Financial Institution Insights into Unclaimed Property

Financial institution unclaimed property, including banks and credit unions, is unique with different property codes, dormancy periods and even different reporting deadlines. Some of the unique challenges for financial institutions when it comes to unclaimed property compliance are:

• Special dormancy triggers for IRAs and certificates of deposit
• Tracking returned mail and customer generated activity
• Specific technological needs related to tracking online activity and customer account linkage
• Unique reporting rules for certain property types such as safe deposit boxes, money orders, travelers checks and similar written instruments
• Conflicting state laws regarding service fees and dormancy charges

Additionally, unclaimed property audits are common for this industry; banks have been selected for audit since the earliest unclaimed property laws were enacted.

Owner Generated Activity Triggers

Owner generated activity (OGA) is communications or activity initiated by the owner or by the owner’s authorized representative. The Revised Uniform Unclaimed Property Act (RUUPA) does not enumerate activities that constitute OGA, but does state that any action by an apparent owner which “reasonably indicates” the owner’s awareness of the property is OGA. Certain states, such as Ohio, define OGA specifics within their regulations and some auditors, such as Kroll, define OGA within their audit resolution agreement.

Examples of OGA activity:

• Records communicated by apparent owner
• Oral communications (if a contemporaneous record is made)
• Presentment of a check
• Activity directed by an apparent owner
• Deposit or withdrawal
• Any other action which reasonably demonstrates to the holder that the apparent owner knows that the property exists

Several states also consider the non-return of mail to owners of banking property as activity or contact with the owner. The type of mail and type of property to which this benefit applies varies from state to state.

Banking and Audits

There has been a recent uptick in unclaimed property audits of financial institutions. The scope of audits can vary greatly depending on which third-party firm or state is conducting the audit.

In general, there are three different models when it comes to audits of financial institutions:

1. General Ledger Audits look at material entities with significant financial activity in revenue, cash/cash disbursements, accounts payable, accounts receivable and payroll.  The auditor determines an entity’s materiality using tax return information, unclaimed property filing history, general ledgers, corporate structure, and unclaimed property compliance.
2. Customer Account Audits concentrate on demand, savings, and time deposits. Auditors focus their time on confirming owner generated activity.  Many auditors that center the review on customer accounts use audit tools such as the Death Master File and the National Change of Address databases to direct their review towards accounts with potentially deceased owners or owners no longer living at the account address.
3. Entire Bank Audits are a combination of the general ledger audits and customer account audits.  They also include a review of safe deposit boxes and official bank checks.  The data and document requests in these types of audits are heavy and the duration of the audit can be lengthy.

Regardless of who is auditing you – a third-party auditor or a state – audits are a time and resource drain.  Staying organized, having a central point of contact for audit deliverables and communicating with the auditors when deadlines are approaching are just a few tips to make an audit less painful.

If you are lucky enough not to be under audit, be proactive by reviewing and updating your procedures.  Make sure you do not have any gaps in your processes, that you are monitoring and reporting all potential unclaimed property types, and transaction codes used to update your customers’ date of last contact or activity are related to owner generated activity only.

Remember, the current culture is not if you will be audited, but when, so prepare to defend yourself in the event of an unclaimed property audit.