Unclaimed property compliance can be difficult and overwhelming. Clients often ask what they should be doing to ensure they are compliant with the various laws and regulations. It isn’t easy, especially if you have multiple property types such as checks, credits or customer accounts that have the potential to become unclaimed property in multiple states.
The first thing you should do is educate yourself about unclaimed property. You can do this by reading up on what unclaimed property is, how to comply with it and what the implications are if you have property that is out of compliance. There are many online sources to read, webinars to watch or you could join the Unclaimed Property Professionals Organization (UPPO) to learn more about unclaimed property through their member resources and attend the annual conference that is packed with education sessions. There’s a lot to learn because every state law and regulation is different from the next.
Once you understand what unclaimed property is, you’ll need to determine how to track and monitor what is potentially abandoned and reportable, set up a method for preparing reports, establish a process for sending due diligence letters to notify the owner their property is about to be reported to the state and ultimately report and remit the property deemed abandoned. If you work for a small business, the gathering of the data may not be too difficult. However, if you work for a large-scale company that has multiple lines of business or various federal employee identification numbers (FEINs), it may be complex.
Establishing an unclaimed property process
Companies that have successful unclaimed property compliance programs often have a center of excellence that gathers the data and completes the process. Sometimes, that process is done completely in house. Other times, they may use a service provider, like Sovos, to complete all or part of the process. This includes determining what property is reportable and when, sending due diligence letters, preparing reports in the state-mandated format and remitting funds to the states.
As we know, there are many ways in which states validate a company’s compliance including audits and compliance reviews, so it is critical that a solid process for monitoring and reporting of unclaimed property is established and well-documented. Your processes should consider all potential lines of business that could have unclaimed property and clearly define how to identify and report unclaimed property. Include processes that you outsource such as payroll, which should clearly define responsibilities regarding unclaimed property within the terms and conditions of the contract. Don’t forget to include internal partners including compliance, legal, IT and leaders from each department such as accounts receivable, accounts payable, and payroll, who should all be aware of the processes and may even hold a key role in successful compliance. Include explicit instructions to ensure that the practices of writing-off aged accounts payable checks or customer credit balances are not employed.
Make it a point to include segregation of duties in your processes to help prevent fraudulent activity related to unclaimed property. Ensure that your record retention requirements for unclaimed property match that of each state or even exceed it. Audits of your records related to unclaimed property generally include 10 years plus dormancy, which results in a 15-year look-back period. If you manage customer accounts, such as the banking or securities industries often do, it may be necessary to conduct documentation and tracking. Organizations should monitor things like what constitutes the last owner generated contact or activity, the owner’s date of birth, instances of mail sent to the owner being returned by the post office and, if the owner is deceased and their date of death. All of these could be potential factors in determining when unclaimed property is reportable.
If you’re new to unclaimed property and realize that your company is out of compliance, there are programs that you can take advantage of like voluntary disclosures with some states that may help you come into compliance. Each program differs, so it will be necessary to examine each state’s program before enrolling to make sure your company qualifies.
Lastly, remember the rightful owner of the property. Make sure that you have a plan for owners to claim their property. What is it they need to provide to you to have a check reissued, a credit applied or to reinstate their customer account? Did you alert your customer service department that due diligence letters have been mailed and they may receive calls? Educating various departments, including front end staff, so that owners can reclaim their property prior to escheatment is a best practice. And, if you can’t find the owner and the property is reported to the state, make sure you provide the state with the data points necessary for the state to return the unclaimed property to its rightful owner.
Still have questions about setting up an internal compliance program or need an outsourcing solution? Learn how Sovos can help.