Unclaimed property basics

Unclaimed property is a gray area of business compliance that too often catches finance and accounting professionals by surprise. Non-compliance stems from a lack of understanding and education about unclaimed property, which leads to its disregard or improper handling. Forgetting about the property or shuffling it into profit is not a solution: understanding how to identify it and realizing the risks are the first steps to compliance.

Unclaimed property can be tangible (such as safe deposit box contents) or intangible (like life insurance policies) left dormant by the rightful owner for a statutorily defined period of time. It can come in many forms – common types include uncashed payroll checks, credits left in a customer’s account or uncashed expense checks. There are also industry-specific properties that plague companies. For example, unused gift cards are an industry-specific liability for retailers, while royalty payments are common for oil & gas companies. ‘Holders’ – the commonly used term to describe a commercial entity possessing unclaimed funds – should consider three requirements upon classifying property as unclaimed or abandoned:

• The property is held or issued in the ordinary course of the holder’s business;
• It constitutes a debt/obligation of the holder to a creditor/owner;
• It remains unclaimed for more than the statutory dormancy period. This is determined by property type and by each state. States do not want you to turn over unclaimed property early; they want you to hold onto it for the full dormancy period to give owners the full amount of time available to find it.

When trying to comply, you first must understand what unclaimed property is. The next step is to realize that the risk of unclaimed property comes from doing business: no company is excused from compliance responsibilities. It is a mistake to turn away from this responsibility, as non-compliance is riskier and can jeopardize the stability and reputation o the company. Building an unclaimed property program takes time, labor and money, but the initial investment is worth it. Currently, states hold more than $40 billion in unclaimed property. As states’ unclaimed property possessions continue to grow, they are increasing the number of contracted auditors.

Compliance takes time to achieve. For those new to unclaimed property, there are four key points:

1. One size does not fit all. Each company is different, with varying amounts of available resources and liability. Staying true to company culture and structure and understanding available resources is critical to establishing an effective program.

2. Bring in the experts. You’d take your car to the mechanic if it wasn’t working properly – apply the same logic to unclaimed property assessment and leverage the expertise of legal counsel, consultants, software providers and vendors that specialize in unclaimed property.

3. Educate internal parties. Get senior-level management and appropriate internal departments on board with investing resources in unclaimed property management. Acknowledging the risks and the potential solutions is important for more than just the person handling unclaimed property.

4. Uniformity does not exist. Each state has different dormancy periods, due diligence timelines, property-type codes, reporting requirements, and so on. Knowing what each state requires is helpful when establishing policies, procedures and timelines. Connect with state administrators or refer to state-published holder handbooks for state-specific questions.

Toni Nuernberg is executive director of the Unclaimed Property Professionals Organization