10 answers to common unclaimed property questions

States monitor and enforce unclaimed property reporting requirements in a combination of ways:

• Audits led by third-party firms that typically look back 10-15 transaction years.
• Self-audits or voluntary disclosure agreement (VDA) invitations that often have a similar lookback period as an audit.
• Informal email reminders of annual filing requirements sent to companies operating in their state.
• Various state-specific efforts, such as Delaware ramping up Verified Report efforts and requiring that an officer of the company certify the company’s last filing was complete and accurate.

Yes. These four activities in particular:

• Lack of filing history or inconsistent filing history.
• Uneven benchmark comparisons. States may benchmark businesses of similar size and industry. Companies without unclaimed property filings or with substantially lower amounts reported compared to similar companies can get on the radar of state regulators.
• Recent merger and acquisition activity.
• Being a company incorporated in Delaware with substantial operations. Delaware strictly enforces its unclaimed property statute and generally targets large companies incorporated in Delaware. Their process is to send VDA invitation letters that give the recipient company 90 days to enroll in the VDA before being referred to audit.

Companies need to understand exactly how potential sources of unclaimed property are currently handled, such as what procedures are in place to resolve in a timely fashion outstanding checks with payees and credit balances with customers.

Understanding exposure includes reviewing records to uncover:

• Stale-dated or uncashed checks
• Unresolved customer credit balances
• Unredeemed gift card balances
• Abandoned bank accounts
• Lost shareholders

Once reviewed, companies need to confirm whether they previously wrote off unclaimed property as income. Any amounts written off as income might lead to additional unclaimed property exposure. It's important to quantify or extrapolate an exposure looking back at least 10 years to simulate a potential state unclaimed property audit or VDA scenario.

Companies should perform outreach efforts to try to resolve unclaimed amounts with owners directly prior to reporting the amounts to the appropriate states. They also should consider entering voluntary disclosure programs to submit past due property that may offer waiver of penalty and interest assessments.

If an organization is invited to enroll in a VDA program by the state of Delaware, the options are to enroll in the VDA within 90 days or be referred to audit. The VDA program offers many benefits to consider that generally make the VDA more favorable than an audit.

Outside of a formal invitation, a VDA is often advantageous if a company has a material unclaimed property exposure with past-due property, as the VDA often provides a waiver of penalty and interest assessments.

VDAs are self-directed reviews completed by the company, while audits typically are led by third-party firms. Auditors tend to be more rigid with data requests and timelines. VDAs also might provide a waiver of penalty and interest on past due property, which is not guaranteed in an audit. The lookback period generally is the same – typically 10 report years covering transactions going back 10-15 years.

Maintain a formal, written policy and procedure document by which all functional areas of the business should abide.

Companies can consider creating a liability account on their general ledger to separately track and accrue unclaimed property liabilities. They should review their books and records on a regular basis and reclassify potential liabilities to this account, such as uncashed accounts payable and payroll checks and unresolved customer credit balances that are more than one year old.

A final outreach should be sent via letter to an owner of unclaimed property by the company holding that property before it moves into the escheatment process. This is the last chance for the owner to claim the funds directly from the company before the property is turned over to the state. Once funds are reported and remitted to the state, owners can submit a claim for their funds, which are held in perpetuity.

Requirements vary by state, but due diligence generally is required on properties more than a certain dollar threshold anytime between 60 and 180 days before annual reporting deadlines.

Formal due diligence letters are required by state unclaimed property law, but companies have the option to perform informal outreach to owners prior to sending a formal letter in the form of mail, email, or phone calls. If unclaimed property is resolved this way, all communications should be well documented, and the property can be omitted from state reporting.

Each state has an unclaimed property website where owners can search for any property held by the state that is available for them to claim. The claim process – and required supporting documentation – varies by state.