Unclaimed Paychecks, Cards May Pose Audit Risk


Understanding the requirements for reporting and remitting different forms of unclaimed property is crucial for compliance, Heather Steffans, a partner of MarketSphere Unclaimed Property Specialists, said May 15.

The length of the period of inactivity after which property is considered abandoned varies by property type and the jurisdiction of remittance, and the reporting date varies depending on an organization's industry classification.

Unclaimed payroll checks generally are to be reported after one year of inactivity. Pay cards are to be treated similarly, Steffans said at the annual American Payroll Association Congress at National Harbor, Md. 

“It is still, from a dormancy perspective, a form of payroll,” Steffans said. Activity on the account must be tracked so that it is known when the remaining amount must be reported to the state, she said. 

A third-party paycard provider has the ability to monitor account activity in a way that payroll administrators often do not, Steffans said. Organizations and their third-party providers need to clearly outline what happens when the one-year dormancy period has passed. The provider may remit the amount directly to the state, or it may return it to the company, she said.

“You have to look at the relationship that you've got” with a third party provider and determine where the obligation lies, Steffans said. Verifying or updating the contract language to ensure that liability is clearly established may help avoid compliance issues later on, she said.

States may choose to audit an organization at any time for any reason, Steffans said. States may cross-reference reports of compliant organizations with those of others in the same industry to come up with an estimate of the amount and value of unclaimed property that should be reported, based on the company's size, how long it has operated, and other factors. 

“Even if you are in compliance, they are going to send you an audit letter” if a report does not follow an expected trend for an industry, Steffans said. 

Other activities that may trigger an audit include failing to file a complete report or one that lists an amount different from the remittance amount, she said.