Connecting the Dots of Unclaimed PropertyHow to efficiently manage unclaimed property compliance and minimize risk

You might find yourself asking “why me?” if you’ve been tasked with the duty of filing unclaimed, also called abandoned, property to the states for your organization. While it seems like a daunting task, it’s not so bad when it’s broken down into bite size pieces that you can digest. Being responsible for filing unclaimed property may not be the most glamorous of duties, but it’s definitely required by law, and you want to be sure you have all the information you need to file successfully and avoid an audit.

Why the money or property can’t just stay with the companyFirst and foremost, it’s the law to track and report abandoned property. You cannot count unclaimed funds as income. Every company is required to report unclaimed property to the state(s) once it becomes “stale,” and each state has its own rules about when that “stale date” becomes due. The states will then hold that property until the owner comes forward to claim it.

Because there is widespread non-compliance with unclaimed property laws, states are dramatically increasing their audits. Oftentimes states hire third-party “contractors” who may audit on behalf of several states at the same time. One of the largest issues with an unclaimed property audit is a state’s (or contracted auditor’s) ability to estimate for prior filing periods, especially when there is no statute of limitations. The consequences of not following unclaimed property laws can include thousands of dollars in fines and even jail time.

Introduction

What on earth is unclaimed property anyway?

NAUPA, the National Association of Unclaimed Property Administrators, provides the following definition:

“Unclaimed property (sometimes referred to as abandoned property) refers to accounts in financial institutions and companies that have had no activity generated or contact with the owner for one year or a longer period. Common forms of unclaimed property include savings or checking accounts, stocks, uncashed dividends or payroll checks, refunds, traveler’s checks, trust distributions, unredeemed money orders or gift certificates (in some states), insurance payments or refunds and life insurance policies, annuities, certificates of deposit, customer overpayments, utility security deposits, mineral royalty payments, and contents of safe deposit boxes.”

When a property owner has monies or property due and the holder (company) does nothing to contact the owner about the property, this could sour the relationship between the company and the owner. Why is it your responsibility to track down owners? Well, the answer is two-fold. First, the law requires that you send out notices to owners using the last known address. Secondly, if you think about it from a consumer perspective, you would want your monies or unclaimed property returned to you, right?

Let’s say you have a savings account at a bank and you move to another state. Unknown to you, there was still $100 in your savings account when you moved. With everything else you had to do when moving, you totally forgot about it. What would it mean to you for your bank to track you down and make sure you received your $100?

Practicing due diligence

What is due diligence?Due diligence is the process of trying to locate your customers and reunite them with their property. Most states require companies to send unclaimed property due diligence letters to owners at their last known address after the dormancy period is met (the stale due date mentioned earlier). This timeframe can be anywhere from three to fifteen years after the payment or credit was originally given. The letters you send can be a simple notification to the owner that their property is about to get turned over to the state of their last known residence.

By implementing unclaimed property laws, the states are acting in the best interest of your customers. The state will make a diligent effort to locate your customers or their heirs. Most states retain lost funds until the owner is located and returned to them at no cost or a small handling fee.

3

By implementing your own internal process of outreach early on, you have a much better chance of locating your customer and reuniting them with what belongs to them. This creates less property sitting and aging, and helps you save money on servicing inactive accounts as well as on returned mail fees.

Performing due diligence provides good customer relations, reestablishes communication with your customers, and increases goodwill. Due diligence practices are quite simply smart business practices. Unclaimed property aside, it’s a great fraud prevention tool and prevents errors in financial statements.

What are the mailing requirements?

It is required that you send a letter to the owner’s last known valid address. Some companies also invest in a person-search software tool to find a more current address. Most states accept first-class mailing as proof that you met the due diligence requirement, with certified mail required in certain situations. Include the following information in the letter. Do NOT include state contact information or refer the owner to the state.

List the owner’s name.

List your company name.

List the company’s claim contact, whom owners should contact regarding their property.

List the company’s contact information.

Use the reporting state’s specific language in your letters.

Provide the timeframe the owner has to respond in order to obtain their money or cash the check provided if possible before it will be turned over to the state.

4

7

Creating internal unclaimed property reporting processes can help you identify, capture, report, and remit all unclaimed property you were unable to return to the rightful owner on time – all within jurisdiction procedures, rules, and regulations.

Unclaimed property processes

How to start your unclaimed property processFollow the steps below to determine how and if you need to report unclaimed property.

Look at your existing business structure: Do you have multiple FEINs (Federal IDs) to report unclaimed property for? Are there multiple departments that need to funnel their unclaimed property to one source for compilation?

Look through company history for mergers or acquisitions to make sure you’re not forgetting a piece of the business that could potentially have outstanding unclaimed property reports.

Review your general ledger and accounts.

Conduct a bank reconciliation and outstanding checklist.

Review journal entries.

Review contracts with applicable third-party service providers.

