A survey conducted by the Council on State Taxation's COST's Unclaimed Property Task Force in found that half of the respondents undergoing a Delaware unclaimed property examination had been under audit for three to eight years. The sheer volume of information requests slows the examination process.
To quantify an accounts payable exposure, an auditor will typically review all cash accounts on the general ledger to identify accounts that disburse check payments. It then creates voluminous schedules consisting of checks voided and outstanding more than 30, 60, or 90 days depending on the audit firm after issuance, going back as long as 15 years, and requests that the holder remediate or prove — to the auditor's satisfaction — each item does not represent unclaimed property. In one case, a contract auditor identified more than 50, transactions, some going back more than 10 years, and expected the holder to remediate the transactions within 90 days.
Rebutting an auditor's presumption of abandonment often becomes a tedious forensic accounting exercise rather than an evaluation of the holder's compliance with state reporting rules. Ironically, a previous Delaware regulation posited that "the time to complete a typical examination should not exceed twelve 12 months.
National Association of Unclaimed Property Administrators
Perhaps the source of the two - year myth is that contract auditors often tell holders that an unclaimed property audit should be completed within two years. State unclaimed property laws are ambiguous when it comes to record retention rules. A holder required to file a report under Section shall retain records for 10 years after the later of the date the report was filed or the last date a timely report was due to be filed, unless a shorter period is provided by rule of the administrator. The holder may satisfy the requirement to retain records under this section through an agent.
The records must contain:. Does this provision mean that only details relating to reported unclaimed property should be maintained, as the model statute suggests, or does it require a holder to retain all records that hypothetically could give rise to unclaimed property? Delaware regulations seem to imply the latter.
Some companies have been advised that they can reduce the pain of an unclaimed property audit by keeping comprehensive records indefinitely. While such an approach in theory could limit certain states, such as Delaware, from estimating a liability for prior years, it might not reduce the amount of time and expense associated with completing an unclaimed property examination. Many holders operate under the false assumption that having a wealth of records will reduce the rebuttal burden. This assumption simply is not true unless a holder details the resolution of every transaction that could give rise to an unclaimed property liability.
Even worse, holding on to a surplus of information can backfire by giving auditors a vast quantity of records to comb through.
Henderson County has $ million in unclaimed property
Maintaining 15 years of records does not mean an auditor will not attempt to find unclaimed property in those records. Trying to prove that hundreds or even thousands of transactions are not unclaimed property can be an onerous and expensive task. Perhaps a more practical and strategic approach is to establish a well - defined record retention policy and take steps to ensure that retained records are clean — that is, reconcilable.
For example, a company can retain documentation showing how stale - dated checks were resolved — whether a check was issued in error, voided and reissued, voided because the obligation was never truly owed, or reported to the state as unclaimed property — but only for the predetermined record retention period.
To prove an accounts receivable credit is not unclaimed property, the company should document in writing a conversation with the customer that concluded the credit was not owed. Contemporaneously prepared internal notes and other documentation will help to rebut the presumption of abandonment. While no accounting practice can guarantee a pain - free unclaimed property audit, adhering to a record retention policy and the early reconciliation of open transactions can go a long way toward expediting the examination process. Given the contingency nature of contract auditor fee arrangements, it would be naive to expect an auditor's finding to be fair and unbiased.
Contract audits are fundamentally designed to identify large numbers of questionable in the auditor's view transactions spanning multiple years that typically are challenging or not possible for the company under audit to reconcile or remediate.
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The treatment of some transactions between businesses also raises concerns about contract auditor tactics. In another instance, a contract auditor requested the remediation of hundreds of debit entries made to accounts receivable, believing the transactions were customer credits inappropriately taken into income. In fact, the transactions were entries to record actual sales to customers. Fundamentally, treating any transaction between sophisticated businesses as unclaimed property is bad public policy and an impediment to commerce.
Most credits, overpayments, uncashed checks and rebates listed in the records of a business typically are not obligations actually owed to other businesses.
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Often, such amounts represent bookkeeping or systems errors that are automatically reconciled by electronic systems when future transactions are recorded, offset intentionally in the next transaction as is industry custom, or settled at some future date by some other means. One of the most contentious aspects of unclaimed property audits is the use of estimation methodologies to compute purported liabilities for prior years.
As a threshold matter, the authors question whether an estimated liability even is unclaimed property. The U. Supreme Court has held that the first step in ascertaining a state's jurisdiction over unclaimed property is to determine the "precise debtor creditor relationship as defined by the law that creates the property at issue. A state's rights to unclaimed property derive from, and generally can be no greater than, the rights of the owner.
With an estimated liability, there is no owner and, therefore, in the authors' view, no basis for the state's asserting custodial jurisdiction. Apparently aware of this incongruity, Illinois positioned its estimation statute as a penalty in its unclaimed property statute revisions. The contingent fee arrangements that give contract auditors an incentive to find unclaimed property understandably call their estimates into question. An auditor's typical approach makes clear the arbitrary and skewed nature of liability estimations:.
In , the U. Supreme Court established priority rules for states' claims to unclaimed property:.
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For years, Delaware, the state of formation for many corporate and noncorporate entities, has grossly distorted these rules when estimating liabilities. Delaware has applied the theory that, because there are no owner addresses as there are no owners , the estimated liability can be claimed only by the state of incorporation or organization of the entity often Delaware under the Court's second priority rule. The fact that a holder might have little or even no business activity in the state is ignored.
In fact, no statutes or case law decisions prevent any state from estimating a liability for any holder. In a pivotal June decision, a federal district court held that Delaware's method of estimating unclaimed property liabilities violated the substantive due process requirements of the U. Most notably, Kelmar's estimation methodology relies heavily on property escheatable only to other states to increase the amount of unclaimed property owed to Delaware.
We do, however, rely on a sustaining member program to support our mission. Skip to content. After about two weeks, the individual will receive a check from the office. There is no time limit on claiming property.
First Last. Kentucky Press News Service. Bank branch manager in Louisville. He also wants to make a phone app for Kentuckians to more easily find out if they have unclaimed property. The website I launched — the transparency website — I modeled after the one that was done in Ohio. But their treasurer invested a million dollars into it.
So I was able to work with relationships that we currently have and just work internally with resources already had. And I was able to launch the website without costing anything more, which was great. So making sure that we do that is going to be more than just making an appropriation from the revenues that we come in. The state of Colorado has generated a billion dollars in revenue off the legalization of marijuana. I made sure whatever comes out of my office was legal, was constitutional, was correct.
We got a bill passed last year to make it a high school requirement to have a course or program on financial literacy. And that was a big deal. Now we find out that that entity is going bankrupt.