Although compliance is a holder's number one due diligence concern, two other goals are also important: keeping costs down and reducing remittances. Reducing the amount of property reported by returning it to owners before it becomes unclaimed property has other benefits, too. It creates goodwill, keeps the organization's name in front of customers, demonstrates fiscal responsibility, and enhances a company's image.
The real challenge of due diligence is having the expertise and technologies needed to complete it efficiently within budget.
How to reduce unclaimed property remittance through due diligence
Holders can reduce unclaimed property, first and foremost, by finding owners and returning property to them early in the process.
- Keep records up-to-date with owners' current addresses to ensure more due diligence responses, which reduces reportable unclaimed property. Gather information during onboarding of property owners (customers, vendors, former employees, etc.) and upon termination. Some companies use technology to help find addresses. One service is the National Change of Address database.
- Clearly communicate your company's brand in all due diligence materials, so owners trust the message that you owe them money. It's common for owners to distrust letters or phone calls saying money is due to them. The clear and consistent use of logos and other company branding tools will help.
- Use technology to efficiently handle responses to due diligence inquiries. Establish dedicated phone numbers, email addresses, and fax emails to expedite responses. Train personnel specifically to handle responses effectively. Give owners the option to communicate with you via web forms, which are often seen as more secure. Once responses are received, use scanner/OCR technology to quickly track and log responses in all formats, including returned by post office (RPO) communications.
Legal unclaimed property exemptions
Certain states allow specific industries, properties, and types of materials to be exempt from unclaimed property reporting. This reduces remittance even before beginning due diligence, and can prevent thousands or tens of thousands of dollars in over-reporting and remittances.
To take advantage of exemptions, your staff or outside advisors must know exemption laws in detail and have a clear understanding of their impact to be able to analyze your unclaimed property data and properly identify exemptions.
How outsourcing helps reduce unclaimed property remittance
Although many of these processes can be handled in-house, it's common to hire outside professional unclaimed property consultants to not only implement due diligence steps, but to strategically plan to achieve reduced costs and reduced unclaimed property liability. Because professional consultants practice nothing but unclaimed property, they have mastered the nuances of finding owners, identifying exemptions and using tools efficiently.
If you work with outside partners, ask them to prove the depth of their understanding. They must support you through the entire process, not just provide checkoff services, such as mailing and phone call management. Some states require sworn notarized statements declaring due diligence was executed in accordance with statutes; make sure your outsourced partner stands behind that statement.
How to reduce due diligence costs
As with any operational function, due diligence presents opportunities to reduce cost through efficiency. In general, this simply means using resources effectively. Determine best options for cost-effective mailing, notice publication, management of responses and other expense-producing due diligence activities.
Specific unclaimed property due diligence efficiencies:
- Manage cost per property. Set a goal to reduce cost per property processed. Look at large samples of unclaimed property liabilities, both current and future, to determine current costs. Then, recalculate regularly. Keep in mind, the number of properties requiring due diligence can vary greatly by year and reporting season.
- Prevent unnecessary unclaimed property due diligence. Due diligence is not required on all reportable unclaimed properties. Some states don't require due diligence at all. Others require it only on properties above a certain amount. This doesn't reduce remittance amounts, but paying attention to these details can reduce execution costs.
One big caution: cheapest is not always cheapest
Since compliance is a given, cost reduction and liability minimization are the ultimate due diligence goals for holders. Even the goal of compliance is cost reduction: if an organization does not comply correctly, it results in penalties, interest, damaged reputation, and excessive management costs.
Unfortunately, sometimes the cheapest services lead to noncompliance, so in the end they are not the cheapest at all. For best results, find ways to reduce costs and remittance amounts with long-term goals in mind.