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Reviewing Records for Unclaimed Property

Posted By Administration, Thursday, March 1, 2018

To help ensure that all potential property types and sources are being captured in the unclaimed property review process, holders should periodically review trial balances, general ledger and bank statements. 

 

The review should identify all open and closed bank accounts that are used to distribute checks and electronic payments. Review open accounts to verify that the outstanding checks associated with the accounts are being captured in the unclaimed property procedures. Review closed accounts to determine the resolution of outstanding items. Ensure voids are well-supported and not being issued to circumvent unclaimed property.    

 

Conduct an additional review on general ledger accounts to identify accounts that have been established to capture unknown, unreconciled, write-off or suspense balances. If accounts are noted in the system, conduct additional research to verify whether the balances represent unclaimed property.

 

Uncashed checks

Including uncashed checks is intrinsic to every unclaimed property review. Research checks outstanding more than 180 days to determine if the funds remain due and payable to the payee. If the distribution is still owed, confirm payee name and address and conduct outreach to contact the payee about the status of the outstanding check. If the payee lost or destroyed the original check, the original issuance should be voided and reissued. Make sure to maintain notes pertaining to the reissuance in the accounting records along with the date that the reissued check cleared.

 

To verify that the reasons for voids are documented and that they weren’t voided simply because they were outstanding and not cashed, review all voided transactions greater than 90 days. Third-party auditors may test outstanding checks aged greater than 90 days from issuance and voided aged greater than 30 days from issuance. As such, to be conservative, transactions voided more than 30 days from date of issue should be documented in the accounting records to cover all bases.

 

Checks issued by third parties on behalf of the holder can create unclaimed property exposure for a company if responsibilities are not well-defined. Ensure third-party contracts clearly outline the duties and that those responsibilities are executed based on the contract terms. 

 

If the third party is reporting on the company’s behalf, the company should request and maintain copies of the unclaimed property reports, detail of the property that was reported and all associated payments or remittances to the state. Ultimate responsibility for outstanding checks tends to fall back on the company unless adequate supporting documentation can be produced.

 

Credit balances

Accounts receivable credit balances tend to be one of the most complicated accounting types in unclaimed property because states take various positions regarding when or if property is deemed to be reportable. For example, some states hold the position that accounts receivable credit balances are not reportable while there is an active relationship with the customer, but the state may not provide a thorough explanation of what constitutes an active relationship. Other states consider all credits as potential unclaimed property, no matter the account relationship, and want holders to confirm that their customers are aware of credits and have the opportunity to use them.   

 

Most states also allow credits owed to a customer to be offset by balances owed to the company by the same customer. Debits due from the customer that were written-off to bad debt during the same time period can be used to offset the credit balance write-offs. 

 

When conducting an analysis of the accounts receivable transactions that are potentially escheatable, holders need to look at transactions that may no longer be included in the receivables account – for example, credits that were moved out of accounts receivable and into accounts payable because they were refunded to the payee.

 

The process should include reviewing reports that contain any unresolved credits that were reclassified out of the receivables account. Review the general ledger detail to identify any credit balances that were reclassified, because these transactions may represent unclaimed property. The states do not accept write-offs to income as sufficient to remove the credit balance and therefore prevent the credit balance from being escheated to the state as unclaimed property.

 

Holders should review the unapplied cash detail, also commonly referenced as an unidentified remittance, to identify any receipts that are stale-dated and have not yet been applied to a customer’s invoice to offset the credit. 

 

Determining when the transaction is stale-dated may vary by state. Companies should routinely review unapplied cash detail quarterly, bi-annually or annually. 

 

For holders that maintain unapplied cash on the accounts receivable aging reports, the unapplied cash detail analysis may not be applicable. In such cases, holders should review aging reports on a regular basis.

 

Gift cards

Sales of gift cards and certificates may result in escheatable property too. Holders need to review the gift card/certificate reports that identify unredeemed gift card balances. Obtain these reports either internally from the appropriate department or from the third-party administrator if one is used to run the gift card/certificate program.

 

Holders should review unredeemed gift card/certificate reports to identify cards and certificates that have been inactive and are soon to become dormant. The dormancy period for unredeemed gift cards/certificates varies by state.

 

Dormant unredeemed gift cards/certificates may be escheatable. If a holder retains the owner or gift recipient’s address information, then the unclaimed property laws for that address state will apply. If the holder does not retain address information, then the laws of the holder’s state of incorporation or domicile will apply. 

 

Some states do not require the escheatment of unredeemed gift cards/certificates. A vast majority of those states simultaneously require that the cards and certificates do not expire. This allows an owner to redeem the gift card/certificate into perpetuity. Holders should identify the applicable state law to determine if transactions are escheatable and what limitations may apply.

 

Equity

Equity is another type of property record that may result in an escheatable transaction. When evaluating equity for potentially escheatable property, holders need to review outstanding dividends and other payments that are owed and outstanding to the shareholder, as well as the underlying shares. Many states require that, if a dividend check is dormant and escheatable, holders also escheat the underlying share related to the dividend.

 

Most holders employ a transfer agent to oversee their equity. Escheat review and annual compliance filing is usually included in the duties of the transfer agent. Holders should request and maintain copies of all annual unclaimed property reports filed by the transfer agent on the holder’s behalf. 

 

Holder conducting their own analysis of potentially escheatable equity transactions should review the report of shareholder activity. This report should include the date of the shareholder’s last activity on their account, as well as list the outstanding dividend check payments.

 

States vary on what information is considered sufficient contact to identify the shareholder’s last activity date, so consult the applicable state provision.

 

Mineral rights

Some holders may hold potentially escheatable property in the form of mineral rights and royalties. A holder should review the list of suspended accounts that is due to the holder losing contact with the property owner.  The determination of lost contact may vary depending on the applicable state law, so the holder should always verify what is considered lost contact.

 

Similar to the analysis of equity transactions, if the royalty is determined to be dormant and escheatable, the holder should be aware that some states require holders to remit all owed royalties with the outstanding payment. Keep in mind, some states have more stringent guidelines for reporting mineral rights and royalties so be sure to research state statutes.

 

Insurance properties

Insurance companies have a number of unique transactions from other types of businesses that may become escheatable property. In addition to uncashed checks, insurance companies need to conduct analysis on agent commission liability accounts to identify any dormant unpaid commission balances.

 

These holders should also obtain and review records related to life insurance policies. Identify policies that have matured but were not paid to the policy holder due to losing contact with the policyholder, as these policies may be escheatable.

 

Holders should obtain a listing of life insurance policies for which the death notice was received but the claim not paid. This often occurs because the beneficiaries cannot be found. Many states have enacted the Life Insurance Benefit Act, which requires companies to check policy inventory against the Death Master File on a regular basis.

 

Further, holders should obtain and review a listing of unpaid annuities and inactive retained asset accounts to identify transactions that have become dormant and may be escheatable to the states.

 

As with all property types, dormancy and escheat requirements vary by state, so confirm applicable state laws.

Tags:  checks  credit balances  gift cards  gift certificates  insurance  mineral rights  records 

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