Unclaimed Property: What You Need to Know ~ Part 2 ~ Heela Popal & Troy Wangen June 15, :30p 4:30p 25094

Transcription

1 Unclaimed Property: What You Need to Know ~ Part 2 ~ Heela Popal & Troy Wangen June 15, :30p 4:30p 25094

2 Legal Disclaimer This presentation does not constitute legal, financial, accounting or any other type of advice. It is provided solely for educational and informational purposes for the attendees of this webinar which is sponsored by UPPO. Attendees are urged to consult with their own attorneys and other advisors about their particular facts and circumstances. The analysis and opinions expressed herein are those of the presenters and do not necessarily represent the views of their employers, the Unclaimed Property Professionals Organization, or its officers, directors or members. Anti-Trust Statement UPPO members and/or meeting attendees cannot come to understandings, make agreements, or otherwise concur on positions or activities that in any way tend to raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing models, methods, systems, and applications, as well as certain cost matters that do not lead to an agreement or consensus on prices or fees to be charged. However, there can be no discussion as to what constitutes a reasonable, fair or appropriate price or fee to charge for any service or product. Information may be presented with regard to historical pricing activities so long as such information is general in nature and does not include data on current prices or fees being charged in any trade area. Any discussion of current or future prices, fees, discounting, and other terms and conditions of sale, which may lead to an agreement or consensus on prices or fees to be charged, is strictly prohibited. Any questions about UPPO s antitrust policy should be directed to UPPO s Executive Director.

3 Today s Agenda Unclaimed Property in the Credit Department How to identify potential unclaimed property Internal Due Diligence Proper Documentation Effective Policies and Procedures Audits of Accounts Receivable

4 Unclaimed Property in the Credit Department

5 Unclaimed Property in the Credit Department A customer s account is a moving target with fluid balances Credits often appear as an obligation to the customer, but there may be more to a customer s account balance than initially meets the eye Potential AR exposure may be hidden in several GL accounts: Trade AR Cash Application/Tolerance Write-Offs Bad Debt Offsets Unapplied Cash/Suspense Accounts

6 Trade AR Prompt Pay Discounts (e.g., 2/10 net 30) Volume Discounts Fluctuations in Pricing Customer pays based on purchase order price regardless of invoice amount Product Returns Overpayments Pre-Payments

7 Trade AR Accounting Errors Credit should have never been issued to the customer Payment applied to wrong account Payment applied to related account Transposing of invoice amounts or payments applied Rebate/Discount requirements not fulfilled

8 Cash Application/ Tolerance Write Offs Generally no deminimus exemptions; even $0.01 can be unclaimed property and reportable Automatic process at cash application to remove small balances doesn t allow for credits to be tracked and resolved Thresholds can be established for internal administration and review Certain states have low due diligence thresholds that may be less than your tolerance level CT requires due diligence letters for all amounts

9 Bad Debt Offsets Credit balances included in monthly entry to write-off bad debt Payments received after a balance has been written off to bad debt Unknown payments used to offset bad debt

10 Unapplied Cash/ Suspense Accounts Customer payments collected via lockbox Payment is received without reference to account number, customer number, purchase order, invoice number, etc. Payment moved to specific Trade AR customer account or separate suspense account until it can be researched and property matched But what if the payment can never be matched? Zeroed out periodically (e.g., taken into income) Refunded Remains unreconciled credit balance

11 Internal Due Diligence Tracking of date of last activity Must be customer generated such as a payment or purchase Related Customers Parent / Child relationships Netting Overall net customer balance, including related customers, if allowed Bad Debt Cash Application/Tolerance Write-Offs Yearly audit of customer balances

12 Internal Due Diligence Settlement Agreements Written contract between two parties resolving any outstanding credits and debits between them for a specific period of time Signed by both parties Language often includes: Summary of facts, including disputed amounts; Agreement as to resolving amount owed, if any, and acknowledgement of payment or discharge; Mutual releases, waivers, discharges, and covenants not to sue; and Specific periods covered by the release agreement.

13 Internal Due Diligence Contractual Terms / Anti-Limitation Provisions States often claim that contractual terms limiting an owner s right to claim unclaimed property (e.g., Not Valid After 90 Days ) may be disregarded by the state as a form of private escheat The settlement agreement is not triggered by a specific period of time, although it may address specific periods, and the terms are mutually negotiated and agreed to

14 Proper Documentation It is important to maintain documentation on credits that have been resolved in the unlikely event of an audit

15 Effective Policies and Procedures

16 Developing Unclaimed Property Process Determine whether there are any procedures currently in place. Identify other departments (i.e., AP, PR) to be included in the process Identify entities to be included in the process Clearly define roles within each department Appoint one Escheat Coordinator to communicate with all departments that have escheatable property Separation of duties Document the process flow in a flow chart with general ledger coding for entries

17 Gathering data Unclaimed Property Reporting Steps Unclaimed property liability account Develop a compliance timeline/calendar Due diligence letter process State report preparation Tracking of reporting changes

18 Gathering Data: A/R Trade A/R Quarterly / semi-annual review of credit balances How are liabilities going to be researched? Courtesy letter or phone call campaign Tolerance Write Offs Move balances directly to a clearing account for netting purposes or credits directly to UP liability account Unapplied Cash Unresolved amounts moved to UP liability account

19 Audits of Accounts Receivable

20 Audits on the Rise AR tends to be the most labor intensive portion of any general ledger unclaimed property audit Audit methodologies for computing AR liability can vary largely from self-review Guilty until proven innocent stance makes proper documentation imperative Review is typically not limited to AR aging reports

21 Audit Methodology Identification of Tracer Accounts Auditors will review AR aging reports to identify customer credit balances that drop off between periods Tracer credits (and debits) will be scheduled to uncover general ledger accounts believed to hold unclaimed property Request will be made to: Identify account to which the credit was posted; Disposition (e.g., refunded, written off) of the balance; and Provide copies of journal entries that link that balance to the specific general ledger account.

22 Audit Methodology Testing of Tracer Accounts Provide every journal entry, including the individual transactions for any batch postings, for the identified tracer accounts, which may include: Bad Debt Expense Miscellaneous Income/Expense Accrual or Suspense Accounts Provide offsetting general ledger account to exclude non-customer related postings Netting of customer debits and credits to facilitate testing of net-credit balance customers

23 Questions and Answers

24 Contacts Heela Popal UPPO President Troy Wangen UPPO Midwest Region Vice President Director, State and Local Tax PricewaterhouseCoopers LLP Phone: Senior Manager True Partners Consulting LLC Phone: