Unclaimed Property: A Reporting Process and Audit Survival Guide By Tracey L. Reid Copyright 2008 by John Wiley & Sons, Inc. appendix Sample Policy and Procedure Manual XYZ COMPANY Unclaimed Property Policies and Procedures Manual Last Updated July 20XX UNCLAIMED PROPERTY POLICIES AND PROCEDURES Purpose, Maintenance, and Contacts I. Purpose [Entity] is dedicated to complying with the unclaimed property reporting laws of every jurisdiction to which it may become accountable. Unclaimed property is generally intangible property that has not been claimed by its true owners for a period of time. It is [Entity] s goal to limit all payments back to each state by having internal controls in place that will reduce dollars escheated back to each state and return property to the true owner where possible. Some examples of unclaimed property typically handled by our company include but are not limited to: Uncashed payroll checks Uncashed vendor checks Uncashed member refund checks Unused prepaid personal training hours Unidentifi ed remittances 159
160 appendix B sample policy and procedure manual II. Information That Must Be Maintained To properly maintain our unclaimed property records, the following information should be maintained for each outstanding check or credit: Name of owner Type of property (e.g., payroll check, overpayment, member refund, etc.) Identifying numbers, such as check number, vendor number, employee number, and/or member number Owner s address (including street address, apartment or suite number, city, state, ZIP code, and country) Social Security number and/or Federal Employee ID Number Amount due owner before any deductions Type of deductions, if any (e.g., service charge, interest) Amount of deductions or withholding Amount that will be remitted as due Interest rate (including percentage rate) III. Unclaimed Property Contact Person To ensure that information is disseminated consistently throughout the company and to interested noncompany parties, any inquiry from internal employees or outside parties should be referred to [name(s)], as members of the Unclaimed Property Oversight Committee. [Name(s)] may be contacted at:
procedures 161 Procedures I. Filing Requirements At the end of each quarter, the following items should be delivered to the person involved in unclaimed property fi ling: A. List of all checks outstanding that are at least 90 days old B. List of all checks that were voided during the quarter C. A detailed reason as to why each check was voided D. Proper backup, which includes the following for the voided checks: 1. Copy of voided check 2. Copy of source document that created liability (invoice, authorization) 3. Copy of new check if it was to the wrong vendor 4. Copy of any correspondence E. List of unidentifi ed remittances that are at least 90 days old; these would be payments that [Entity] has received but does not know where they are from or whose account it is (e.g., membership number, vendor number, invoice number, etc.) F. List of unidentified credits, accounts receivable credit balances, unidentified credit balances, etc., which would include checks that came to the company with a membership number or vendor number that can easily be identified, but that do not correspond with an invoice on the member or vendor that matches the payment received G. Copies of bank statements and bank reconciliations for the reporting period (to ensure that outstanding checks and voided checks are correctly noted) II. Non - Escheatable Property The following items may not be included in escheatable property if properly documented: A. Outstanding checks to current employees of the company B. Outstanding checks for charitable donations C. Outstanding checks to businesses with which [Entity] has a current business relationship (meaning [Entity] has transacted business with the other business entity within the last 12 to 18 months)
162 appendix B sample policy and procedure manual D. Outstanding checks to businesses located in states with a business - to - business (B2B) exemption, which include (as of January 31, 2007): 1. Arizona 2. Florida 3. Illinois 4. Indiana 5. Iowa 6. Maine 7. Maryland 8. Massachusetts 9. North Carolina 10. Ohio 11. Tennessee 12. Virginia 13. Wisconsin III. Procedure Goals These procedures will ensure the following: A. They will reduce the dollar amount escheated to each state. B. They will enhance the current internal controls of detecting duplicate payment, duplicate invoices being paid, employees receiving additional checks upon termination, and unapplied checks to current members and vendors. C. They will reduce labor hours spent perpetuating annual unclaimed property reports and reviewing lost dollars for escheatable items. D. They will reduce any writing off of accounts because they became stale. IV. Accounts Payable Department Procedures for Outstanding and Voided Checks At the end of each quarter, the information included in this section must be forwarded to the tax department for each voided check and any check outstanding for 90 days. This information should be completed no later than 30 days after the quarter.
