Surviving Unclaimed Property Audits

The most common forms of unclaimed property -- defined as either tangible or intangible property of which a company cannot find the rightful owner -- include outstanding payroll or vendor checks, unreturned or unused security deposits, uncashed gift certificates, dormant bank accounts, unclaimed securities, uncashed dividend checks, liabilities written off to an income account, unclaimed insurance or death benefits, and any other account overpayments or unidentified receipts.

All 50 states have laws on their book for unclaimed property reporting, says Foley. This is termed "escheatment" -- a state's preferable right to abondoned property until the true owner claims it. However, they are not consistent, which makes it the business's responsibility to know the dormancy and reporting requirements for each jurisdiction.

Citing the retail industry for emphasis on this point, Hopkins said retailers are forced to deal with competing claims of various states for the same unclaimed property, such as a gift certificate, because retailers are often doing business in many other states.

"Most states do require that those gift certificates be reported, but there are a handful of states that have exempted gift certificates. It's very important to always check back to the state and verify that you're complying with both state's laws," Hopkins explained.

The somewhat harried process is made a bit easier with clear definitions on where to report what property. Texas v. New Jersey and Delaware v. N.Y. both "clearly declare that the state where the owner's last known address was should be the state that it is reported to. In cases where the owner's address is unknown or foreign, then the property should be filed with the state of incorporation," said Hopkins.

Another thing to consider: the dormancy period. According to Foley, "the dormancy period depends on jurisdiction, and it depends on type of property. In one state you may have a one-year dormancy. After the one-year is up, then that property would revert to the jurisdiction. Some other states might have a three-year rule. Some might not have a rule at all."

If it sounds confusing, well, it is. But Foley and Hopkins warn businesses to take states' enforcement of compliance and reporting requirements seriously.

"States are coming toward companies at a drastic auditing rate. Unclaimed property is now the new wave of reporting. Companies need to be in compliance," says Foley.

Adds Hopkins, "It is very important that companies understand that there are different reasons why they might be audited. It might be because they've never complied, or if they have complied, if there's an inconsistency with the years, or if they've ever had an under reporting. Sometimes it's just a random selection."