W E L C O M E

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W E L C O M E
Fargo-Moorhead CPAs Unclaimed Property Compliance
September 15, 2006 Linda Fisher,
Administrator ND Unclaimed Property Division
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Unclaimed Property Compliance
Forward With all the attention being given to
enhance accounting oversight and adopt stringent
internal controls, unclaimed property is an area
that will continue to grow in importance for
CPAs, their clients and employers. It is
important for CPAs to help companies proactively
develop an action plan to ensure compliance with
unclaimed property laws, as well as to give a
high priority to it within the organization.
CPAs can help clients and employers assess the
financial statement impact of unclaimed property
to reduce or eliminate the possibility of
significant misstatements.
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• What is Unclaimed Property?
• What is the Significance of Proper Management of
  Unclaimed Property
• Logistics of Reporting Unclaimed Property
  (Unclaimed Property Reporting 101)

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• First - to clear things up,

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Unclaimed Property Is NOT Land or Real Estate
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• Unclaimed Property is
• NOT
• A Function of the Postal Services Dead Letter
  Office

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GENERAL FUND
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• So what IS
• Unclaimed Property?

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• UNCLAIMED PROPERTY
• Defined as a owed to an
  individual
• or entity when a debt or obligation remains
• outstanding after a specific period of time.

liability
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• Most Common Types
• Uncashed checks such as payroll, insurance
  payments, travelers checks, money orders
• Bank account balances
• Accounts receivable credit balances or
  overpayments
• Stocks, bonds and dividend checks

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• Why Report
• Unclaimed Property?

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• The property belongs to someone else
• Gives owners and heirs one place to look
• UPD assumes responsibility for the liability
• To allow public schools to benefit from what is
  never claimed
• And last but not least .

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• ITS
• THE
• LAW

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• Not only is compliance required by North Dakota
  State Law, but it also essentially required by a
  somewhat recent piece of federal legislation
  better known as..
• Sarbanes - Oxley

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• UNCLAIMED PROPERTY
• Defined as a owed to an
  individual
• or entity when a debt or obligation remains
• outstanding after a specific period of time.

liability
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• Sarbanes-Oxley (SOX 404)
• Financial Statements must be in accordance with
  GAAP, which requires that owed and contingent
  liabilities must be recorded in financial
  statements.
• Code of Ethics requires compliance with federal
  and state laws.

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• It is important to assess the impact of unclaimed
  property on financial statements
• to reduce or eliminate the possibility of
  significant misstatements.

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• If a business voids or
• writes off a stale-dated check or any other
  payable, they understate their liabilities.
• (Incidentally, this can also be viewed as theft
  
• via private escheat)
• Why??

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• Because the value of a payable represents the
  debtors continuing obligation to the payee.
• In other words, just because the payee fails to
  collect, it doesnt mean they arent still
  owed the money.

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• Business Acquisitions
• Remind companies of the potential unclaimed
  property exposure inherent in any business
  acquisition.
• Emphasize the importance of due diligence efforts
  before a company completes any significant merger
  or acquisition.

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• Noncompliance can be costly
• How the cumulative effect could be material to a
  companys financial reporting.

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• North Dakota Century Code
• Grants
• Unclaimed Property
• Audit Authority

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• EXAMPLE
• An annual unclaimed property liability of 20,000
  for a company that has not reported its unclaimed
  property for 8 years could result in additional
  assessments of 85,500.
• Reportable Unclaimed Property
  160,000
• Interest (12 accrued on reportable)
  45,500
• Penalties (25 of reportable)
  40,000
• SUB TOTAL 245,500
• potential costs beyond the subtotal
• civil penalties of 100/day
• audit costs of 100/day per auditor

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• Plus Unclaimed property liability for prior
  years can be estimated based on current actual
  findings.

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• HIGH RISK FOR FRAUD
• Unclaimed property is considered
• to be forgotten money and therefore
• can be seen as safe to steal.

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• INTERNAL CONTROLS
• can minimize the risk of fraud by ensuring
  procedures are in place
• to monitor personnel with access to sensitive
  data and to remove their ability to change and
  manipulate that data.

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• Recommended
• Internal Control
• Procedures

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• Establish a separate unclaimed property liability
  account.
• Provide management control (review and approval)
  over all transactions in and out of the unclaimed
  property liability account.
• Independently reconcile the account on a regular
  basis and test the validity of refunds from the
  account if necessary.

