KeepUP™ Blog

Although there are three reporting seasons for unclaimed property, fall reporting tends to be more intense than spring and summer reporting because the majority of state jurisdictions have a deadline of either 10/31 or 11/1. This leads to a substantially larger workload and the need for an understanding of the wide variations in “Fall” state requirements.

Below, we've outlined a few of the potential mistakes holders make during fall unclaimed property reporting. Any of these mistakes can lead to penalties and other costs.

Common Mistakes in Fall Unclaimed Property Reporting and How to Overcome Them 

Mistake 1: Using non-standard report formats and codes

Most states require the use of the NAUPA II Standard Electronic File Format.  In addition, they require a property type and a relationship code for reported items, which are contained within the NAUPA II file format.

However, the states frequently change, customize or add codes to reflect new technology and state preferences.  Consequently, keeping updated about formats and codes is of the upmost importance to ensure your reporting is accurate.

 Mistake 2: Filing incorrect report media

Most states require reports to be submitted on CD or via an electronic upload.  For states requiring electronic upload, a holder usually must first contact the state and register for this process.  .

In addition to the actual reports, certain states require a cover sheet.  States that utilize online uploads tend to provide this cover sheet as part of the upload process or within their holder reporting manuals.  States that utilize CD’s typically require the cover sheet to be included with the CD.  

Finally, certain states require the report to include a state-provided “holder number”.  This allows the state to identify whether a report has been received and the date of the receipt, to ensure timely filing.

If holders don’t use the correct media and don’t provide the required additional information, they could be subject to having their reports rejected.

Data integrity and security are major concerns for every company.  One area where unclaimed property holders may have added risk is the due diligence process. While criminals and fraudsters may experience difficulty in penetrating holders’ systems, they can conduct scams through the due diligence process with relative ease. 

The most common type of due diligence fraud, and perhaps the easiest to commit, is the stealing or assuming of an owner’s identity. In this instance, an impostor will become aware of property owed to a rightful owner, usually via mail or publication, and attempt to recover that property by contacting the holder and claiming to be the person owed the funds.

When assessing if a due diligence response is fraudulent, look for the following indicators: 

• Assumed Owner Requests Change to Owner/Payee Name
  • In the most common instance of this, an “owner” will return the due diligence letter indicating that payment is in fact owed, but will request that the name of the payee be changed from the original owner on the due diligence letter. This is generally an unlikely occurrence, especially where the account owner is an individual.
  • There are valid exceptions which require supporting documentation. In cases in which the original owner is deceased, an heir or successor party may request that the owner name be changed so that they can accept the payment. If this happens, it is recommended to ask for additional documentation to corroborate the requested change. If it is a company that is requesting a name change, holders should request documentation to prove that it is legitimate, or at the very least, perform a quick internet search to verify the new status of 
  • the company.
• Assumed Owner Requests Change to Address
  • A request for a change of address does not immediately indicate that the claim is fraudulent. In fact, it’s quite common to receive due diligence responses with this request. It’s likely that the original payment did not make it to the owner in the first place because they may have moved, so it would not be unexpected to receive a request to update the address. Red flags should arise if the new address is a PO Box or other address not tied to a specific location. Holders should also be suspicious of multiple properties owed to different owners all being requested to be updated to the same address.

Missing or incorrect information on unclaimed property reports can cause a host of problems, including delays, over-escheatment, confusion, potential auditing and erosion of relationships with understaffed state offices. Unclaimed property personnel can become understandably irritated when reports are not completed correctly, because it causes them extra work. Many states have the right to impose penalties or interest assessments for incorrect reporting.

Avoiding the return of unclaimed property reports begins with taking the reporting date seriously and completing reports as accurately and completely as possible — on time.

Four Common Reasons for Returned Unclaimed Property Reports

In our experience, there are four most-common reasons state administrators return reports. To avoid returned unclaimed property reports, simply avoid making these mistakes. 

