Ahh, the Fall. The change of seasons. The air is crisp and the leaves are bursting with color. For those of us who own the responsibility of reporting and delivering unclaimed property to the states, we watch much of the Fall pass us by from our office window.   Unclaimed property compliance is a year-round job, but with the majority of states having a reporting deadline on October 31 or November 1, the Fall reporting season can be an extremely busy time for unclaimed property practitioners. Whether you perform the function in house or outsource, there is a lot of effort and cooperation required to be compliant with all of the deadlines. For those who like the adrenaline rush of making it just under the deadline, keep doing what you’re doing. For the rest of us, a little planning and preparation goes a long way. Things you can do year round to make reporting easier: A calendar/timeline of events is your best friend. Establish a year-long calendar of events or take advantage of the calendar in your reporting software. This will ensure that you hit all of the compliance deadlines for due diligence and reporting. Realize that once you stray from the timeline it has can have a snowball effect and push everything closer to, or beyond, the final reporting deadline. Perform customer outreach early and often. Send courtesy letters prior to the account tolling the dormancy period. Invest in owner location services. You not only have a greater opportunity to reach the customer, you can save due diligence costs in the future. Ensure that you have policies and procedures in place for paying claims initiated by the courtesy letters or due diligence letters. Consider what will be required to pay multiple owner claims, estates, businesses, foreign owners, etc. Be aware that fraud is pervasive in this area. Make use of state online resources and holder handbooks to make certain that you have the most up-to-date information for report delivery, making payment and transferring securities, mutual funds or safe deposit box contents. This information can change annually and some states have been known to make updates very close to the reporting deadline. (Que the insanity!) Utilize the report upload feature on the state’s web site. Be aware that some require you to register or obtain a unique holder ID so don’t wait until the last minute. There may be a lag time between registration and obtaining your credentials. Be aware that if you need to file an extension, some states require 30 days’ notice. If you have a catastrophic event close to the deadline, many states will cooperate in extending the deadline, though you may have to direct your appeal to the state administrator rather than a staff member. Note that a few states require payment to be made by the deadline, even when filing an extension, and some states will not grant extensions two years in a row. Prepare to set aside a reserve to pay penalties and interest for property that is being reported late to states that actively assess them. Interest assessments are not always immediate, and can arrive months or years after reports have been reconciled by the state. Have a plan in place for customers who are late in responding to due diligence notices. (And this will inevitably happen) If you have already locked down your accounts or reported the funds to the state, what is your protocol? Do you refer the customer to the state or do you make the customer whole and seek a reimbursement from the state? File your report as soon as it is completed. You don’t have to wait until the deadline to file. The states receive thousands and even tens of thousands of reports on the deadline. The earlier they receive your report, the sooner it will be reconciled and made available for your customers to file claims. For all unclaimed property practitioners, gurus and novices alike, you can’t always foresee the roadblocks that lie ahead but we can be prepared to take action when they get in our way. As they say, “Only someone who is well prepared has the opportunity to improvise!” That is the least we can do to save our sanity during reporting season.

Congratulations! You just successfully completed an acquisition, and the business press and your industry peers have all taken notice. Another group is following your transaction as well: state unclaimed property auditors. Unclaimed property review, as part of transactional due diligence in a merger or acquisition, often goes overlooked. Armed with this knowledge, state unclaimed property auditors include a company’s history of transactions in audit proceedings, and states review M&A activity in their jurisdiction for likely audit candidates. This can lead to a costly process for companies that haven’t performed the proper due diligence, as the audit scope can expand to include the acquirer’s unclaimed property reporting history, the acquired company’s reporting history, plus the reporting history from other, previous acquisitions. Unclaimed property due diligence can have a direct impact on a deal price. If the company is not in compliance with state unclaimed property laws, and has written these unresolved transactions off as income, the acquiring company can be paying an inflated purchase price for the acquisition as well as acquiring the liability, depending on the nature of the acquisition. In an asset purchase, the buyer generally acquires the liabilities that are explicit in the purchase agreement. Under this circumstance, the probability of acquiring an unknown unclaimed property liability is diminished. However, in a stock purchase agreement, the buyer generally acquires all disclosed and undisclosed liabilities. Investing the time and effort into an unclaimed property review as part of transactional due diligence will enable a buyer to evaluate risk, provide opportunity for mitigation, and reinforce or reevaluate the purchase price of the transaction. The review should include: Policies and procedures for resolution of credit balances, unapplied cash, accounts payable and all uncashed checks; Policies and procedures for unclaimed property liabilities and reporting; Annual unclaimed property reporting history, including copies of reports, voluntary compliance agreements and audit history; Exemption and due diligence history; Current liabilities that have not yet tolled the dormancy period; Third party agreements, including stock transfer agents, payroll administrators, rebate administrators, etc.; and, Merger and acquisition history including state of incorporation for all entities. One factor that can hinder an unclaimed property review is record retention. The preferred record retention period for unclaimed property is at least ten years, since most unclaimed property audit lookback periods are ten years or greater. If the target company was compliant with unclaimed property laws but failed to retain evidence, it could further prolong the review period. Non-compliance altogether could also delay the acquisition until estimations are completed and mitigation efforts or a resolution plan is implemented. So, Caveat Emptor. Be sure to include an unclaimed property review in your transactional due diligence. Otherwise, you could end up with an unclaimed property headache and a real case of buyer’s remorse.

States have “discovered” unclaimed property revenue can be an alternative to a tax increase, and consequently it is an increasingly important source of operating funds among all 50 states. As a result of this increased attention, unclaimed property laws, and states’ administration and enforcement practices, are regularly changing. Businesses need to keep pace to protect their interests. Under unclaimed property laws, a “holder” of unclaimed property is required to report and remit unclaimed property to a state after the property has remained unclaimed by its owner for a specified period of time (usually three or five years, depending on state law). States have the statutory authority to audit any business for compliance. They may do so with their own internal resources, or they may hire third party audit firms that have a contingent financial interest in the property that they turn over to the state. Interest and penalties can be assessed for over 100% of the underlying liabilities, going as far back as 1981. Given this environment, if your business has not actively been pursuing unclaimed property compliance, it may be time to take a closer look. Following are some considerations to help you evaluate the applicability to your business relative to annual reporting, compliance and risk management: Annual unclaimed property reporting is required in every state Reporting can be complex, as all state laws are different Non-compliance with annual reporting requirements can be costly, with States possessing growing statutory authority to issues fines, penalties and to conduct audits of business records The average penalty imposed by the state is 12% of the individual account value, with the interest beginning on the date the property should have been reported In some circumstances, the fine far exceeds the value of the property In select states, unclaimed property revenue serves as a non-tax form of revenue to fill budget gaps Most unclaimed property audits involve multiple states, lasting 3-5 years, and are conducted by outside audit firms that work on a contingency basis Recent jurisdictional disputes among the states have reached the level of the Supreme Court States are becoming more aggressive in changing laws to lower dormancy periods (the amount of time a company is required to hold an account or credit on their books before it qualifies as unclaimed property) to generate more unclaimed property required to be reported to the state For example, Pennsylvania recently lowered its dormancy period from five to three years and also redefined the requirements for when Individual Retirement Accounts become reportable, which can be long before the date of mandatory distribution Unclaimed property compliance should be part of your merger and acquisition review Acquisition of a large unclaimed property liability places your company at risk, and liabilities that have been written off into income can overstate the value of a company Given these considerations, unclaimed property compliance is not something that can be ignored in any organization. Having an active, robust program, that is part of your company's risk management and compliance programs, can help you maintain positive customer relationships and be good corporate citizens at the same time.