procedures 163 A. Information for the tax department 1. A copy of each bank reconciliation for the previous three (3) months 2. Enter each voided or outstanding check on a Microsoft Excel spreadsheet, using the following columns: a. Number of owners on check b. Type of check (void or outstanding) c. Check number d. Check date e. Void date f. Owner s name (last name fi rst) g. Social Security number or Federal Employer ID Number, if applicable h. Amount of invoice before any deductions i. Amount of deductions, if any j. Net amount of check k. Mailing address (street, apartment/suite) l. City m. State n. ZIP code o. Country, if other than United States p. Explanation of what happened, if the check is void; if outstanding, is there still an open invoice to be paid with that member/vendor? q. Work paper number that will tie to the proper backup required B. Proper backup for a voided check: 1. Copy of voided check 2. Copy of invoice or other source document that created the liability 3. A detailed description of the reason for the voided check 4. If duplicate payment, a copy of the new check 5. If paid to incorrect member/vendor, copy of the new check 6. If wire sent to member/vendor, copy of the wiring instruction 7. Any additional pertinent information
164 appendix B sample policy and procedure manual C. Proper backup for an outstanding check: 1. Copy of check 2. Copy of invoice or other source document that created the liability 3. A list of any invoices still open to the member/vendor 4. Information about any address changes in the past 90 days 5. Any additional pertinent information IV. Tax Department Procedures for Unclaimed Property for Outstanding Accounts Payable Checks and Credit Balances A. Review information from the accounts payable department to verify the following items: 1. Is each item of required information and each column of the spreadsheet complete for each outstanding item? 2. Is the proper backup documentation included? a. If not, make a list of the information that is still required and send an email back to accounts payable department b. If you have proper information, go to step B. 3. Review the bank reconciliation, and verify that each voided check is on the spreadsheet. If not, make a list of the information for outstanding checks and send an email back to the accounts payable department. 4. Once you have all of the proper information, go to step B. B. Determine whether the unclaimed property is exempt by using the following exemptions: 1. Is this check to another business with an address in a state with a B2B exemption? 2. Is this check to a charitable organization? 3. Is this check to another business with which [Entity] has a current business relationship? 4. Is this check to a current employee? a. If the check is exempt, note it in the system. b. If the check should be voided, notify the accounts payable department via email and note it in the system. c. Once you have completed step B, go to step C.
procedures 165 C. Review each line item for credits and determine whether the backup is suffi cient, using the following guidelines: 1. Do you have a copy of the check, wiring instructions, or credit memo? 2. Do you have a copy of any correspondence that was received with the check, wire, or credit memo? 3. Do you have a copy of any correspondence from employees in the company regarding this balance? 4. Is the owner of the outstanding amount still a member of [Entity]? 5. If you have sufficient backup, then note this in the system as not escheatable and go to step D. 6. Is the company aware of a change in address during the last 90 days? If so, make sure the new address is noted in the system before going to step 7. 7. If you cannot get enough information, then a letter should be sent to the member or vendor asking if they have a prepayment due to them or if they are aware that they are due any amount. The member/vendor should be asked to send this letter back notarized with their response to the inquiry. Note : This should only happen in rare circumstances, as members/vendors generally do not write checks that are not due to the company. 8. Depending on the response received from the member/vendor, either: i. A check will need to be issued, OR ii. You can note in the system that the amount is not escheatable If you get no response, list the check/credit as escheatable in the system. Once you have completed step C, go to step D. D. Now that you have a list of exempt items, escheatable items, and nonescheatable items, extract the escheatable items from the spreadsheet and sort them by state of the owner s last known address. Determine, by state, what the dormancy period for the property is and move items to the unclaimed property holding account, noting the year in which this item of property should be reported to the respective state. E. Note : Before an item is escheated to a state, a due diligence letter will have to go out to the last known address of each true owner 60 to 120 days before the Unclaimed Property Report needs to be filed.
166 appendix B sample policy and procedure manual V. Procedures for Payroll Department for Outstanding and Voided Checks A. At the end of each quarter, the following information must be forwarded to the tax department for each voided check and any check outstanding for 90 days. This information should be completed no later than 30 days after the quarter. 1. A copy of each bank s reconciliation for the previous three months 2. Enter each voided or outstanding check on a Microsoft Excel spreadsheet, using the following columns: a. Number of owners on checks b. Type of check (void or outstanding) c. Check number d. Check date e. Void date f. Owner s name (last name fi rst) g. Social Security number h. Amount of wages before any deductions i. Amount of deductions, if any j. Net amount of check k. Mailing address (street, apartment/suite) l. City m. State n. ZIP code o. Country, if other than United States p. Is employee currently employed by [Entity]? q. Explanation of what happened, if it is a void check; if outstanding, is there still open payroll due to be paid to the employee? r. Work paper number that will tie to the proper backup required B. Proper backup for a voided check includes: 1. Copy of voided check 2. Copy of invoice or other source document that created the liability 3. A detailed description of the reason for the voided check 4. If duplicate payment, a copy of the new check 5. If paid to an incorrect employee, a copy of the new check 6. Date of employee termination (if applicable) and copy of any correspondence concerning last check
procedures 167 7. If wire sent to employee, a copy of wiring instruction 8. Any additional pertinent information C. Proper backup for an outstanding check: 1. Copy of check 2. A list of any payroll checks still outstanding 3. Whether there has been an address change in last 90 days 4. Whether the paycheck was a bonus or special payment 5. Whether the employee is still on the payroll 6. Whether the employee has been terminated, and if so, the date of termination 7. Any additional pertinent information VI. Tax Department Procedures for Unclaimed Payroll Checks A. Review information from the payroll department and verify the following items: 1. Is each column of the spreadsheet completed, and has the proper backup been included? If not, make a list of the information that is still required and send an email back to the payroll department. 2. Review the bank reconciliations and verify that each voided check is on the spreadsheet. If not, make a list of the information that is still needed for voided checks and send an email back to payroll department. 3. Review the bank reconciliations and verify that all outstanding checks over 90 days are listed on the spreadsheet. If not, make a list of the information needed for outstanding checks and send an email back to payroll department. 4. Once you have verified all information present, go to step B. B. Determine whether the unclaimed property is exempt by using the following: 1. Is the check to a current employee? 2. If the voided check is exempt, note it on the spreadsheet. 3. If the outstanding check should be voided, notify the payroll department via email and note that on the spreadsheet. 4. Once you have completed step B, go to step C.
168 appendix B sample policy and procedure manual C. Review each line item for voided checks and determine whether the backup is suffi cient using the following guidelines: 1. Do you have a copy of the voided check? 2. Do you have a detailed description of why the check was voided? 3. If it was because of a duplicate payment, do you have a copy of the original check to the employee? 4. If the wrong employee was paid, do you have a copy of the new check to the correct employee? 5. If a wire was sent before the check was cut, do you have a copy of the wiring instructions? 6. If the employee was terminated, do you have any correspondence concerning the last check? 7. If you have sufficient backup, then note this on the spreadsheet as not escheatable and go to step D. 8. Has there been a change in address during the last 90 days? If so, make sure that you get the new address before you go to step 9. 9. If you cannot get enough information, then a letter should be sent to the employee asking the employee whether any balance is due; they need to send the letter back with their response, notarized. Note : This should only happen in rare circumstances (otherwise the check would have been voided). 10. Depending upon what response you get back from the employee, either: a. A check will need to be reissued, OR b. You must note on the spreadsheet that the check is not escheatable 11. If you get no response, then list the check as escheatable on the spreadsheet. 12. Once you have completed step C, go to step D. D. Review each line item for outstanding checks and determine whether the backup is suffi cient using the following guidelines: 1. Do you have a copy of the check? 2. Do you have a list of any paychecks still outstanding? 3. Is the outstanding check a bonus or a special payment? 4. Is the employee still on payroll? 5. If the employee has been terminated, do you have the date of termination? 6. Has there been an address change in the last 90 days?
procedures 169 7. If you feel, from your review, that the check is still valid, write a letter to the employee asking them if they received your check. List out the check date, number, and amount, and include the payroll period that it covered. 8. Depending on the response you receive from the employee, either notify the department that they will need to void the check and reissue, or that they will need to void the check and no balance is due note this on the spreadsheet as not escheatable. 9. If you get no response, go to step E. E. Now that you have a list of exempt item(s), escheatable items, and nonescheatable items, extract the escheatable items from the spreadsheet and sort them by state. Determine, by state, what the dormancy period is, and make a new column on the spreadsheet noting the year in which the unclaimed property report needs to be fi led. Note : In most cases, another letter will have to go out to the employees between 60 and 120 days before the unclaimed property report needs to be fi led.