By Valerie Jundt, Sam Schaunaman, and Christopher Jensen
Unclaimed property compliance has become a hot topic for corporate management due to its increasing impact on all organizationsprofit and non-profit alike.
The following factors are responsible:
In prior years, payroll (e.g., wages) and accounts payable (e.g., expense reimbursement) distributions were limited to cash, manual paper checks, and electronic funds transfer (e.g., direct deposit). However, with the recent introduction of paycards, companies have a new and somewhat unconventional means of issuing compensation and reimbursements to employees. Our collective consulting experience has been that paycards can raise a number of potential concerns and unanswered questions regarding unclaimed-property reporting responsibilities. This two-part article examines unclaimed property pitfalls and advantages that companies using paycards, or thinking of using paycards, need to know.
Unclaimed property laws, sometimes referred to as “escheat laws,” descend from feudal England where the Crown would escheator confiscateland under feudal tenure back to the Crown when no legal heirs existed. Today, all 50 states, as well as various foreign countries, have enacted unclaimed property laws. With rare exception, these laws are custodial in nature, meaning that title to the property does not pass to the state. Rather, the state holds the unclaimed property until it can be reunited with the rightful owner or their heirs, which may or may not be possible.
Unclaimed property generally has four basic characteristics:
Under the rules of jurisdiction, promulgated by the U.S. Supreme Court in the seminal case of Texas v. New Jersey, the state with the first right to claim the property is the state of the owner’s last known address, as shown on the holder’s books and records. If there is no address of record, the holder’s state of incorporation can claim the property.
The American Payroll Association hosts the APA Visa® Paycard Portal that provides additional information for members on the deployment of a paycard program. Benefits, implementation, usage, compliance, resources, and a news archive are featured on this web-based portal, built on a partnership between the APA and VISA. The APA Visa Paycard Portal is the industry's top resource for payroll and finance professionals to learn about paycard programs and best practices, research state laws that allow 100% electronic pay, keep updated on legislative efforts, and ask questions of paycard pros.
Outstanding wages, commissions, and employee reimbursements are included as applicable property types in the various state laws and most states specify a one-year dormancy period for payroll. Expense reimbursements, which are normally included in the accounts payable function, generally have a three- to five-year dormancy period.
Because unclaimed property addresses a vested “property right,” whereby the owner’s rights are preserved until they can be reunited with their property, there is generally no statute of limitations. Therefore, unlike a tax audit, state unclaimed property audits, in some states, can reach back more than 20 years. As a result, small-dollar amounts deemed immaterial in any given year can become material, given the cumulative effect of the unclaimed property audit liability over a five-, 15-, or even 20-year-plus period (i.e., the sum of the past due unclaimed property, plus any interest and/or penalties that are assessed). Although the financial reporting aspects of unclaimed property compliance are beyond the scope of this article, further guidance may be obtained via Michael Houghton, et al., Unclaimed Property, 74-2nd C.P.S. (BNA-Rev. 2009), pp. A-57-60.
Though these laws were not intended as sources for generating revenue, in recent years some states have included forecasting revenues in their budgets and/or employed more aggressive methodologies for calculating an unclaimed property liability. According to a Wall Street Journal article from February 2, 2008, “States Scooping up Assets from Millions of Americans,” states collected approximately $5.1 billion in unclaimed property in fiscal 2006. In total, the states collectively held $35 billion in unclaimed property as of June 2006. The article further states, “On average, the states identify owners and return about one-third of this property.”
Employers have recognized the benefits of electronic payment methods for years. Not only does the company save the costs of printing and distributing a hard-copy check to its employees, it also saves the time spent on tasks such as reconciling a manual checking account and excessive fraud-monitoring techniques.
