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KeepUP™ Blog

8/12/22 9:03 AM

Risks of Noncompliance with Unclaimed Property Laws Do Not Stop at Audit

by Brian McGill and Heather Gabell

The states continue to enforce their unclaimed property laws using the following familiar methods:

• Single and multistate audits, often run by various third-party audit firms

VDA invitation letters (e.g., Delaware, resulting in referral for audit if a response is not received within 90 days)

• Compliance reviews and requests for verified reports (e.g., Delaware)

• Self-audit notification letters (e.g., Illinois)

•Questionnaires regarding the holder’s unclaimed property compliance (e.g., New York)

red arrowsThe states can also subject holders to litigation under their unclaimed property laws and False Claims Acts by alleging that a holder has knowingly failed to file reports in accordance with that state’s unclaimed property law. As the number of actions similar to those mentioned below increases, it is ever crucial to have a robust unclaimed property compliance program, one that includes documented policies and procedures and relates to key areas such as due diligence, reporting and record retention.

In March 2022, the California Attorney General filed a complaint against U.S. HealthWorks. The complaint alleged that the company knowingly kept millions of dollars from the State of California in unclaimed overpayment balances, unclaimed refund checks, and other unclaimed property, in violation of the California Unclaimed Property Law and the California False Claims Act. 

In May 2022, fashion retailer H&M reached a $36 million settlement with the New York Attorney General’s Office regarding allegations that the company knowingly failed to report millions of dollars in unredeemed gift card balances in violation of New York’s unclaimed property law and False Claims Act.

The risks of ignoring or underreporting unclaimed property can and will cost companies in the end. Yes, reporting past-due properties can be expensive, but litigation is more costly and can also cause reputational harm to the company, particularly when the lawsuit becomes the hot topic in the media. If a holder is found liable under a state’s False Claims Act, the holder could be liable for treble damages – triple the amount of liability due – in addition to penalties and interest under the unclaimed property law.

The failure to report, underreporting or the reporting of past-due unclaimed property can be handled proactively.  In many cases, holders can voluntarily step forward and report past-due property, or property that was not previously reported, such as property resulting from a merger or acquisition. Many states have voluntary compliance programs where, upon completion of the program, penalties and interest on past-due items are typically waived, and audit protection granted for the periods and property types at issue. While these programs are often self-led, it is highly recommended that a third-party advocate with unclaimed property experience is engaged to assist in the process.

Similarly, if your company has never filed unclaimed property reports, or if you suspect that you have been underreporting, we recommend that you Contact Us. We can assist with quantifying past-due items and form a plan of action to help mitigate the risks associated with reporting past-due items to the states.

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*Content contained in this article is considered accurate as of the publish date.