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

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.

To learn more about how to reduce your company’s escheatment liability, be sure to check out Valerie Jundt’s NACM teleconference on unclaimed property in April, and her presentation at NACM's Credit Congress, scheduled for June 10-13, 2012 at the Gaylord Texan in Dallas. For more information on Jundt's teleconference, or to register, click here. For more information on Credit Congress, click here.

Jacob Barron, CICP, NACM staff writer