1

2

3

6

8 Analyze accounts receivable reports.

9

Establish the scope of your program and potential risks.4

Include all lines of business and potential stakeholders.5

Evaluate your options and internal capabilities.10

5

Unclaimed property audit triggersIn order to avoid an audit, companies should:

• File your reports annually and on time. Even if there is no property to report, some states require companies to file a “negative report.”

• Follow reporting standards using required NAUPA formatting and reporting software.• Ensure reports are detailed and provide all the required owner information.• Report ALL of your properties regardless of type. Partial reporting or omitting certain types can trigger a closer

look at your reporting history.• Avoid reporting properties early. For example, if state law says that a certain type of property should not

get reported until after five years, reporting it after four years could trigger an audit. If you feel you need to report something early, always contact the state for permission. Some states will allow early reporting when requested.

• Always perform due diligence as required by law. Contact owners at their last known address and have them reactivate accounts, cash checks, etc. If you cannot identify a contact name, remit the property to the state.

6

There are important considerations to make when choosing an unclaimed property solution. The right product should clarify any unknowns and help you stay compliant while minimizing any future exposure.

Unclaimed property solutions

Essential considerations regarding online reporting

The issue of online reporting is an important one. National legislation has required that certain amounts of mandatory reporting occur in different aspects of the law, so that you remain in compliance with state and federal legislation. Whether you are a financial firm required to report your earnings, worry about issues regarding tax compliance, or unclaimed property reporting services, it is important that your reporting system is reliable and secure. So what should you look for in a reporting solution?

What to look for in an unclaimed property solution

SecurityFirst, make sure your reporting solution is secure. It is important to know that your system is safe from infiltration attempts so that you know your information and the information of your customers remains safe and secure.

ReliabilityYou need to know that your system is reliable and will work how and when you need it to.

AutomationChose a solution that best automates your process to increase efficiency and reduce time spent on unclaimed property reporting.

Technical supportNo matter how good your system is, there will be times you may need help. Inquire as to whether your reporting solution has a support line or contacts you can call if you have a problem.

7

Validation checksThe reporting system should have ways to monitor whether the correct data has been sent to the recipient, in the right format. This will reduce the the risk of human error.

Process notificationsReporting systems should be in place to keep all interested parties informed throughout the entire process. Notifications based upon actions taken by systems and people involved in processing the reports should be sent in real-time to the correct parties so that everyone is fully informed and reporting success is documented.

Reporting solutions reduce manual work by streamlining and automating your unclaimed property processes. Your chosen provider should be reliable, secure, and offer around-the-clock customer support.

Now that we’ve covered everything that should be done to properly report unclaimed property, let’s review some common company pitfalls and how to avoid them.

The following are commonly made mistakes by companies of all sizes, both public and private, across all industries in the handling of unclaimed property. With the frequency and broad scope of unclaimed property audits at an all-time high, it’s more important than ever for companies to ensure that they are avoiding these common pitfalls.

Not understanding the way unclaimed property affects your company The biggest mistake companies make is failing to understand how unclaimed property impacts their organization. If this is an issue your company has struggled with in the past, begin by assessing and analyzing the various areas in your organization that may contribute to a potential unclaimed property liability.

Try to get to the root cause of why unclaimed property is being generated at your company and why individuals or businesses have failed to take action with regard to the sums you owe them.

Failing to preemptively identify outstanding liabilities The primary threat presented by past-due obligations is that of a state (or increasingly more often multi-state) audit. The complex and constantly changing laws of unclaimed property can cause a company to be noncompliant and be faced with potential fines, penalties and reputational risk. Undergo a rigorous self-audit or third-party evaluation to make sure that historical practices and reporting are sound.

Being reactive instead of proactive with due diligenceThe best defense, by proactively locating your customers and guiding them to take an action or confirm their account, is the best offense in unclaimed property.

Failure to reconcile accountsReconcile accounts to eliminate duplicate payments, accounting errors and avoid over reporting.

Neglecting to incorporate an annual compliance roadmapCreate clear timelines to ensure report cycles run smoothly.

Not understanding key audit red flagsReview the audit risk red flags mentioned earlier in this ebook.

Poor record-keeping and accountingIt’s important to keep records for the state required minimum, usually 10 years plus dormancy.

Not keeping up to date with regulatory changes and updatesStay up to date on unclaimed property laws or use a partner (like Sovos) who does.

Unclaimed Property Mistakes

9

Sovos offers reliable, secure unclaimed property solutions that build compliance with all regulations so you don’t have to.

Software | Managed Services | Consulting

Discover more

About SovosSovos was built to solve the complexities of the digital transformation of tax, with complete, connected offerings for tax determination, continuous transaction control compliance, tax reporting and more. The company supports more than 20,000 customers operating in over 70 countries, including half of the Fortune 500. Its SaaS products and proprietary Sovos S1 Platform integrate with a wide variety of business applications and government compliance processes. Sovos has employees throughout North America, Latin America and Europe, and is owned by Hg and TA Associates.

Contact us+1 866 890 3970www.sovos.com/contact

Argentina, Brazil, Chile, Colombia, Netherlands, Peru, Sweden, Turkey,United Kingdom, United States