United States: Can You Be Sure Your Firm Complies with Unclaimed Property Law?

Last Updated: November 11 2019
Article by Robert Peters and Scott Regan

According to a recent article in the Chicago Sun Times, the city of Chicago has been holding approximately $11M in uncashed checks that are more than three years old, and perhaps, should have been reported and remitted to Illinois as unclaimed property.

The article quotes a spokesperson from the city's law department who asserts that Chicago as a home rule jurisdiction, has its own procedures and is exempt from the Illinois Revised Unclaimed Property Act (RUUPA). We will leave it to others to litigate that notion.

However, it does beg the question: is your company in compliance with unclaimed property law, and if not, would you wish to stay out of the newspaper? Many states use contingent third-party unclaimed property audit firms and publish the results of examinations.

Conversely, as the article points out, there are millions (actually billions of dollars) in unclaimed funds that remain in the state and local coffers that never get claimed by the rightful owner.

The last time the state treasurers fessed up, it was estimated in 2015 that at least $80B is sitting with the various state unclaimed property divisions, not to mention dollars held by cities like Chicago and other local governments. That number has likely grown over the past several years. Which begs the question, when was the last time, if any, your Company conducted a thorough review of unclaimed funds that can be recovered from the state and local jurisdictions?

Though not a "tax" per se, most states consider dollars collected or "escheated" from companies as a major source of revenue. Increasingly, many states have significantly ramped up their audit and enforcement activities, which are designed to ensure companies remit unclaimed property that may arise from mundane business activities. Due to the myriad of unclaimed property laws and regulations in the U.S., even the most diligent and sophisticated company could over or under report its unclaimed property liability. Before any Company considers recovering funds that may be owed to it, we always suggest that they make certain they are compliant with state reporting requirements. Failure to do so may trigger an unwanted and costly audit.

What steps can be taken to ensure your corporation is compliant with unclaimed property reporting requirements?

  • Decide how your firm will report these requirements: manually, via reporting software or outsourcing to third-party specialists.
    • If reporting manually, your first task will be to build a matrix of all property types and dormancy periods by state. This can be daunting as you will need to locate, review and interpret each jurisdiction's statutes. Additionally, you will need to build a "rules engine" that can age each property type against each state's dormancy period.
  • Next, you will need to gather data regarding aged property types from the accounting software systems. Start by building a template that you can push out to internal finance colleagues in groups such as accounts payable, payroll and accounts receivable. An Excel or CSV file with unique fields for each data point is a good choice.
  • Run the data against the rules engine to calculate which items could be ripe for escheatment. Be sure to consider the "cutoff date" for each state—the date by which the item must be dormant "as of." Cutoff dates vary by state and property type.
  • Review each state's laws and regulations to determine if allowable exemptions may apply to any dormant items and apply these rules to your population. Further test dormant items to ensure they represent actual obligations. Accounting errors commonly cause firms to unnecessarily remit funds to states.
  • Run items that you have determined are dormant and not exempt and do not represent an accounting error against your due diligence rules engine. Mail due diligence letters to all owners in the appropriate time frames, as required. Void and reissue checks to those owners who respond.
  • After the due diligence window closes, make a final determination on a population to be reported to a jurisdiction and prepare a filing for that jurisdiction. File the report with payment in accordance with each state's requirement. Some states require uploading a report and paying electronically, some require a paper report, while others still require an encrypted diskette.

If considering an outsourced partner, best practice is to consider a firm with experience negotiating with various jurisdictions. During this process, many firms realize that they may possess significant past due property. It is then prudent to select a firm that has the necessary experience to negotiate state unclaimed property voluntary disclosure agreements (VDA) and has successfully defended corporations against unclaimed property audits.

The Duff & Phelps Unclaimed Property team invites you to contact us to learn more about our cost-effective and highly efficient unclaimed property reporting services. Our clients enjoy comprehensive outsourced unclaimed property support from our state-of-the-art Center of Excellence in Addison, Texas. All services are scalable, allowing clients to retain certain tasks if desired. However, most leverage our full capabilities, including:

  • Data extracting and parsing
  • Maintained subledger
  • Real-time online access to data and metrics reporting via our new proprietary tool Unclaimed Property LINK or UPLINK
  • Dormancy and due diligence eligibility analysis with exemption review
  • Due diligence mailing and response management
  • Report preparation with signature
  • Filing and payment remittance

When working in conjunction with our asset recovery professionals, Duff & Phelps' unclaimed property specialists help clients ensure their corporations are fully compliant, while becoming a profit center.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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