In fact, according to the American Payroll Association (APA), “NACHAthe Electronic Payments Associationestimates that companies save up to $0.60 per payment by using direct deposit instead of paper paychecks.” However, some industries may have a workforce where many of the employees are “unbanked”meaning, without a bank account. In response to the employer’s desire to pay unbanked employees through electronic means, banking institutions and third-party vendors have developed a solution: paycards.
A paycard operates much like a debit card. It can be used as a method for an employee to receive their wages and expense reimbursements, as well as make purchases anywhere the card is accepted. They can withdraw funds through automatic teller machines, and if lost or stolen are easily replaced. As defined by the APA, the card operates “in a manner similar to traditional PIN-based debit cards that are linked to a checking and/or savings account held by individual consumers at any given financial institution.” The primary difference between a traditional debit card and a paycard is the employer selects the issuing financial institution.
So, opting for paycards rather than manual checks offers a number of advantages to an employer. In addition, the advantages to the employee include convenience, elimination of fees such as check-cashing charges, time savings, and the secure transfer of wages and expense reimbursements. By using a paycard, an employee avoids the possibility of misplacing or losing the check. In addition, exposure to identity theft may decrease, as the likelihood of personal information on manual paychecks ending up in the wrong hands is eliminated. Paycards also prove convenient where employees work in remote locations and may not have ready access to banking/financial institution facilities.
There are also potential disadvantages to using paycards. It is important to consider that when contracting with certain vendors or financial institutions, service fees for certain transactions such as transfers or automatic teller machine withdrawals may be imposed on the card holder. In addition, an employee may find it difficult to obtain any small-dollar balance residing on the card if his or her relationship has been terminated with the employer. Thus, some banks may charge a monthly maintenance fee or a fee that is greater than the balance left on the card, leaving the employee with little choice but to abandon the account after the relationship with the employer has ceased.
Employers should recognize potential disadvantages with offering a paycard program. While a paycard program is designed as a no-cost benefit to employers, companies may need to ensure extra internal controls. The controls should include measures to account for all paycards issued and to ensure no paycards are funded twice. Also, a corporation with multiple branches or subsidiaries may find it useful to issue a paycard under each unique entity. While this would provide an additional element of control, it will likely result in added cost. And, as will be discussed in part II, there may be unanswered unclaimed-property questions that should be considered.
In recent years, the electronic payment solution has become an increasingly popular option. For employers, it’s an efficient, electronic payment alternative. And for employees, it’s a quick and convenient means of receiving wages and expense reimbursements. However, as new methods emerge, state lawmakers may need to play catch-up with regulations. As indicated in the aforementioned Wall Street Journal article, unclaimed property has been used as a key revenue source for the states, and new property types are always being reviewed for potential escheatment.
In Part II we will discuss the interface of paycards with state unclaimed property laws, and will further discuss why compliance with such laws is important to accounts payable personnel. Some selected laws that specifically mention paycards will be examined, as well as the effect of the paycard on the underlying obligation for purposes of the state escheat laws. We will also look at how a few selected state unclaimed property administrators currently view paycards from an unclaimed property perspective.
