What policies can a business implement to track its unclaimed funds and make a potential audit easier?
You need to have really good practices and procedures in place to even complete an unclaimed funds return. If you have uncashed payroll checks, and they’ve gone uncashed for a year, you need to attempt to find the employee, send a letter saying your records indicate the check hasn’t been cashed and ask whether it has been. If it has, it’s no longer an unclaimed fund on your books. If not, resend it.
But if you can’t locate that employee, that becomes reportable.
You should also regularly go through your outstanding accounts receivables credits, check registers and payroll registers to follow up with checks that haven’t been cashed. By doing monthly reconciliations of cash and payroll, you can keep a tally of checks that are still outstanding and address them before they get too old.
Also, retain your records. The industry standard for accounts receivable information is seven years, but with an unclaimed funds audit, you may need that information going back 10 years or more.
You really need to have staff dedicated to addressing the unclaimed funds issue. It’s not something that you say, ‘Oh, it’s time to file, do we have any unclaimed funds to report?’ and move on. Because if you wait until it’s time to file the report, you’re going to be way behind the eight ball.
If a business hasn’t been filing, what can it do to remedy the situation?
If you haven’t been filing and fear that there are dollars that you should have been reporting, you can do voluntary disclosure by going to the state and saying, ‘I haven’t been filing but I feel I should be filing, and I want to come forward and report what I have been missing.’
The advantage of doing this voluntarily is to reduce the period of time the state will look back. If you are audited and you haven’t been filing, the state could look back as many as 20 years. In most states, if you come forward, that period will only be three to five years. In addition, if it’s a state that would impose interest and penalties as a result of an audit, the penalties will be waived and the interest will be waived or reduced.
Mary Jo Dolson, CPA, is an associate director in tax at SS&G. Reach her at [email protected], (330) 668-9696 or (800) 869-1835.
