Accounts Payable & Unclaimed Property

Transcription

1 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas Accounts Payable & Unclaimed Property How Reporting Obligations and Audit Tactics Impact A/P Departments and Shared Services Centers

2 Presented by: James A. Sadik Managing Director True Partners Consulting LLC Steven Swaigenbaum Director True Partners Consulting LLC

3 Agenda House Rules Unclaimed Property ( UP ) Basics Stacking the Deck Outstanding ( O/S ) v. Voided Checks Hedge Your Bets Voiding and Write-Off Practices Show Your Hand Remediation and Auditor Review Betting the Spread Liability Calculation Players Club Shared Services Centers

4 Interactive Polling Get out your smart phone Open internet browser Pollev.com/tpc2016

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7 What is UP? House Rules UP Basics First Things First Unclaimed Property is NOT a tax! However, it can be one of the largest sources of revenue for a jurisdiction Unclaimed Property Defined: Intangible property that is held, issued, or owed in the course of a holder s business that has gone unclaimed for a specific period of time by the rightful owner

8 Question? House Rules UP Basics Which state should property be reported to? Contacts Test Company is incorporated in state A, has principal place of business in state B Transacts business in states C and D Holds funds for residents in states E, F, G, H... and so on.

9 House Rules UP Basics Texas v. New Jersey (1965) Supreme Court Landmark Case Defines which state has the superior ( priority ) claim to unclaimed property Court heard four proposed treatments: Texas contacts test New Jersey debtor company s state of incorporation Pennsylvania debtor s principal place of business Florida creditor s last known address on debtor s records

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11 Court s Decision (TX v. NJ) The Priority rules First Priority Rule Property is reportable to the state of owner s last known address as indicated on holder s books and records Second Priority Rule House Rules UP Basics Property is reportable to the state of corporate domicile (e.g., state of incorporation) if the address of the owner is unknown Difficult/impossible for owners to find/claim becomes large source of revenue for some jurisdictions!

12 Reporting UP Varies by state Dormancy periods Due diligence House Rules UP Basics Annual reporting requirement (3 reporting cycles) Fall States Oct 31st / Nov 1st Spring States March 1st Summer States June 15th / July 1st

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14 Stacking the Deck O/S v. Voided Checks Both outstanding and voided checks represent potential UP Outstanding Checks Generally presumed abandoned at 90 days Voided Checks Generally presumed abandoned at: 90 days VDA 30 days Audit Presumption of liability Can be challenged if documentation is available to demonstrate amount is not owed (e.g. issued in error, satisfied by other payment, etc.)

15 Outstanding Checks Reside on bank reconciliation Limited or no aged o/s checks may be an indication of regular void procedures Voided Checks Cash back on account Stacking the Deck O/S v. Voided Checks Reinstate AP liability/reverse Expense Items voided within VDA/Audit parameters are assumed to have occurred in the ordinary course of business and not because they are stale

16 Hedge Your Bets Voiding and Write-Off Practices Important to document why an item was voided or written off Void codes Notes in system Contemporaneous Should clearly state reason for void or write-off Linking Support Contain enough detail to link to underlying liability in question (e.g. check number of reissued check, invoice number, purchase order, vendor communications) Documentation Retention/Researchable Minimum of 10 years + dormancy Typically 15 years for most property types

17 Show Your Hand Remediation and Auditor Review Remediation Support Third-party support (Primary): Validate amount was resolved Bank Statement Copy of Cleared Check Signed Affidavit/Due Diligence Letter Internal support (Secondary): Explain transaction activity and story behind disposition of an amount ERP system contemporaneous notes Journal entries Customer History Reports/Customer Statements Documented Correspondence/Agreement

18 Reasons Auditors Generally Deny Support: Cannot Link Original Check to Reissuance Varying dollar amounts Show Your Hand Remediation and Auditor Review Unclear link in liability (e.g., invoice #, purchase order #, etc.) No Third-Party Corroborating Support Bank statement or cleared check may be required Standalone bank statement showing clearance may not be sufficient for a reissued check (i.e., recurring payments) Difficulty interpreting accounting systems/sub-ledgers

19 Betting the Spread Liability Calculation Real Records v. Estimated Liabilities Real Records UP liability is based on the actual amounts Reportable to the jurisdictions shown on records Remediation of an item results in an equivalent offset Estimated Liabilities Liability estimated from actual records for periods where records are not available Holder s state of domicile is entitled to estimated UP liability Remediation of an item could result in an offset equal to a multiple of the remediated item

20 Betting the Spread Liability Calculation The general approach to calculating unclaimed property exposure is typically the same across audit firms as well as advocates: Determine base years for testing Typically 3 years (but may be more) Oldest records available Identify property presumed abandoned in base years Compute error rate as a percentage of a benchmark (i.e., revenue) Apply error rate to revenue of earlier periods to extrapolate liability Repeat for each property type subject to review

21 Betting the Spread Liability Calculation Prior Unclaimed Property Filings Unremediated Items Funds Returned during Examination Errors / Basis of Estimation CALENDAR SALES (Base Years) = UP ERROR RATE

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23 Betting the Spread Liability Calculation Statistical Sampling Test population is simply too large to review on an actual basis Results likely to be representative of the entire population Key Sampling Terms CONFIDENCE LEVEL Probability that a sample is expected to yield a population s true result within a given precision interval PRECISION INTERVAL The degree by which sample results may vary from a population s true result (i.e., margin of error)

24 Betting the Spread Liability Calculation Data Universe (all data available anywhere in any system) Target Population (population of audit (e.g., outstanding checks, voided checks) Sampling Frame (list of possible sample items/researchable) (90 days O/S; 30 days Voids) Projection Sample Base (selected items) Sample Results (error ratio or escheat ratio)

25 Betting the Spread Liability Calculation SHUFFLE UP AND DEAL, INC. A/P SAMPLE SUMMARY STRATUM ANALYSIS Population Statistics Sample Summary Statistics <A3a> Extrapolation Analysis Stratum Lower Bound Upper Bound Count Total Sample Size Total Sampled Amount Escheatable Amount Standard Deviation Ratio Estimated Escheatable % , % 57, , , , % 112, , , , % 118, , , , , % 9, Totals 1, , , , , Computed Escheatable Rate % <A2>

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27 Betting the Spread Liability Calculation SHUFFLE UP AND DEAL, INC. A/P SAMPLE SUMMARY STRATUM ANALYSIS Population Statistics Sample Summary Statistics <A3a> Extrapolation Analysis Stratum Lower Bound Upper Bound Count Total Sample Size Total Sampled Amount Escheatable Amount Standard Deviation Ratio Estimated Escheatable % , % 57, , , , % 112, , , , % 118, , , , , % 9, Totals 1, , , , , Computed Escheatable Rate % <A2>

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29 Players Club Shared Services Centers Pros of Shared Service Centers Shared Service Centers can streamline the UP reporting process, ensure that reports are filed for all jurisdictions and include all property types Uniform policies and procedures ( P&P ) can be implemented and followed Void Procedures Stale Dated Reviews Due Diligence Under audit, documentation relating to UP reports is located in a central repository Central point of contact for Audit/VDA

30 Players Club Shared Services Centers Cons of Shared Service Centers The UP reports filed by a shared service center are only as good as the information it receives from the business units it services. Need to ensure that standard P&P are being followed by the business units Identify business unit for which payment was made Under audit, still need to go to individual business units to locate detailed records, remediation support Still relying on business units to keep and maintain historical data

31 Players Club Shared Services Centers No matter their structure, companies need comprehensive UP policies across all departments/entities/property types

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33 Questions?

34 Presenters James A. Sadik Managing Director True Partners Consulting LLC Phone: Steven Swaigenbaum Director True Partners Consulting LLC Phone: