Unclaimed Property Reporting for Retail Businesses

Gary Joseph
May 10, 2021

The evaluation of retail unclaimed property compliance can be quite complex when taking into account the nature of the business.  On one hand, the organizational and accounting structure of a retail company presents challenges in the form of determining which state properties should be reported and remitted to, per the priority rulings.  On the other hand, the lack of uniformity between states in establishing whether certain retail-specific properties are fully reportable, partially reportable, or exempt can also be quite difficult to comprehend.  While holders operating in this sector have exposure to universal general ledger property types like outstanding checks, account receivables overpayments, and payroll, they also have a unique property type, unclaimed property gift cards.  

Retail Unclaimed Property Gift Cards

Gift cards, and/or stored value cards, are unique to retail companies and can present material unclaimed property compliance confusion and exposure.   

To obtain unclaimed property compliance, holders must initially ascertain if there are any conflicting or potentially preemptive federal or state laws that make the property non-escheat eligible.  Additionally, Financial Accounting Standards Board (FASB) standards regarding breakage must also be considered.

In the event that a holder’s gift cards, or stored value cards, are escheat eligible, holders must determine which of the following dormancy triggering date(s) is appropriate:

  • The date of purchase
  • The card’s expiration date
  • The last date of usage or date funds were last added

As there have been several whistleblower cases and legal challenges regarding compliance in this space, such as in the case of Overstock.com and CardCompliant, it is important that companies take the necessary steps to evaluate their exposure and incorporate controls to manage the associated risks.   

eCommerce in Unclaimed Property

By: Brian McCarthy, Senior Consulting Manager

Strongly related to the retail industry is eCommerce which has its own unique unclaimed property challenges. Newer ecommerce companies are beginning to experience what happens when you do not have an unclaimed property process in place.  Many companies that were formed over the last 10 years or even in more recent years, may not be aware of their unclaimed property obligations. Because of this, third-party contingent fee auditors are targeting these companies resulting in multi-state audits.  

Within these audits the auditors primarily target wallet balances for which there has not been any owner generated activity within the dormancy period. Auditors will ask for a list of accounts with balances in the participating audit states along with the date of last contact and the date of last activity on the account. The auditor then identifies the accounts that have not had any owner generated activity within the dormancy period and also tests the individual contact parameters seen within the in-scope audit states. The auditors will request individual support that ties to the contact parameter to confirm if the contact supports owner generated activity.  

Ecommerce companies that have not reported or remitted unclaimed property in the past, should consider doing so in an effort to avoid an audit. Conduct a detailed review of your books and records in order to identify areas within the company that have the potential for unclaimed property.  Common unclaimed property areas may include are:

  • Customer accounts (wallet balances, creator balances, etc.)
  • Accounts payable
  • Payroll
  • Accounts receivable
  • Unapplied cash

Property types vary depending on the business activities and products offered within each individual company.  If internal staffing resources or unclaimed property knowledge is an issue, it may be a good idea to hire an advocate who can perform this review on your behalf. An advocate will be able to identify the risks and establish a policy and procedure document that will ensure your company has documented a process to ensure compliance with unclaimed property laws going forward.

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Gary Joseph

As a Senior Consulting Manager, Gary serves as an unclaimed property subject matter expert across multiple industries and is primarily focused on the energy, oil and gas sectors. Having sat on both sides of the table as a third-party contract auditor and also as a consultant at a public accounting firm, Gary has worked alongside and on the behalf of state unclaimed property administrators.
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