and different due diligence mailing timelines depending on the jurisdiction, a compliance calendar should capture all action steps and due dates for areas where there is a reporting responsibility. (Contact Michelle at [email protected] for a sample compliance calendar.)

  1. Prioritize Communication

Effective communication of UP policies and procedures may not be high on everyone’s priority list, but it will pay big dividends when deadlines arrive. Here are some suggestions:

  • schedule an annual UP compliance kickoff meeting at the start of each compliance year. The meeting agenda should include reviewing the policies and procedures and compliance calendar, discussing each department’s responsibilities, bringing new personnel up to speed, and answering questions;
  • schedule brief status meetings before each major process step approaches. For example, schedule a conference call a week before the due diligence mailing period begins to ensure that all individuals are familiar with the process. These meetings need not be long, because the primary objective is to reinforce the items from the kickoff meeting and highlight upcoming deadlines; and
  • send preset calendar reminders for each upcoming due date or deadline both two weeks before and one day before the due date. (This may seem obvious, but we’ve seen it work wonders for interdepartmental communication!)
  1. The Expert: Michelle Moloian

State research should be conducted to determine important reporting details for each jurisdiction based on your industry. Unfortunately, many states do not provide uniform reporting guidelines and can differ significantly from one another on methods of performing due diligence, submission of reports, and remittance requirements. This information is generally available on third-party reporting software state information tables. If you do not use third-party reporting software, your research should include the types of files you need to create; method of file transfer; negative reporting requirements; exemptions and deductions; and required attachments, among other items. Armed with this information, we recommend creating a state research matrix to summarize the reporting requirements. (Contact Michelle at [email protected] for a state research template.)

  1. Perform Statutory Due Diligence

Most companies have an internal process for generating letters and statements informing customers and vendors of aged liabilities or account balances. These general account statements may not satisfy a jurisdiction’s UP due diligence requirements. UP due diligence letters require specific content and mailing timelines that are generally summarized in a jurisdiction’s filing guidelines. For example, most jurisdictions require that UP due diligence letters be mailed within a time window preceding the submission of the reports, usually no more than 120 days and no less than sixty days prior to the report due date. Some states may require an attestation upon submission of the report that due diligence was performed pursuant to state requirements. Also, jurisdictions may have other specifications such as thresholds for requirement of sending letters and certified mailing requirements.

  1. Determine and Apply Exemptions and Deductions

As part of the state research, every company should determine which states have available exemptions and deductions. It is important to carefully review state specific exemptions or deductions for conditional requirements and ensure that these conditions are clearly enumerated in the policies. For example, some states may allow a business-to-business (B2B) exemption on customer credit balances. However, the exemption may not apply if the credit was eventually issued to the customer as a refund check. If a third-party reporting application is utilized, the software can automatically apply many of these exemptions, but conditional exemptions may need to be applied manually.

  1. Reporting and Record Retention

UP record retention rules do not adhere to IRS record retention requirements. The period scoped under a typical UP audit may include property generated back ten years plus the state-determined dormancy period. Therefore, a UP audit can extend upward of thirteen to fifteen years, which is beyond the period for which most records are readily available. Under a UP audit, the state of incorporation can use a company’s available data to estimate the presumed exposure for those periods where information is not available. To avoid estimations, it is important to ensure that UP records are retained according to the relevant state requirements, or a minimum of fifteen years. The types of records that should be retained include but are not limited to complete bank statements and reconciliations for open and closed accounts, trial balances, AR agings, the chart of accounts, check registers, and void lists. In addition, changes in an ERP system or other system of record, including records from acquisitions or predecessor systems, should remain accessible throughout the retention period. Archived systems should be capable of restoring historical records to enable company research into specific transactions (e.g., uncashed checks, aged credit balances, etc.).


There is no way to completely eliminate all risk associated with a UP audit. You may think your company is in compliance, and then rules change. With all of the state legislative and administrative activity, implementing compliance best practices will certainly give your company a head start before each reporting period.

Michelle Moloian is a senior manager in the Dallas office of True Partners Consulting.

Leave a Reply

Your email address will not be published. Required fields are marked *

XHTML: You can use these tags <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>