Top 5 Unclaimed Property Audit Red Flags

Ann Fulmer
January 19, 2024

Sovos often faces the question: “What triggers an audit from the States regarding unclaimed property compliance?” While each case is unique, there are common situations that can increase the likelihood of an audit. In this blog, we explore these triggers and provide insights on how companies can navigate the complexities of unclaimed property compliance. Here are the top 5 unclaimed property red flags.

Expanded search requirements

States and third-party auditors employ various tactics to identify potentially escheat-able accounts. One notable example is the use of the Social Security Death Master File (DMF) to identify potentially deceased policy holders and account owners. As the usage of DMF becomes more widespread, companies with strong histories of compliance in various industries may find themselves under scrutiny.

Enhanced state computing capabilities

As States improve the computing capabilities of their internal systems, they increase the ability to conduct in-depth analyses to identify companies that have not reported in the past, reported inconsistently or may have missed property types that are common to their industry. Delaware and New York are prime examples of states that conduct outreach to companies that reported in the past but no longer do so.

Corporate activity generating attention

Corporate activity that generates attention within the media is another unclaimed property red flag. Activities such as mergers and acquisitions, inquiries from other regulatory agencies such as the SEC or FINRA, headlines concerning potentially fraudulent activities and company shake-ups can create concern from the regulators regarding the handling of unclaimed properties in these situations.

Information from other state taxes

State unclaimed property officials also use information gathered through compliance with other state taxes to identify companies that may be out of compliance. If you file sales and use tax with a state, for example, and the numbers are significant enough to generate potential unclaimed property, the state will then look to see if you filed an unclaimed property report. If there isn’t one, you could receive a self-review invitation.

Claiming unclaimed property without compliance

The last unclaimed property red flag and a sure-fire way to land on the state’s radar is to claim unclaimed property being held by the state on behalf of an organization without filing unclaimed property reports to the state. By doing so, a company demonstrates that they are aware of unclaimed property but are neglecting their responsibilities to come into compliance. We recommend you always ensure you comply with state unclaimed property requirements before claiming unclaimed property funds from the state. This will help you avoid triggering an audit.

While companies have limited control over notices received from the states to confirm unclaimed property compliance, they should be prepared for their eventual receipt. The best way to be prepared is through the implementation of comprehensive policies and procedures to address unclaimed property compliance.

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Reach out to one of our experts to see how you can become more efficient while remaining compliant by avoiding these unclaimed property audit red flags.    

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Author

Ann Fulmer

As National Director of Consulting Services, Ann leads the Sovos Consulting and Advisory Services team that provides clients with a comprehensive approach to achieving and maintaining compliance with state unclaimed property rules and regulations. Ann’s experience as an unclaimed property audit manager for the Commonwealth of Pennsylvania affords her the opportunity to provide the unique insight and knowledge required to represent clients seeking to achieve voluntary compliance, as well as defend those that are facing an unclaimed property audit.
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