Building and Maintaining an Unclaimed Property Compliance Program

Companies are increasingly challenged to build and maintain programs to ensure compliance with the ever-changing unclaimed property laws. Maintaining and administering unclaimed property is challenging, costly and time consuming. As a result, many companies put off or delay coming into compliance or do not put enough resources into creating a robust program. Ignoring and/or delaying compliance with unclaimed property laws can have serious and costly consequences both financially as well as reputationally. In the current environment the consequences for lack of compliance are at an all time high, states are focusing on locating non-compliant entities with the intent of bringing them into compliance through either outreach programs or aggressive audits.

What are the consequences of not fully complying with U.S. unclaimed property laws? Penalties can vary depending on the state and the specific circumstances, understanding some potential consequences may persuade decision makers to act sooner rather than later. Penalties and interest are two of the major consequences of non-compliance. Each state and reporting jurisdiction require companies to report and remit unclaimed property annually. Each of the reporting jurisdictions has the authority to issue interest and/or penalties for non-compliance, as a result, failure to report and remit unclaimed property on time may result in penalties and interest charges that can accumulate over time and become quite substantial. Penalty interest begins to run annually from the date the unclaimed property was due to be remitted. This means that for a company that is non-compliant or even inadvertently missing just one property type, non-compliance could lead to a significant financial liability.

Each state also has statutory authority to audit companies for their compliance with the unclaimed property laws. Unclaimed property audits are adversarial, long and burdensome to administer and generally unpleasant. It is not uncommon for an unclaimed property audit to go on for upwards of 5-8 years and are typically administered by third-party audit firms. These audits are generally performed on behalf of multiple states at one time. While some state laws have statutes of limitation, some auditors rarely acknowledge these limitations and try to extend the audit periods, allowing for a long lookback period for review. If you are unable to produce records for specific time periods it is not uncommon for states and their auditors to estimate liability for periods of time where a company has no records. Audit firms are often paid on a contingency fee basis and therefore have incentive to find as much liability as possible to increase the company’s liability and therefore boost their contingency fee. More and more audit firms are entering the industry therefore increasing the number of audits. With more states looking for ways to increase revenue, states are increasingly using unclaimed property audits to help states close budget deficits. Unfortunately, unclaimed property audits are one trend that will continue to increase in size and scope.

Businesses cannot afford to ignore the unclaimed property laws. Disregard for states’ unclaimed property laws can be costly, burdensome and take up internal resources. The potential for reputational damage to a business or organization is great and could lead to negative publicity, loss of customer trust, and reduced business opportunities. If not already in place, companies must develop and institute policies and procedures to achieve and maintain compliance with all applicable state laws and regulations.

Continental Stock Transfer & Trust Company as your transfer agent has you covered on the registered shareholder side and ensures compliance with states reporting and filing requirements.  Who is managing the rest of your business abandoned property compliance needs?


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