About the Authors
Valerie Jundt is the Director of State Relations in the Unclaimed Property Group of Thomson Reuters (Property Tax Services), and formerly was with the Unclaimed Property Group of Deloitte & Touche LLP. She is a co-author to the Unclaimed Property Treatise published by the BNA in May 2006 and has been quoted in a number of national publications including Money Magazine, Redbook, Women’s World, Good Housekeeping, and Readers Digest. Val is the former State Unclaimed Property Administrator for the State of North Dakota. She managed the administration and enforcement of the North Dakota Unclaimed Property Act, initiated legislation, and testified before various legislative committee hearings on the subject of unclaimed property. She is often a featured speaker for holder education seminars and has been actively involved in the Unclaimed Property Professional’s Organization (UPPO) since 2001. Val may be contacted via email@example.com
G. Samuel Schaunaman II is a Senior Manager in the Unclaimed Property Group of Thomson Reuters (Property Tax Services), and formerly was with the Unclaimed Property Group of Deloitte & Touche LLP. He has consulted with clients in numerous industries, with particular unclaimed property expertise in the Oil & Gas and ERISA/employee benefits areas. He previously served as the Co-chair of the Unclaimed Property Professionals Organization (UPPO) Legislative Committee, and currently serves as Co-chair of the UPPO Emerging Issues Committee. He is a member of the Oklahoma Bar Association. Sam may be contacted via firstname.lastname@example.org
Christopher Jensen, CPA, is a Senior Consultant in the Unclaimed Property Group of Thomson Reuters (Property Tax Services) and formerly was with the Unclaimed Property Group of Deloitte & Touche LLP. Chris’s experience with Thomson focuses on assisting companies with various aspects of unclaimed property compliance such as analysis and quantification of potential unclaimed property liabilities, voluntary disclosure initiatives, and the development of comprehensive policies and procedures. Chris is currently the Chair of the Unclaimed Property Professionals Organization (UPPO) Finance Committee. He is also a member of the American Institute of Certified Public Accountants and North Dakota Society of Certified Public Accountants. Chris may be contacted via email@example.com
Unlike a tax audit, state unclaimed property audits, in some states, can reach back more than 20 years.
IN THE NEWS
The 31st Annual Congress doesn’t have to end when the lights go out in Grapevine, Texas on May 11. Rather, the 2013 Virtual Congress & Expo keeps the education and networking coming after the live Congress closes its doors on 2013!
The AAPA’s Strategic Accounts Payable Leadership Task Force (SAPLTF) presents its prestigious Prism Award to AP departments nationally who have shown excellence in leadership in one or more of three different areas. Entries for the 2013 award are due by July 9, 2013.
I can still remember attending my first Annual Congress many years ago. I had no idea what to expect, I felt quite overwhelmed by the volume of activity and number of people at the event. No one coached me about how to get the most out of Congress—so I went into it blindly.
Sherri Grigsby, Manager, Employer Services & Special Matching Programs for the Federal Office of Child Support Enforcement, announced the recent launch of an engaging website designed with users in mind. The main menu features distinct links for each category of customer, including employers, families, and state and tribal agencies.
Published in conjunction with the American Accounts Payable Association (AAPA), Aspen Publishers’ AAPA Guide to Accounts Payable is your one-stop shop for everything you need to know about how to run a successful AP department. More››
In job search mode or just want to keep up to date on the latest opportunities? Sign up for the free Job Board News* brought to you in partnership with jobing.com. Visit AAPA’s Job Board page for more information. * Please note that this is a separate opt-in email list from the American Accounts Payable Association.
For these and many more accounts payable, payroll, accounting and finance positions throughout the US, visit www.americanap.org/job-board
Financial Analyst / Accounts Payable
Grand Haven, MI
Brilliance Audio is seeking an individual to support our finance and accounting team. This position will initially support payables and various accounting/finance duties to ensure optimal results. You will also identify and implement process improvements to be able to further evolve in the financial analyst role. The successful candidate will be a self-starter who is comfortable with ambiguity, detail-oriented and has the ability to work well with cross-functional teams including manufacturing operations. The right individual will have the foundation of finance and analytical skills, strong computer systems comfort, solid business judgment and be capable of influencing others to achieve the right results. In addition, the successful candidate must be comfortable presenting to leaders using fact based analysis, along with effective verbal and written communication skills.
The ideal candidate will have a minimum 2 years experience working in full-cycle high volume A/P with primary focus on Purchase Orders/3-way payments. Job tasks include; examining, verifying and preparing A/P documents for processing to include obtaining additional signature approvals as needed. Accurately enter vendor account information, account codes, and amounts into the JD Edwards accounting system. Reconcile statements identifying any discrepancies then creating timely resolutions.
Contact Us | Sign Up | Legal | Privacy
© Copyright 2013, American Accounts Payable Association | Powered by PRI