Returned-Report Reason # 1: Missing Information

Holders must keep up with data field requirements of each state to which the company reports. Many states require the same data points (e.g., name, address, starting transaction date or check date, property type, etc.). However, some jurisdictions are stricter than others, depending on the property type. For example, California, Delaware and Florida require a Social Security number for payroll records. Reports will be rejected if data requirements aren’t followed. To avoid this mistake, establish record-keeping protocols specifically for unclaimed property, and create policies and procedures to ensure accurate, up-to-date transfer of information to unclaimed property reports. Property type codes can be found on the website of the National Association of Unclaimed Property Administrators (NAUPA).

It sounds simple enough to follow the states’ rules and turn in the reports, but unclaimed property reporting can be more complex than expected. Over the years, in our work with hundreds of unclaimed property holders in a multitude of reporting situations, we have gleaned a go-to list of primary tips we give our clients to help them through the reporting process.

Below, we’ve shared the cream of the crop — the best reporting tips that can help you and your unclaimed property staff get through reporting cycles quicker, more compliantly, and with less stress.

1. Ensure you are following the correct statutes. This can be difficult without continually monitoring statutes in every state to which you must report, and the statutes and administrative rules change constantly. Over the last 10 years, there have been a total of more than 20,000 changes in state unclaimed property statutes across the board. The most common solution to this challenge is to work with an unclaimed property advisory company that spreads the cost of monitoring statutes across the accounts of multiple client.
2. Set up a recordkeeping system that takes unclaimed property into consideration. At the very least, this means isolating unclaimed property files, so they can be quickly accessed. It also means capturing complete information from new account owners and updating records for owners regularly. Complete records can help prevent property from becoming unclaimed in the first place, because you have the information you need to find the owner. In the event the property does become unclaimed, having property information at your fingertips will make the reporting process go faster and improve accuracy. Since recordkeeping is often a substantial part of corporate policies and procedures, we recommend creating specific unclaimed property policies and procedures as a part of your overall policy control environment.
3. Use proper relationship and property codes. It can be confusing to choose correct codes. MarketSphere published a blog on property type codes to help holders determine which codes to use. Here's a link to the National Association of Unclaimed Property Administrators (NAUPA) Reporting Manual codes. If in doubt, holders can contact the states to which they are reporting and ask questions about reporting codes. However, sometimes the states can give confusing or incomplete answers due to their lack of knowledge of a particular holder’s situation. Especially if the situation is complicated, it’s advisable to consult with professional unclaimed property specialists.

In the past 15 or 20 years, it’s no secret that the states and their third-party unclaimed property auditors have been targeting large business entities with potential substantial amounts of unclaimed property in order to engage them in multistate audit processes. Now, a good percentage of these companies have completed audits and the pool of larger auditable companies has shrunk. It has become apparent that the states are now extending their audit efforts to midmarket companies.

Through audit trends that we are seeing in the industry, we've noticed an increase in requests for service from midmarket companies.

A midmarket company can be defined in many ways. For our purposes, MarketSphere defines a midmarket company as a business entity with revenues between $250 million and $3 billion. These companies tend to have:

• less robust policies and procedures in place
• fewer available resources to handle unclaimed property compliance requirements
• less knowledge of unclaimed property processes and strategies

Because midsize companies are more numerous, there may be a tendency to believe the odds are lower that any given company will be audited. However, the states now have better protocols for identifying noncompliant entities than ever before. The fact remains that unclaimed property compliance is a statutory requirement in 55 U.S jurisdictions and various Canadian provinces. If a company fails to file or misfiles, it’s likely not a matter of if, but when, it will get a “knock on the door” from an unclaimed property auditor representing one or more states.

The goal of an effective unclaimed property compliance environment is to ensure you are not under-escheating or over-escheating, and do it in the most cost-effective way possible. There is no aspect of unclaimed property where this is more important than during an abandoned and unclaimed property audit. Holders have many tools at their disposal to ensure fair assessment during an audit.

Even before an audit starts, holders can affect limits on final audit assessments by building audit defense strategies into recordkeeping and finance controls, as well as completing a pre-audit assessment and mitigating problems with records. The reason this is so important is that clear, accurate records reduce the likelihood auditors will keep researching and stretching to find more unclaimed property they can force into audit assessments.

Another important principle to limit unclaimed property audit findings is to define the scope of the audit in the beginning and document the agreed-upon scope. Auditors may not offer this by default. You may have to insist upon it. This helps define when the audit is over and limits expansion of the audit — especially when it comes to inviting other states to participate.

