and unclaimed property (“aup”) concepts · address does not escheat property, then the state of...

The Accounts Receivable and Order-to-Cash Expo Conference is produced by: 5/24/2016

• Abandoned and Unclaimed Property (“AUP”) concepts

• Governing laws

• Compliance

• Identifying abandoned and unclaimed property for Accounts Receivable

(“AR”)

• State audits

• Voluntary disclosure agreements

• Hot topics and planning for the future

1

The Accounts Receivable and Order-to-Cash Expo Conference is produced by: 2 5/24/2016

• Property that has not been claimed by an “owner” for a specified period of time (dormancy period) is considered abandoned or unclaimed.

• Must be a fixed and certain legal obligation of the holder to the owner.

• After statutorily defined holding periods, the “holder” of the property has an obligation to file annual reports and remit the property to the appropriate state(s).

• Abandoned and Unclaimed property is not a “tax” on the holders but may be a source of revenue to the state. States have recognized unclaimed property as a good source of non-tax revenue.

• More than 100 types of property may be considered potential sources of Abandoned and Unclaimed property.


What are the governing laws?

• Abandoned and Unclaimed Property is governed by state law. Many states

model their laws after the Uniform Unclaimed Property Act (UP Uniform Act),

adopted by the National Conference of Commissioners on Uniform State

Laws (NCCUSL) in 1954, 1966, 1981 and 1995.

- NCCUSL goal: To promote fair and adequate treatment among the states

and provide uniform laws for the benefit of multistate businesses.

- UP Uniform Act adopted by all but six states (Delaware, Kentucky,

Massachusetts, New York, Ohio and Texas).

- 1995 UP Uniform Act is currently being revised. The expected revision of

the act is Summer 2016.


Purpose of Abandoned & Unclaimed

Property laws • Protect the interests and property rights of the property owner

• Relieve the holders from the expense and liability associated with the

property

• Ensure that any economic windfalls benefit the public, not an individual

holder


Holder obligations under the unclaimed

property laws 1. Duty to file a report

2. Duty to perform due diligence

3. Duty to remit the property

4. Duty to maintain copies of the reports and supporting documentation

5. Duty to protect the funds until reported and transferred to the state


The States’ responsibilities under the

unclaimed property laws

1. Release and indemnify the holder from liability

2. Secure the funds in a custodial capacity

3. Make efforts to locate owners

4. Pay claims


Sourcing of AUP – Where to report?

Follows Priority Rule Hierarchy (Texas v. New Jersey 1965 U.S. Supreme Court

case)

• 1st Priority Rule: State of owner’s last known address

• 2nd Priority Rule: Holder’s State of incorporation or domicile, if the last known

address of the owner is unknown

• 3rd Priority Rule: Holder’s State of incorporation or domicile if address of

apparent owner is in a foreign country and if holder is incorporated or

domiciled in the U.S.

• Throwback Rule: In the event the jurisdiction of the owner’s last known

address does not escheat property, then the state of incorporation may claim

property


Unclaimed property and financial accountability

• Legal responsibility of the company/holder to file.

• Avoid interest and penalties and potential civil and/or criminal charges (Sarbanes

Oxley Rules 302 and 404).

• Requires CEOs and CFOs to certify that:

• The financial statements are accurate and not misleading.

• State their responsibility for establishing and maintaining adequate

internal control structure and reporting procedures, and

• Provide an assessment of the effectiveness of internal controls.

• Minimize exposure in the event of extensive state audits as look back periods

vary by state (there is generally no statute of limitations). For all new audits in

Delaware (beginning with January 2017, rolling 22 year look back period).


Spring/Summer filing requirements Jurisdiction Due date

• California 6/15 (Final Report)

• Connecticut 3/31

• Delaware 3/1

• Florida 4/30

• Illinois 5/1

• Michigan 7/1

• New York 3/10

• Pennsylvania 4/15

• Tennessee 5/1

• Texas 7/1

• Vermont 5/1

General Requirements:

• Verify reporting periods for

each jurisdiction.

• Apply

exemptions/deductions.

• Determine funds to be

reported.

• Mail and track due diligence

letters.


Fall filing requirements Jurisdiction Due date

• Alabama 11/1

• Alaska 11/1

• Arizona 11/1

• Arkansas 10/31

• California 10/31 (Notice Report)

• Colorado 11/1

• D.C. 11/1

• Georgia 11/1

• Hawaii 11/1

• Idaho 11/1

• Indiana 11/1

• Iowa 11/1

• Kansas 11/1

• Kentucky 11/1

• Louisiana 10/31

Jurisdiction Due date

• Maine 11/1

• Maryland 10/31

• Massachusetts 11/1

• Minnesota 10/31

• Mississippi 11/1

• Missouri 10/31

• Montana 11/1

• Nebraska 11/1

• Nevada 10/31

• New Hampshire 11/1

• New Jersey 10/31

• New Mexico 11/1

• N. Carolina 11/1

• N. Dakota 11/1


Fall filing requirements (continued) Jurisdiction Due date

• Ohio 11/1

• Oklahoma 11/1

• Oregon 11/1

• Puerto Rico 11/1

• Rhode Island 11/1

• S. Carolina 11/1

• S. Dakota 10/31

• Utah 11/1

• Virginia 11/1

• Virgin Islands 11/1

• Washington 11/1

• W. Virginia 11/1

• Wisconsin 11/1

• Wyoming 11/1

General Requirements:

• Verify reporting periods for

each jurisdiction.

