Although unclaimed property laws have their origins in British Common Law, unclaimed property laws in the United States have been in effect since the early 1950’s. Attempts have been made to create “Uniform” unclaimed property laws. However, the laws and regulations vary from State to State.
There are situations where reporting unclaimed property to your company’s state of incorporation are appropriate. The “priority rules” established by the U.S. Supreme Court should be followed in reporting the unclaimed property to the appropriate State. Based on the first priority, unclaimed property should be reported to the State of owner’s last known address as reflected on your company’s books and records. If there is no last known address or if the address is in a foreign country, the unclaimed property should then be reported to your company’s State of incorporation.
The States’ reporting due dates should be followed. Reporting your unclaimed property early does not allow time to perform the States’ required due diligence and may result in the States penalizing you for not conducting your due diligence. Reporting your unclaimed property late could result in the States assessing your company interest and penalty for late filings.
An unclaimed property audit can be triggered by a number of factors. States usually focus on a particular industry to verify compliance of their unclaimed property laws. Several years ago, the oil and gas industry was the focus of States audits. Prior to that, the retail industry uas under scrutiny and currently the insurance industry has been the focus. In addition, the States could focus on companies based on their state of incorporation.
Other factors that could trigger an unclaimed property audit are (i) significant increase or decrease in unclaimed property reported (ii) company’s merger and acquisition activities (iii) filing negative or zero reports to the States (iv) omitting categories of unclaimed property in reports filed (v) amounts or categories of unclaimed property reported not consistent with the company’s profile or industry(vi) understating the amount of unclaimed property reported under a voluntary disclosure agreement.
Conducting a self-audit is a proactive approach to determine whether your company has been reporting appropriately. Even though your company may have a history of reporting unclaimed property, there could be disbursement systems, categories of unclaimed property or acquired businesses that were not included in the compliance process. Also, your unclaimed property policies and procedures relating to due diligence, identifying exemptions and exclusions, and the report preparation may be out dated. In addition, employee turnover could result in untrained employees currently responsible for the unclaimed property compliance process.
The first step is to accurately determine your potential unclaimed property that is past due. After you have determined your potential unclaimed property, there are several options available for reporting. (i) Obtain reporting information from the State websites and establish internal procedures for identifying, tracking and reporting the unclaimed property (ii) Consider purchasing an unclaimed property software (iii) Outsource the unclaimed property process to a third party service provider. Each option has its advantages and disadvantages. Regardless of the option selected, implementing unclaimed property policies and procedures, coupled with staff training, will be critical to your company’s successful unclaimed property compliance process.
- Uncashed checks (e.g. payroll, accounts payable, commission, rebate, dividend)
- Accounts receivable credit balances and customer refunds
- Accounts payable credit balances
- Insurance proceeds (e.g. death claims, annuities, endowments, superannuated policies)
- Retained asset accounts
- Securities and related property (including underlying and unexchanged shares)
- Gift cards and certificates
- Contents of safe deposit boxes rented by financial institutions
- Money orders and travelers checks