At MarketSphere, when we work with our clients to complete abandoned and unclaimed property due diligence, prepare reports and advise them in audits, we always include one aspect of advice that can substantially change a company’s overall unclaimed property liabilities: exposure assessment. It’s not enough to take action—you can’t do justice to your unclaimed property management program without first getting a clear and realistic picture of your situation and formulating appropriate remediation. Another way to put it: forewarned is forearmed.

What happens if a company doesn’t assess the situation before acting? Any number of complications could ensue:

• You could expose records that otherwise wouldn’t need to be reported as unclaimed property.
• You could miss unclaimed property that should be reported, risking penalties in the event of an audit.
• You could inadvertently make mistakes in calculating unclaimed property or process it in an inappropriate manner, potentially risking criminal charges
• You could draw too much attention to your company, inviting additional states to join in on an audit.
• Records and workflows could demand too much time and cost your company more than necessary in personnel hours.

Your unclaimed property specialists can draw on experience with hundreds of clients to help you find problems, drafting a document that records your potential exposure in a very concrete way and advising on ways to remediate the problems. You can use this exposure assessment to support requests for work hours, materials, technology and other resources to minimize the negative impact of unclaimed property on your operation.

For unclaimed property holders who process tens of thousands of dollars in unclaimed property annually—or more—tracking, stale dating and reporting properly can be complicated. Many large holders rely on in-house software to streamline these processes, as well as keep up with state statutes to ensure accurate reporting.

When you’re looking ahead to a new unclaimed property reporting cycle, it’s important to identify some of the aspects of reporting that haven’t gone so well in past cycles. Due diligence often falls into this area, because it can be challenging to sort through varying requirements of multiple states and ensure all steps of the due diligence process are carried out accurately.

With little concentrated effort, you and your team can probably come up with solutions to streamline due diligence processes—and even avoid triggering future issues. Paying attention to the process now may take a little time and require a meeting or two, but the preemptive effort now will pay off later in less stress, better accuracy, better records in the event your company is audited, and potentially lower liabilities.

Due diligence for fall reporting in particular can be more demanding than for summer or spring reporting cycles. For most corporations and banks, fall reporting contains a majority of the states, so process requirements are much more demanding. Unclaimed property personnel must manage greater printing, mailing, email and phone calls — both inquiries and responses. Although there is a longer break between summer and fall reporting deadlines than between fall and spring deadlines, many staff members are on vacation before the fall cycle, which can make report processing more challenging.

Challenges of Unclaimed Property Due Diligence

Some of the most challenging due-diligence-related reporting issues fall into these categories:

• Keeping up with varying state time thresholds triggering due diligence
• Getting the timing of mailing, responding and reporting correct
• Meeting specific wording requirements of different jurisdictions
• Preventing and dealing with fraudulent responses
• Owners can misunderstand efforts to reunite them with their property

The state of California’s dual reporting requirement is different from every other state. Also called “bifurcated reporting,” this state rule exists in part due to past lawsuits directed toward the state, claiming the abandoned and unclaimed property program was being operated unconstitutionally. In response to the court actions, the state’s controller made the decision to return to the two-step process many states had required in past years.

The two-step reporting process requires extra due diligence—both by the holder and by the state administrator. Once the steps are understood, it’s not as difficult as it might at first seem. This white paper lays out the steps of California due diligence and reporting to clarify the holder’s responsibility. Use the document as a reference to help your unclaimed property team integrate California reporting into your organization’s abandoned and unclaimed property routine. It also may be useful when training new personnel. MarketSphere can perform any of these steps for you—or you can assign them internally, if you have the resources.

Step-by-Step Bifurcated Unclaimed Property Reporting in California

In many regards, California reporting is not that much different from general reporting requirements in other states. The difference lies within two aspects of the California law: 1) there are two reports required (a Holder Notice Report and a Holder Remit Report); and 2) in addition to the holder conducting their due diligence, the state of California conducts its own due diligence process.

Step 1: Document Dormant Abandoned and Unclaimed Property

Examine all departments, divisions and affiliates of your organization to identify dormant property of all types. Don’t forget to remove and rule out accounting errors. When possible, contact owners early to keep property from becoming dormant and reportable.