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Unclaimed Property: What Your Business Needs to Know

There are billions of dollars of unclaimed property held by companies in the United States. While this can go unnoticed for quite some time, it poses a risk: once you are audited by the state, you may find yourself owing millions of dollars to be returned either to the debtor or the state itself. For companies looking to manage their bottom line, unclaimed property should be addressed as quickly as possible.

What is unclaimed property, what sorts of risks does it pose to companies, and how can it be managed before it becomes a costly mistake? In this blog, we cover the basics, and how to mitigate losses.

What is Unclaimed Property?

Unclaimed property refers to accounts in financial institutions and companies that have had no activity or contact with the owner for a period of time. Generally, it is a liability that a company owes when a debt remained outstanding after a certain period of time has passed.

Common types of unclaimed property are uncashed payroll or dividend checks. For instance, on payday, an employee is given a check that they will presumably give to a bank, removing the debt owed from employer to employee. If an employee doesn’t cash that check, however, the employee still has a property right over the money owed.

Unclaimed property can also include:

  • Telephone or utility security deposits
  • Vendor overpayments and refunds
  • Liquidated securities
  • Bank accounts
  • Insurance payments
  • Accounts receivable

All 50 states, along with Guam, Puerto Rico, the Virgin Islands, and the District of Columbia, have a dedicated office for reporting unclaimed property.

Smaller companies can have an easier time managing unclaimed property, but for larger entities this issue can be extremely difficult to track and maintain.

What is the Risk of Unclaimed Property?

Companies can have millions of dollars in unclaimed property. As a company, it is your duty to perform due diligence or escheat unclaimed property pertaining to the laws of your state. Failing to do so puts you at risk of audits, fines, and penalties.

States have begun targeting unclaimed property with greater frequency to gain additional sources of revenue. This can be extremely costly to your business – in some cases costing companies billions of dollars.

The best way to reduce this risk is to maintain an ongoing compliance process, being proactive about potential financial risk, and staying alert to new risk areas.

Unclaimed Property Compliance

Unclaimed property has a dormancy period from anywhere between one and five years, depending on its location, where it can remain unclaimed before becoming escheatable (returned to the owner/payee’s last known address, or is returned to the state). Once the dormancy period has passed, due diligence to locate the owner is required via an email or a letter. If the owner does not respond, the holder must escheat the property.

Many accountants are not trained on unclaimed property compliance, although nearly every company can generate unclaimed property through standard business operations. Unclaimed property can become particularly problematic in auditing situations, which tend to target companies with an inconsistent reporting history, fluctuations in amounts and types of property being reported, or not reporting property types common to your industry.

Getting a Handle on Unclaimed Property

Locating unclaimed property is a time-consuming process broken into three stages: researching and finding unclaimed property across jurisdictions, an organized investigation of all possible claims, and processing the claims.

To find and process unclaimed property, you will require:

  • A site list of all current and former locations with parcel numbers
  • Full legal names of all entities and subsidiaries and federal tax IDs
  • Previous company names and acquired assets
  • A direct point-of-contact accessible for information that may be requested
  • A designated company officer who will recover property on behalf of the client

Due to the arduous nature of finding and processing claims, many organizations choose to use unclaimed property administrative services to perform this work on their behalf.

SIB specializes in expense reduction services across industries and spend categories, including the types of audits and fees that can emerge from unclaimed property audits. We work on a contingency basis, so there is no financial risk for utilizes our services.

Don’t make the mistake of letting unclaimed property fall to the wayside. Contact SIB today for more information about our services.