The business environment is complex and ever-changing. One regulation and reporting requirement that many business owners might not be aware of relates to unclaimed property reporting. Compliance with federal and state escheatment laws and unclaimed property reporting is crucial for business owners to avoid potential legal issues and financial penalties. However, with the implementation of a few best practices, you can significantly reduce the risks related to unreported unclaimed property. Here are a few recommendations for best practices that business owners might consider:

Best Practice #1: Understand Escheatment (Unclaimed Property) Laws

While you likely do not have time to do a deep dive into state and federal escheatment laws, familiarize yourself with the Uniform Unclaimed Property Act (UPA), which was enacted at the federal level but serves as a model for many state laws. Understanding the UPA can provide insights into the general framework of unclaimed property laws at the state level.

Then, educate yourself about the escheatment laws in your state, as the rules and requirements can vary from one jurisdiction to another.

Stay informed about any changes in escheatment laws and regulations at both the federal and state levels. Compliance requirements evolve over time. Remember that there are no minimal thresholds identified in the escheatment laws, so even a few cents might require reporting!

  1. Federal website: https://unclaimed.org/policies/
  2. Oregon state website: https://www.oregon.gov/treasury/unclaimed-property
  3. Washington state website: https://ucp.dor.wa.gov/

Best Practice #2: Maintain Accurate Records

Keeping clean records is important for many reasons, including for unclaimed property reporting! To identify potential unclaimed property, you will need thorough and organized records of all financial transactions, customer interactions, and other relevant data.

Periodically review your financial records to identify accounts or assets that have become dormant or inactive. Once unclaimed property has been identified, maintain records of all reported unclaimed property, including the date of reporting, the amount, the owner's information, due diligence performed to reunite the rightful owner with the property (including copies of notification letters or emails sent), and any other relevant documentation.

Ensure that all documentation is stored in a manner that can easily be found if needed and ensure the appropriate employees are aware of the location of these documents.

Best Practice #3: Establish, Document, and Implement Clear Policies and Procedures for Unclaimed Property

Create and document clear internal policies and procedures for handling unclaimed property and escheatment. It's essential to tailor these policies and procedures to your specific business and the states in which you operate. Regularly review and update these policies to remain current with changing regulations and ensure ongoing compliance with federal and state unclaimed property laws.

Here is a list of essential policies and procedures to consider formally documenting:

Unclaimed Property Identification Policy

Outline the process for identifying unclaimed property within your organization. This includes reviewing the state's description of the types of assets or accounts that are subject to escheatment and the criteria for considering property as unclaimed. Based on this list, determine which types might be applicable to your business. Each type of asset has a different dormancy period required prior to being considered unclaimed property. For the types of assets relevant to your business, define the specific timeframes required after which the asset will be considered unclaimed.

For example, outstanding checks (payroll or non-payroll related) and outstanding credit balances/refunds in accounts receivable are common types of assets that can become aged and require reporting. Implementing a policy to perform a month-end review of all outstanding checks or customer credits over 90 days would be one way to perform an ongoing analysis of potentially aged transactions.

If these aged items are identified and addressed prior to their holding period (three years for these types of assets in Oregon), it would significantly reduce the likelihood that any asset becomes aged enough to actually require reporting. In addition, implementing a control requiring review/approval of all voided checks can further reduce the risk of unreported unclaimed property.

Due Diligence Policy

Outline the expected timing and procedures required for conducting and documenting due diligence efforts to contact owners of unclaimed property prior to reporting it to the state. This policy should include the various methods of notifications that should be attempted and the timing of these efforts.

For example, Oregon requires that for balances over $100, holders make a good faith attempt to contact owners prior to reporting the property. Therefore, you could implement a policy that for all unclaimed property identified during the review for aged items, your company will send an email, a piece of mail, or make a phone call based on the latest contact information. If all attempts to contact the owner go unanswered, then the asset will need to be reported once the holding period is passed.

All documents supporting those due diligence steps should be retained.

Reporting Timeline Policy

Establish a compliance calendar that includes deadlines for reporting and remitting unclaimed property to your state's unclaimed property program. Knowing the reporting deadlines can help you develop a schedule for when the initial transaction analysis can occur as well as give you time to perform required due diligence procedures prior to reporting the unclaimed property. Missing deadlines can result in penalties and interest charges.

For example, Oregon unclaimed property must be reported by November 1 of each year, considering assets through June 30. Therefore, you could implement a policy at your business that all potential transactions need to be reviewed and supporting due diligence procedures documented by September 1.

Record Keeping, Retention, and Documentation Policy

Specify the types of records and documentation that must be maintained for each unclaimed property report. This may include details about the owner, the property, related addresses, and all due diligence efforts. In addition, specify the duration for which these records must be retained, ensuring compliance with both state and federal recordkeeping requirements.

For example, Oregon requires that all documents supporting reported unclaimed property must be retained for at least three years after the reporting of the property. Determine a folder on a shared drive in which all formal written policies are stored, as well as all supporting documentation related to the unclaimed property reported to the state.

Best Practice #4: Train Your Staff

Policies and procedures are useless unless employees are aware of them! Train your employees on how to properly identify and report unclaimed property by making them aware of the related laws and your company's formalized policies and procedures.

Ensure that staff members understand their roles and responsibilities in the process. Verify that all policies, procedures, and controls are implemented and effective in order to avoid any overlooked reportable transactions. Verify that employees know the location of the written policies as well as the storage location of all documentation supporting unclaimed property procedures.

Best Practice #5: Seek Professional Advice

You may have questions or uncertainties about how to handle specific situations related to escheatment rules. Or you may receive communication from state unclaimed property authorities for the performance of a self-audit or some other request for information. Consider consulting with Delap Business Advisory professionals who specialize in unclaimed property and escheatment compliance.

Staying proactive and informed is key to avoiding compliance issues and penalties associated with unclaimed property reporting. As with many types of business risks, when it comes to unclaimed reporting, "an ounce of prevention is worth a pound of cure!" Implementing a few necessary processes and best practices into your normal business routine can help unclaimed property become a non-factor for you.

If you have any questions regarding formalizing or implementing new policies/procedures, or about unclaimed property reporting in general, please reach out to the Delap Business Advisory team.

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