Aggressive Enforcement the New Norm for Unclaimed Property

In light of persistent budget shortfalls, states have become ever more vigilant in their efforts to collect what’s rightfully theirs. As such, local governments have tightened enforcement on everything from parking tickets, to taxes, to, as companies nationwide have begun to notice, unclaimed property.

A recent report released by the Conference Board found that states are stepping up their collection of unclaimed property, or escheatment, liabilities in an effort to shore up the capital that state government coffers so desperately need. According to an invitation-only group of 55 executives from across industries, functions and regions, U.S. business leaders are reporting that some states have begun expanding the scope and definition of property that is reportable as unclaimed property to include items such as inventory, vendor samples, unused magazine subscriptions, rebates and gift cards.

Other states have also begun to use extrapolation methods to determine liability, rather than consulting actual data, rescinded the offer of an independent appeals process, limiting a company’s dispute options, and engaged third-party auditors on a contingency fee basis, incentivizing collectors at the company in question’s expense.

“As the use of third party auditors by states continues to rise, it is important that companies are prepared to respond effectively by means of thorough compliance efforts and appropriate audit defenses,” said Joseph Blanco, a partner with McKenna Long & Aldridge LLP, the law firm that collaborated with the Conference Board on conducting the survey and writing the report.  “Failure to do so can subject a company to significant fines and penalties.”

The majority of survey respondents (64%) reported that audits conducted between 1994-2011 used contingency-fee-based third parties, and that nearly one-third of audits had look-back periods of 20+ years, which is well beyond the document retention policies of most companies.

Jacob Barron, CICP, NACM staff writer