Unclaimed Property 1751

  • My question is about companies that search for unclaimed property being held by corporations that have failed to turn it over to the state as required by law.
    The corporation illegally holding the property often records the unclaimed property on the balance sheet as an asset when in fact it doesn’t belong to the company. It belongs to the person who hasn’t claimed it. If the person doesn’t claim it within the statutory time period it then belongs to the state. Many of these corporations never report the property to the state and in fact keep the property for the corporation on the books as an asset. We are talking about 100’s of billions of dollars every year.
    The company conducting the search for unclaimed property is paid a fee by the state for any property belonging to the state it recovers. If the company thought to be illegally holding the property refuses to allow an examination of their books a court order or an order from the attorney general can be obtained to examine the company books to search for unclaimed property.
    The question is. If we discover in the course of our search of the corporations records that they have unclaimed property that has not been reported then what are our responsibilities under Sarbanes Oxley to report this fact to the SEC or any other entity? This property will normally be listed on their balance sheet as an asset. Must we also report to the corporation, its auditors, and the companies internal auditor committee the results of our search? Is the corporation then required to make corrections in their 8-K; 10-K; 10-Q filing? Must the company make corrections to their internal audit control system? Does this trigger the two day report? We become aware of multiple accounting failures under SOX. Are we required to report this to the SEC? Are we considered to be aiding and abetting the company in the commission of violations if we do not report this?
    What in general are our duties and responsibilities in law if we become aware of violations of the Sarbanes Oxley Act and other SEC or fraud regulations governed by other laws and entities? If we are in violation of law for failing to report what are the penalties? Please understand that we are not conducting audits of the firm in the usual sense but only for the purpose of finding unclaimed property that must then be turned over to its rightful owners.
    I assume SOX applies to all private firms as regards the whistleblower and destruction of documents provisions. What other provisions impact the book keeper or accountant who simply keep the records for a corporation. (public or private) What are the legal liabilities of employees working for a company doing these searches for unclaimed property? What are the legal liabilities of employees working only in the capacity of book keeper if they become aware of accounting inaccuracies and do not report them? Who is required to report? Who would they report to? Is this liability extended to accountants working for private companies as well as public companies?
    I would appreciate a direct response to these specific questions and guidance in finding any publication that speaks to these issues in general.

    Francis Trottier
    4248 Echo Rock Lane
    Roseville, CA 95747
    Tel 916-773-2436
    Fax 916-773-5083

  • Hi,
    SOX does not specifically address requirements pertaining to escheat or handling of unclaimed property. SOX directly adresses internal controls over financial reporting (ICFR). To the extent that the financial reports are accurately reported, SOX compliance is achieved when the underlying ICFR are operating effectively and for their intended purpose.
    To my knowledge, escheat law is determined in each state by the applicable governing authority. Thus, it is not established at the Federal level. You can find most of the answers to your questions by simply conducting a search online using the search terms ‘escheat’, ‘escheat law’ and/or ‘unclaimed property’. From there, you can review the applicable State regulations for your State.
    From a governance standpoint, SOX indirectly addresses escheat in that an entity that does not comply with escheat regulations might be incorrectly recording as income, revenues that are otherwise not earned and/or in connection with unclaimed property. When this has occurred and the amounts recorded in the financial reports are material, it results in a material control weakness and will likely adversely impact the ability to comply with SOX requirements.
    Also, improper or unlawful handling of escheat transactions negatively impact the ‘tone at the top’ and will also adversely impact the ability to comply with SOX requirements.
    Hope this helps,

  • As Milan says, a company holding property on it’s balance sheet to which it had no legal ownership would have an ICFR issue.
    Rights and Obligations (or variations thereon) is one of the financial statements assertions that is applicable under SOX (via COSO or similar) and an organisation valuing an asset to which it had not title would be incorrectly reporting it’s financials. To the extent that this is material it would be a SOX issue.

  • Folks,
    Milan was apt in his response. Both ‘Tone at the Top’ and ICFR(if material) are affected if there is an inappropriate escheatment process.

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