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• Have two employees approve refunds or other
  transactions from unclaimed property accounts.
• Separate the duties of tracking and reporting
  unclaimed property from issuing refunds.
• Follow up on outstanding checks and credits after
  6 months.

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Unclaimed Property REPORTING 101
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First, Determine If There Is Property To Report

• Check your records each year on June 30 to see if
  you have anything to report. For instance, do
  you have
• Uncashed Checks that are now two years old ??
• Credit Balances that turned three ??
• Utility or apartment deposits that have been owed
  to people for more than a year ??

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Have nothing to Report?

• Then you would file what is called a negative
  report by going to our website
  (www.land.state.nd.us).

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• Why file when the answer is we have nothing to
  file?
• GOOD QUESTION!

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• The answer is that it tells the State you
  remembered to check your records that year.
• A year of no filing indicates possible negligence
  and could raise an audit flag fairly quickly.

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What If We DO Find We Have Property to Report?
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First, Contact the Owners Yourselves (Due
Diligence)

• The law says that when dealing with a property of
  50 or more, the holder shall send written
  notice to the apparent owner at the owners last
  known address to let them know that the property
  is about to be sent to the Unclaimed Property
  Division, and to instruct the owner on recovering
  the property from the holder (including a
  deadline for recovery).
• This must be done not more than 120 days before
  filing a report with the Unclaimed Property
  Division, UNLESS you know you have a bad address.

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We Have Done Our Due Diligence and Received No
ResponseNow What?
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Start the Reporting Process

• Download forms and instructions from our website
  (www.land.state.nd.us). Using these forms is a
  manual process and is good for small reports.
• If you have a larger report, you can download
  free reporting software that will prepare reports
  for e-filing with our office (www.wagers.net).
• Many states require e-filing of reports that
  list more than 20 properties since it cuts down
  on data entry. In North Dakota, its not
  required only appreciated. ?

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Unclaimed Property Itemization

• Required for individual properties with a value
  of 50 or more.
• Includes names, last-known addresses, social
  security numbers, birthdates, or any other info
  the could help to positively identify the owner
  in the claim process.

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• Itemization and due diligence are not required on
  individual properties with a value of less than
  50.
• However, all amounts are reportable

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What Happens After Businesses Report?
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Land Department Due Diligence Efforts

• Display names and addresses of owners on our web
  site (www.land.state.nd.us) Free Searches
• Participate in a national database with 37 other
  states (www.missingmoney.com) Free Searches
• Advertise names and addresses in official county
  newspapers
• Provide lists of owners at statewide fairs and
  trade shows
• Direct mailings to owners of securities
• Prepare public service announcements and press
  releases relating to Unclaimed Property

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What Happens With the Money That is Never Claimed?
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• The money remains invested in the Common Schools
  Trust where it earns interest that is distributed
  each year to North Dakota public schools, Grades
  K - 12.

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Unclaimed Property Dollars (By Fiscal Year - In
Millions)
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Contributions to Common School Trust (as of June
30, 2006)
25 million
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• PUBLICATIONS
• AND
• ARTICLES

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• Unclaimed Property -
• Laws, Compliance, and Enforcement
• By Anthony L. Andreoli and J. Brooke Spotswood
• Published by Deloitte Touche

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• Unclaimed Property -
• How to Comply with the Undisclosed Liability and
  Report Requirements
• By Anthony L. Andreoli and Josiah S. Osibodu
• Journal of Accountancy
• February 2004
• Published by the American Institute of
  Certificated Public Accountants
• http//www.aicpa.org/PUBS/JOFA/feb2004/andreoli.ht
  m

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• SARBANES-OXLEY ACT
• Using 404 Review Process
• to Comply with State Unclaimed Property Laws
• By Anthony L. Andreoli and Josiah S. Osibodu
• Bureau of National Affairs - Tax Management
• Weekly State Tax Report
• October 29, 2004
• Volume 2004, No. 44

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• Unclaimed Property
• The Hidden Exposure
• Every Internal Auditor Needs to Know
• By Edwiges B. Hamblet, J.D.,
• Deloitte Touche, LLP
• FSA Times
• First Quarter 2006
• Published by the Institute of Internal Auditors

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• Unclaimed Property Division
• North Dakota State Land Department
• Linda Fisher
• Unclaimed Property Administrator
• llfisher_at_nd.gov
• Peggy Gudvangen
• Audit Supervisor
• pjgudvangen_at_nd.gov
• [phone]