Risk assessment

Proactive unclaimed property risk assessment is an important step in reducing the risk of noncompliance with unclaimed property laws.

Why unclaimed property risk assessment matters

Assessing unclaimed property risks helps identify and address potential issues before they trigger state enforcement actions. Risk assessment also reduces financial exposure, minimizes administrative burden, and protects sensitive information. It is especially beneficial for companies in the following situations:

Initial compliance planning
Pre-transaction merger and acquisition due diligence and before going public
Post-business changes including accounting system conversions
Leadership transitions
Regulatory changes and the introduction of new property types, for example virtual currency

Understanding your organization's risk profile

Risk profiles vary based on the following factors:

Industry-specific obligations: Different industries face unique challenges based on their business models and the types of transactions they handle.
Operational complexity: Companies with multiple subsidiaries or accounting systems often encounter more complicated compliance requirements.
State nexus footprint: Operating in multiple states means navigating a wide range of reporting rules and enforcement practices. Unclaimed property is due to the state of last known address of the property, not the state where the organization is located.
Historical compliance practices: A company's past filing history can affect its current risk exposure and audit readiness.
M&A activity: Acquired companies may bring hidden unclaimed property liabilities that need to be identified and addressed.

What are the key components of a comprehensive risk assessment process?

These are the most common and recommended approaches to identify risks early.

Entity scoping
Property type identification
Process evaluation
Records assessment
Compliance history analysis
Quantitative exposure modeling
Remediation planning

The most common risk findings and solutions

While conducting unclaimed property risk assessments, Sovos frequently encounters recurring compliance challenges. We listed the most common risks we identified across industries and the solutions to mitigate them.

Incomplete property type reporting: Failure to identify and report all applicable property types, such as uncashed checks, customer credits, or gift cards, can result in under-reporting. To address this, maintain a comprehensive inventory of property types and implement procedures tailored to each category.
Inconsistent dormancy tracking: Dormancy periods vary by property type and jurisdiction. Inconsistent or manual tracking can lead to premature or missed escheatment. Centralized and automated tracking protocols help ensure accurate dormancy calculations and timely reporting.
Exemption application gaps: Some property types may qualify for exemptions, but failing to apply them correctly, or at all, can lead to unnecessary reporting. Conduct a thorough, state-specific exemption analysis to ensure all eligible exemptions are properly applied and documented.
Due diligence weaknesses: Inadequate outreach to owners before reporting property can violate statutory requirements. Strengthen due diligence by enhancing outreach strategies, using multiple communication channels, and documenting all contact attempts.
Documentation deficiencies: Lack of clear documentation for escheat decisions, exemption claims, or due diligence efforts can hinder audit defense. Establish and maintain formal policies, procedures, and records to support all unclaimed property compliance activities.

How Sovos can help

Sovos Unclaimed Property Consulting provides comprehensive risk assessment services tailored to your organization's specific needs. Our approach includes:

Industry-specific guidance to ensure efficient review of high-risk areas
Thorough review of at-risk populations to ensure full compliance with state expectations
Identification of B2B exemptions and other remediation opportunities to reduce exposure
Analysis of potential penalty and interest exposure alongside voluntary compliance options
Development of go-forward compliance recommendations to prevent future issues
Remediation planning

With industry-specific expertise developed through more than 200 hours of unclaimed property experience, our team can help your organization identify and address unclaimed property risks efficiently and effectively.

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