According to a report released today by The Conference Board Governance Center, a group of key U.S. business leaders report that their enterprises are coming under increased pressure from some states for collection of unclaimed property liabilities.  

The report captures the insights of a recent survey of The Conference Board Council members and other business executives, which indicates that companies are seeing a significant shift to more assertive patterns of enforcement in the area of unclaimed property, as states struggle to fill budget gaps and increase compliance.  

According to the survey respondents — an invitation-only group of 55 executives from across industries, functions, and regions — some states are currently taking steps that include:

• 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
• Using extrapolation methods to determine liability rather than consulting actual data
• Not providing an independent appeals process, which limits a company’s dispute options
• Engaging third party auditors on a contingency-fee basis

The report, Expanded Liability in Unclaimed Property: Are States Going Too Far?, reviews these emerging practices by the states and outlines some of the practical steps that companies can take to respond effectively to audits.

“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.”

As companies learn to navigate in this new landscape for unclaimed property, enhanced compliance and documentation can be two key areas where additional commitments of time and attention could be warranted.

“This report can help companies be prepared for audits that may arise, regardless of industry,” said Michelle Andre, a principal with KPMG LLP, the audit, tax and advisory firm that collaborated with The Conference Board on conducting the survey. “While the rules may be shifting, preparation and a basic understanding of the procedures involved can help a company present its position effectively and allow the audit process to move more smoothly.”

The Conference Board survey highlights several key trends that companies should be aware of, including:

• The majority of respondents (64%) reported that audits  conducted during 1994-2011 used contingency-fee-based third parties
• Almost one-third of audits had look-back periods of 20+ years, well beyond the document retention policies of most companies
• Audit oversight is increasingly including not only the tax and finance departments but also the legal departments of corporations

The report offers several practical guidelines that companies should consider, including instituting enhanced due diligence and engaging parties both within and outside the corporations who can provide insight into current developments and the specific procedures and processes related to each state’s unclaimed property positioning.  The full report is available for download at: https://www.conference-board.org/publications/publicationdetail.cfm?publicationid=2046