Budget shortfalls remain widespread in the wake of the financial crisis. One notable, and oft-overlooked, casualty of the worst recession in a generation is lax administration of escheatment and unclaimed property rules by state authorities. Where once companies could often pay little mind to local laws governing unclaimed property, now, as recent studies have shown, enforcement is ramping up as local governments look high and low for ways to fill in budget gaps.
With this in mind, Val Jundt, managing director of Keane consulting and advisory services, recently offered her best recommendations to trade credit professionals beset by this new environment, where stringent enforcement of unclaimed property liabilities is the norm, rather than the exception. “Though accounts receivable credit balances are clearly within the definition of an unclaimed property liability, it has only been within the past 5-7 years that this category of property has become a primary focus for the auditor,” said Jundt. “The responsibility of the credit manager to ensure that the identification, tracking and posting of all customer credit balances is done accurately, and completely, is critical.”
Certain obligations can be very easily overlooked by creditors and their companies, Jundt noted, and being aware of these common mistakes can prevent a great deal of troublesome penalties down the road. “For example, there are often contracts with vendors that allow for certain discounts if paid early, or legitimate offsets due to damaged goods, which could appear to be obligations from an accounting perspective,” said Jundt. “If these items are not documented carefully, the auditors often operate under an ‘assumption’ that a liability exists; often creating an estimated liability that can exceed several thousand, or even million, dollars.”
“Whether the credit is still on the books or has been reduced to a check, the auditor will carefully review this area to identify a potential liability,” she added.
For companies looking to increase compliance and protect themselves from newly-zealous auditors, Jundt offered these helpful hints to get started:
• Confirm that your department is properly identifying and tracking customer credit balances.
• Make sure that unclaimed credit balances are being reported as unclaimed property.
• Follow up on customer credits early and often to resolve them where possible.
• Document your policies and procedures—and test them to make sure they are being followed.
To learn more about trends in unclaimed property and best practices in compliance, check out Jundt’s upcoming presentation, “The ABCs of Unclaimed Property Compliance,” at this year’s upcoming Credit Congress, scheduled for June 10-13 at the Gaylord Texan in Dallas. Click here to find out more, or to register today.
Jundt will also lead a special “Added Advantage” NACM teleconference on unclaimed property in April. Click here to find out how to register.
Jacob Barron, CICP, NACM staff writer