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Setting Up an Unclaimed Property Process

  • By AFP Staff
  • Published: 7/6/2021

unclaimed property process_article
Unclaimed property is becoming a bigger problem for more companies. State authorities are becoming more active in chasing non-compliance, with the emergence of third-party audit firms that are paid on results. The growth of the internet economy has increased pressure on more companies to comply as even small companies now have customers, suppliers and, increasingly, employees in multiple states, resulting in multiple unclaimed property reports too.

Managing unclaimed property undoubtedly represents a cost to companies, with only a very limited potential upside. But ignoring unclaimed property requirements is not a solution. State authorities have the power to assess penalties and apply interest at rates that can dwarf the unclaimed property itself, which is often in the form of low-value, uncashed checks. Moreover, any organization suspected of avoiding requirements is likely to be subject to audit, exposing it to more costs on top of any potential penalties.

So, given compliance is required, what is the best way to achieve it?

The first step is to try to minimize the risk of any property becoming unclaimed. For the most part, this involves adopting best practices such as the following:

  • Adopt strong record-keeping habits. Property is unclaimed when an organization cannot restore it to its owner. Organizations should try to maintain contact with property owners (shareholders, customers, suppliers and employees) until such time as the relationship has ended, by capturing and holding as much relevant data as possible (within data protection regulations).
  • Reconcile payments. Organizations should adopt a robust reconciliation process. Any outstanding items, such as an uncashed check or a returned electronic payment, should be investigated as soon as possible, again to minimize the risk that contact with the owner is lost.
  • Consider trying to reduce paper payments. Although electronic payments can fail, more unclaimed property is associated with checks. Organizations may want to shift from checks to direct deposit and ACH payments to try to reduce the incidence of property becoming unclaimed.

The second step is to adopt a consistent unclaimed property process. Although the practices above can help to reduce unclaimed property, there is always a risk that organizations will identify unclaimed property. Although each state’s regulations vary, both in terms of what has to be reported and when the reports should be filed, they all have the same framework.

  • Identify unclaimed property. Nominate someone as responsible for achieving compliance, within both the organization and any third-party providers (for example, gift card management).
  • Perform due diligence. For each item of identified unclaimed property, follow and document action taken in trying to find the owner. If the owner is found, reissue payment.
  • Report and remit the funds to the appropriate jurisdiction annually, by the prescribed date and deadline.

Technology and specialty consultants can both help to manage this process, particularly with understanding each state’s specific reporting requirements, which can be arduous.

For more detail, see the AFP Payments Guide on Unclaimed Property, underwritten by MUFG.

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