What’s the key for entities, of almost any size in any industry, to take advantage of California’s new Voluntary Compliance Program (VCP) for Unclaimed Property? It’s starting the document review process now!
The VCP was established under AB 2280, a new law signed by Governor Gavin Newsom in September 2022, and administered by the California State Controller’s office. The law allows companies to review their records of unclaimed property, complete the VCP application and, upon approval by the state, avoid paying 12% interest on the unclaimed property value. The document review is the crux of the matter and given the scope of the unclaimed property universe and the potentially enormous volume and variety of records, the process is likely to be arduous and complex. Our advice is for companies to begin the VCP application process only once they have undertaken a thorough document review.
The scope is indeed broad. It takes in unclaimed property of all descriptions, from the more obvious ones like gift cards and bank account deposits to others like safe deposit contents, dividend payments, life insurance, sales deposits, money orders and traveler’s checks. Pensions and uncollected wages may also be considered unclaimed property.
Unsurprisingly, firms in the state have greeted the new law enthusiastically for the simple reason that the amount of interest due can be substantial and increase fast. For instance, assume a $100,000 cash value of unremitted property. The interest due would be $12,000, compounded.
This interest payment exposure, together with the limited time open to complete the application process, has convinced many companies across the state to begin the records review process now. At the very least, it gives them a glimpse of what their risk is. Many find it beneficial at this stage to consult their accountants who are in a position to help build a records review and application process. The alternative is to undergo the inevitable state audit at which time the payment of interest becomes unavoidable.
Among the services which accountants like BPM can provide is the creation of a records review process, followed by VCP application guidance. Taking the records review first, an outside expert, often arranged for by the accountant, is provided access to the company’s books and records to identify the scope of the problem. The process then requires building an electronic records collection which comprises a detailed analysis and aging of accounts, along with documented evidence of the outreach made to the property owners. Unclaimed property has posed challenges for many years, and while the VCP is considered an improvement, there has been little or no official guidance on how the records review works.
The application process follows the records review and will be vastly easier to complete, as well as more likely to be approved if the effort to compile and file information is competently and thoroughly done. Financial managers should consider creating a VCP task force to create a scope of work with timelines and defined responsibilities clearly set forth. The inclusion of the company’s CPA firm as an advisor to the assembled task force makes eminent sense.
For guidance on the records review and application process for your business, contact us or speak with your BPM tax professional.