• Apply

exemptions/deductions.

• Determine funds to be

reported.

• Mail and track due diligence

letters.


Identifying abandoned and unclaimed

property – Accounts receivable Areas of review • Customer overpayments and/or unutilized credits

• Trailing credits that occur when customers go out of business

• Accounts that are closed with credit balances remaining

• Unapplied cash due to lack of an invoice/remittance information, multiple customer accounts where the amount is not linked to any specific account, accounting errors, etc.

• Unidentified ACH payments (receipts)

Current issues related to third party audits • Netting of debits vs. credits

• Current customer exception or business-to-business positions

• Testing methodology


Identifying abandoned and unclaimed property

– Accounts receivable (continued) Issues to consider when reviewing aged credits/write-offs

• How does your company account for unidentified receipts or remittances?

• How are AR credit balances tracked and aged?

• What is the procedure for resolving outstanding AR credit balances? Under what circumstances are credit balances written off?

Journal Entries

• Review journal entries to gain an understanding of accounts used to transfer unclaimed property.

• Evaluate to see if company has reversed irreconcilable items to income/expense accounts and/or returned amounts to original accounts.

Documentation is key!

• Ensure you have clear written policy and procedures around resolving outstanding AR credit balances, and revisit them periodically to make any necessary updates.

• Maintain sufficient documentation when credit balances are refunded, written-off, etc.


Potential triggers for audits

Companies can be targeted for an audit for various reasons, including:

• Publicity about a company or industry

• Size—generally the larger the company, the more likely it is to be audited

• Transient workforce

• Null reporting only

• State of incorporation/principal place of business

• Reporting errors and/or failure to report “key” property types

• Involvement in recent merger and acquisition activity


Key audit issues

• Source of revenue for states

• Consumer protection vs. revenue generation

• New third party contract unclaimed property audit firms are entering the market

• Use of estimation techniques by states and contract auditors

• Calculations that include potential liabilities that may not be defined by statute

• Enforcement focus on new property types (e.g.. equity related)

• Due diligence enforcement

• Penalty and interest assessments

• Litigation

• Foreign jurisdictions

• Increase in mergers and acquisitions


The Do’s and Dont’s DO:

• Take audit notices seriously

• Assess your potential liability

- Have an idea of what the potential assessment might be

• Determine how you will handle the audit

• Make sure the scope of the audit is clearly defined by state representatives at the outset of the

audit

DON’T:

• Assume you do not have a liability

- Almost every company has some liability

• Ignore the audit notice from the state

• Use stall tactics

- Can lead to penalties/interest

• Give auditor unsupervised access to your records


Risks of audit

• Auditors are permitted to extrapolate (estimate) unclaimed property liability if

records are incomplete.

• Contract auditors are often paid on a contingency fee basis, providing an

incentive to interpret ambiguous claims in favor of the state.

• Many states expressly endorse interstate sharing of information from audits

or participate in joint multi-state audits.

• Penalties can exceed the principal liabilities.


Interest and penalties

• A holder can be assessed penalties and/or interest for:

- Failure to report/remit the property

- Failure to comply with statutes

- Interest generally applied at 10% - 25% of property value

• Civil/Criminal penalties for failure to report/remit/deliver OR for filing a

fraudulent report may include:

- $100 - $200 per day ($10,000 maximum)

- Varies from $1,000 - $25,000 fine plus some states assess an additional

25% of the value of the property

- Some states – Class B misdemeanor


First time filer with past due liability

Voluntary Disclosure Agreement (VDA)

• Audits are becoming more common as many states have increased efforts to

enforce their unclaimed property laws.

• Initiating the filing of an unclaimed property report on a prospective basis

could trigger an audit.

• If the unclaimed property exposure is significant, a VDA is often the best

solution.

• A VDA involves negotiating with the state(s) to bring holder’s unclaimed

property filings current and close out prior year liabilities.

• Under most VDAs, the state(s) waive penalties and limit the number of prior

years for which the liabilities are due (the “Look back Period”).


Recent happenings

• States and Third Party Auditors focus on:

- Historical records for bank accounts and general ledgers

- Disbursement (AP/PR) and Accounts Receivable write-offs

• Equity Audits – New hot area of interest

• States issuing increased number of notices for audit:

- Delaware is mailing out notices of audit quarterly


Leading industry practices – Planning for

the future • Determine potential unclaimed property exposure

• Become compliant with applicable state requirements

• Develop and maintain detailed processes and procedures for tracking and

reporting unclaimed property

• Conduct internal audits of unclaimed property processes and procedures

• Establish an unclaimed property committee that is responsible for

compliance

• Include key personnel, including, but not limited to, internal audit,

legal counsel, upper management, treasurer, controller and shared

services


Q&A PwC Contact Information

Heela Popal

Director

[email protected]

(678) 419-1462

Randolyn Davis

Manager

[email protected]

(678)419-1328

mailto:[email protected]

mailto:[email protected]


Thank you for attending

This content is for general information purposes only, and should not be used as a substitute for consultation with

professional advisors.

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