What is Unclaimed Property?
Definitions. Unclaimed property includes items such as uncashed checks, life insurance benefits, dormant bank accounts, stock dividends and other similar items. It’s called unclaimed because the company holding this property can’t find the owner, who has typically relocated. State laws governing unclaimed property dictate that the company must attempt to locate the owner in a procedure called due diligence. If the owner can’t be found during a specified period of time known as the dormancy period, the property is classified as abandoned. Companies are required by law to report and transfer abandoned property to the state where the owner was last known to reside. This process is sometimes called escheatment, referring to a legal concept it was based upon.
Complications of unclaimed property reporting. This sounds fairly simple so far. But it begins to get complicated when you learn that each state determines its own dormancy periods, due diligence procedures, filing dates and report format. For example, the contents of a checking account are considered abandoned after five years in Texas, but only three years in California. If you are reporting abandoned property for a bank, final reports are due on October 31 in Louisiana, April 30 in Florida, and March 31 in Connecticut. Some states require an additional preliminary report six months in advance of the final report. If you report in more than a handful of states, unclaimed property reporting can quickly become overwhelming.
Added complexity. Furthermore, the definitions and requirements for compliance can also change depending on the type and value of property that is unclaimed. The dormancy period for an uncashed payroll check can be different than for stock dividends. When you consider the number of variables involved, it’s easy to see that companies with property owners scattered over multiple states find unclaimed property reporting to be a tedious and time consuming task.
Who has unclaimed property?
Far-reaching concern. Corporations, banks, insurance companies, and mutual fund/securities houses often deal with unclaimed property, but this issue touches almost every commercial entity. Less obvious holders include mail-order merchants, utility companies, and temporary employment agencies. Virtually any company that deals with frequent customer overpayments, a large or revolving workforce, or stock distribution, is directly affected. Industry experts estimate that the $2 billion remitted to the states each year is only a small percentage of the actual property classified as abandoned. Many corporations that didn’t understand unclaimed property reporting requirements, or chose to ignore them, have run into problems such as multi-state audits and staggering penalties.
What happens if abandoned property is not reported?
Increasing enforcement. In recent years, states have come to recognize abandoned property as a valuable source of income and they’ve become increasingly aggressive in pursuing it. State auditors that discover non-compliance can enforce stringent state laws that result in stiff penalties. The 1995 Uniform Unclaimed Property Act allows penalties up to $25,000 plus 25% of the value of the property for willful failure to report. Up to 12% interest can be applied to penalties, and this is generally not waivable by the states. Ignorance has not been an acceptable defense—inadvertent failure to report unclaimed property is also penalized.
Joint audits. To further compound the issue, state offices are cooperating with one another in the audit process. One visiting auditor may represent five or more states under a cross-auditing agreement. One audit can result in penalties from all the states represented if non-compliance is discovered. And now the Securities and Exchange Commission (SEC) has announced that it may also extend its interests to include the disposition of abandoned stock and dividends.
Why would you need software for unclaimed property reporting?
Complexity. The unclaimed property reporting process can be extremely complicated for corporations that hold a significant volume of property, and for those who are obligated to report in many states. When 54 jurisdictions establish unique definitions, dormancy periods, filing dates and submission requirements, it’s a challenging and time consuming chore to comply. To add further complexity, a company may hold unclaimed property in separate departments such as payroll, accounts payable and others. So the unclaimed property manager is tracking records scattered across the company in different database formats. On top of all this, the states frequently amend the requirements and reporting formats, so the person responsible must maintain a constant vigil for new regulations that apply to unclaimed property reporting.
Automated solution. A centralized database makes it infinitely simpler to organize and manage the unclaimed property reporting process. It puts all the records for property and owners in one location for management and organized reporting. If this database also houses all the current requirements for each state and property type, it can save a tremendous amount of administrative time, and safeguard an organization from non-compliance penalties. Additional benefits of automation include the ability to automate and log the production of search letters (due diligence), and the ability to meet the trend toward electronic reporting.
What should property holders look for in unclaimed property reporting software?
Comprehensive database. If property holders file in only one state and hold five pieces of property, a spreadsheet is sufficient for tracking. But companies that hold hundreds of unclaimed items, or do business in multiple states, should look into a central database system to automate the process. It should be pre-loaded with all the state requirements, and it should generate reports that are pre-approved by state unclaimed property officials. Watch out for vendors that say their reports meet the requirements, but don’t guarantee format acceptance. Diligent report filers can still incur penalties if their report is rejected and not correctly resubmitted before the deadline.
Regular updates. Since the state requirements change frequently, they should look for software that is updated regularly by the vendor, well in advance of critical filing periods. If they hold any volume of unclaimed property, a streamlined method of importing files is advantageous. The ability to mail-merge owner information to search letters is valuable, and the software should record this activity to document compliance with due-diligence requirements. The best unclaimed property reporting packages can produce both printed and electronic reports because the states vary widely in the range of formats they accept. Report encryption is becoming increasingly important due to the sensitivity of property holder information included within the reports.
Progressive vendor. Unclaimed property holders should select reporting software that is evolving with technology, and a company that communicates well with state unclaimed property officials. If there’s ever a technical glitch, a vendor that maintains sound relationships with state offices can usually negotiate a deadline extension while the issue is being resolved.
What if staff resources simply are not available for unclaimed property reporting?
Some managers choose not to devote internal resources to the management of unclaimed property. Outsourcing allows you to leverage the expertise of trusted compliance experts while you focus on your primary business objectives. It enables you to project and control costs associated with technology and maintenance, and yet comply with complex regulatory requirements in a convenient and cost-effective manner.
Look for a vendor with unclaimed property reporting expertise, as well as an established history of performance, success, and security. Ideally, your outsourcing partner should provide you with continuous Web access to your unclaimed property records and associated information.
This overview conveys only a few of the reasons why statutory compliance in this field requires highly specialized legal, accounting, and data management capabilities. Most companies find that a software package that is designed to encompass these demands is far more efficient than any in-house system of tracking. And considering the increasing assertiveness of the states in monitoring compliance, more and more companies are turning to an automated solution to protect themselves from potentially disastrous consequences.
The Unclaimed Property Professionals Organization (UPPO) is highly recommended as an authoritative resource for managers of unclaimed property. This organization provides objective guidance to unclaimed property professionals, and keeps them apprised of emerging legal and legislative issues related to this subject.
StoneRiver TRACKER Unclaimed Property reporting software streamlines the entire compliance reporting process. Install it in your office, use it over the Internet, or outsource these tasks to StoneRiver unclaimed property experts.
