Unclaimed Property Audit Landscape Expands

Stay Ahead of Increasing State Compliance Regs

By James Ouellette

The Unclaimed Property Audit Landscape continues to evolve as states enact new compliance regulations and third-party auditors expand their reach into fast-growing and complex organizations. There are various industries that auditors have historically focused on, but new industries are often unprepared when they find themselves under scrutiny of Unclaimed Property compliance through audit examinations. Several factors have led to recent increases in the number of audits. One is state budget shortfalls due to the Coronavirus pandemic. Several states and auditors are consistently looking for targets within their jurisdiction that have a large business presence, complex organizational structure, unique property types, and have never filed Unclaimed Property reports previously.

Although physical presence does not dictate a state’s right to audit any Holder to confirm compliance with its unclaimed property statutes, the likelihood of a Holder being audited by a state in which it has a physical presence is higher than that in which it does not. Holders who have received an audit notice from any state through one of its third-party auditors may likely receive additional audit notices from other states. Most third-party audit firms contract with multiple states and often solicit them to participate in an ongoing examination. The lack of uniform unclaimed property statutes and multiple participating states can create additional burdens for Holders under audit.


Audit Spotlight on Financial Institutions

While many financial institutions are headquartered in various states throughout the country, most if not all have a jurisdictional connection to several states through physical presence (i.e., branches), or, at the minimum, have account owners or customers with a last known address in multiple states, increasing their risks of a multi-state examination. Holders in the financial services industry are also subject to more scrutiny due to the complex escheat analysis required on the types of property they are required to report, such as:

  • Checking and savings accounts
  • Certificates of Deposit
  • Individual Retirement Accounts
  • Many states have increased their audit reach to include national and regional financial Outstanding Cashiers & Other Official Checks
  • Money Orders

Financial institutions that are required to file reports but have not historically escheated or accounted for gaps in the reporting, risk subjecting themselves to audit.


Unexpecting Fintechs Now Examination Targets

The fintech industry has also seen an uptick in examinations related to retail, investments, and bill payment services. The fintech industry could be largely unprepared to meet the demands of unclaimed property compliance regulations. As fintechs continue to innovate new products, it is important to review and ensure adherence to state unclaimed property laws.

Unclaimed property risks for fintech firms center around the facilitation of payment processing between multiple parties, which may increase the potential for inactive balances. This creates an opportunity for unclaimed property exposure that should be monitored and reported when dormancy periods are met. Determining reporting responsibilities can be difficult when the delivery of disbursements has failed, whether electronic or paper. Balances owed to customer(s) or clients should be monitored for owner-initiated activity to identify those at risk of becoming dormant—this will prompt proactive outreach to re-establish client contact and minimize accounts subject to escheatment.


Unclaimed Property Regulations are Dynamic and Your Strategy Must Evolve

Regulatory actions and audit activity are leading indicators for how states are enforcing Unclaimed Property regulations.  It is pertinent for Holders to maintain awareness of these trends to gain a head start in interpreting the state’s direction and approach being employed. This understanding enables Holders to proactively ensure that their internal unclaimed property compliance efforts address the concerns being raised and that records are maintained in line with current regulatory requirements to mitigate unclaimed property risk and exposure.

Proactive measures such as death validation, advanced due diligence, and Unclaimed Property Health Checks by Holder advocates can help to ensure that potentially escheatable properties are identified, tracked, and reported in accordance with the state requirements. These measures can also reduce the overall amount of property due to the states, accounting for successful reunification with the rightful owners.

Please reach out to Guidehouse today to learn more about our services and how our unclaimed property professionals can assist with mitigating your audit risk and strengthening your compliance program.

This article is co-authored by Alex DeFruscio.

James Ouellette, Director

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