How to Prevent Unclaimed Property Fraud

Unclaimed property is ripe for potential fraud due to the nature of the property – after all, it is either lost or abandoned and nobody will know that it is missing. Unclaimed property fraud can occur at both the holder and state levels. It can be perpetrated internally by employees or externally by people posing as the rightful owners to claim assets that do not belong to them. Or, in more extreme cases, it can be inside/outside fraud where an employee works with someone from the outside to perpetrate a fraud.

There have been several published cases regarding fraud in unclaimed property. For example, the United States Attorney’s Office – Southern District of New York announced the arrest of three people in 2022 on mail fraud and identity theft charges arising out of their scheme to fraudulently obtain unclaimed funds held by the New York State Comptroller’s Office of Unclaimed Funds. Another case involved internal fraud at a holder, whereby a restitution clerk reissued aged checks belonging to others to pay her bills and family members. And yet another case involved an unclaimed property administrator who changed the names and addresses of owners on an unclaimed property report submitted to the state to claim the money—in what would appear at first glance to be a legitimate way, from the state.

According to the 2022 ACFE Occupational Fraud Report to the Nations, nearly half of all reported frauds occurred in operations, accounting, sales or executive/upper management. Except for sales, all of these categories likely touch your unclaimed property tracking, monitoring and reporting processes. It is critical that there are effective measures put in place to deter fraudulent activity. There are several things that a holder can do to help prevent unclaimed property fraud related to both internal processes and external claims.

Internal unclaimed property fraud – set controls to combat fraud:

• conduct annual anti-fraud training;
• perform annual fraud risk assessments;
• ensure there is a fraud reporting mechanism;
• employ proactive measures, such as surprise audits;
• mandate that every employee take at least two weeks of vacation every year;
• establish a tone at the top that encourages honesty and integrity; and
• provide sufficient resources to enable a segregation of key duties.

External unclaimed property fraud – verify the legitimacy of claims:

• use measures such as LexisNexis or Accurint to verify personal information;
• ask the owner to provide evidence, such as the owner’s Social Security number or proof of last known address to validate ownership;
• request documentation to support the owner’s claim that the property is theirs, such as a bank statement or original check; and
• require credentials such as a driver’s license or passport to confirm identity.

In today’s high-risk environment, companies should employ efforts to reduce the risk of fraud related to aged property. Organizations must protect themselves from financial loss and reputational damage by implementing controls related to potential unclaimed property fraud.