Guidance of Costly Pitfalls

UNDERSTAND THE PITFALLS

The first real danger to acknowledge and overcome is simply a state of inertia. Instead, actively, and routinely research your unclaimed property obligations and act accordingly. Otherwise, your company could be caught off-guard at the worst possible time.

Many states have the right to instantly liquidate unclaimed securities once they are reported and remitted. While the states will pay out the cash value to the rightful owner, it may be too late. The damage is done in terms of lost growth opportunities from invested assets.

In addition to shareholder losses, an audited company can expect to face steep interest and penalty assessments for late reporting, failure to report, and/or fraudulent reporting. For example, Nevada currently charges 18 percent interest per year.1

The most common ways to Minimize Risk

Generally, states argue that there is no statute of limitations for conducting audits and assessments for unclaimed property. Some ask companies to perform a “self-audit” by looking back 10 years or more to identify and report any unpaid remittances to the state. Companies without proper policies and procedures in place may also fall victim to harsh extrapolation and estimation techniques while under audit. The consequence: significant financial loss.

Internal and external fraudsters pose another often-overlooked challenge. Companies often fail to protect their unclaimed property programs. Forgotten balances, especially when small, are easily ignored but become significant once added up. A newsworthy case of internal fraud at Vanguard recently saw over $2 million in unclaimed property vanish beneath the company’s radar in just two years.2 These eight actions can help ensure you do not play with fire.

1. UNDERSTAND YOUR LEGAL RIGHTS.
2. UNDERSTAND THE DIFFERENCE BETWEEN LEGAL AND ADMINISTRATIVE GUIDANCE.
3. STAY ON TOP OF LEGISLATIVE CHANGES AND LEGAL DEVELOPMENTS.
4. STAY UP TO DATE ON INDUSTRY TRENDS.
5. EMBRACE ONGOING SHAREHOLDER OUTREACH AND COMMUNICATION PROGRAMS.
6. CREATE A CONTACT DATA WAREHOUSE.
7. REVIEW YOUR PRE-ESCHEAT FILE FOR PAST, PRESENT AND FUTURE LIABILITIES.
8. IMPLEMENT CONTINUED TRAINING AND EDUCATION.

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