KeepUP™ Blog

Unclaimed property reporting is a complex task with varying state requirements and protocols. One of the biggest fears and concerns for holders is running afoul of this complexity and creating the potential for a penalty and interest (P&I) assessment. States have the statutory authority to assess these fees and may impose them for:

• Reporting late property

• Filing late reports

• Filing inaccurate reports

• Submitting improper funding

• Reports filed in an improper or incorrect format 

Most jurisdictions have some mechanism to assess penalties or interest. Below are a few examples of several high-profile states.

The California State Controller’s Office (SCO) Unclaimed Property Division recently experienced a data breach after an employee clicked on a phishing email. According to the Notice of Data Breach posted on the SCO’s webpage, an unauthorized user had access to the employee’s email account from March 18, 2021 at 1:42pm to March 19^, 2021 at 3:19pm.

Managing unclaimed property compliance involves multiple pieces of the puzzle to come together. Firstly, the statutory requirements vary across jurisdictions and change regularly. Secondly, it likely requires coordination across a variety of departments, divisions or entities, many of which may not regularly interact. These complexities can increase exponentially for organizations with complex organizational structures, decentralized accounting functions or a complicated merger and acquisition history. So what should you concentrate on if you want to ensure your organization maintains compliance?

Key Areas of Focus:

• Ownership: Assign the responsibility to a specific group
• Understanding: Analyze your organization and develop a good understanding of where unclaimed property is created and how you can minimize risk and exposure
• Education: Ensure all areas of the business are educated on the basic requirements of unclaimed property and how their areas are impacted
• Documentation: Document and enforce adherence to policies and procedures

On May 14^th, the Supreme Court legalized sports betting, overturning a 1992 federal law which barred most states from permitting sports gambling. As a consequence of the decision, each state will be allowed to introduce and pass legislation for sports betting within its jurisdiction. Almost twenty states, as shown in the map below, have already enacted legislation or introduced bills to legalize sports wagering [1].

Note - Oregon, Delaware and Rhode Island appear to be readying for sports betting through their lotteries [1]. 

Considering the success of online companies who specialize in fantasy sports contests, we anticipate the legalization of sports betting to only spur the industry as a whole, while also generating a new source of revenue for states.

Over the last few years, the use of blockchain technologies and their associated cryptocurrencies has grown tremendously. As with many new areas, the growth is usually followed by an onslaught of challenges brought on as governments and regulatory agencies try to decide how to adapt or how to fit this new square peg into the round hole of already established laws and regulations.

Whether you are a company that has emerged as a part of the support system to the cryptocurrency world (e.g., coin exchanges) or simply a company that has begun to accept Bitcoin or other similar cryptocurrencies as payment, it will be important that you are prepared for these challenges and are proactively addressing potential issues that can emerge. One often overlooked area for consideration, are the impacts of various state unclaimed property regulations.

Our advice: Do not make the mistake of neglecting and not performing the necessary analysis to understand the impacts of unclaimed property regulations on your new and emerging business lines and practices!

Every year, California mails out penalty and interest assessments to holders across the nation.  These assessments relate to violations of California’s unclaimed property laws that were evident on the assessed companies’ unclaimed property filings. 

California is one of the most stringent states in the country when it comes to enforcing the penalties and interest sections of its unclaimed property laws.   Once received, it is very difficult for holders to get California to waive or recalculate an assessment.  In addition, California does not offer a voluntary compliance program that allows companies the ability to avoid penalties and interest through a VDA. 

Here are three reasons a company would receive a penalty and interest assessment and ways to avoid those issues in the future.

1. Reporting Property Late on the Notice Report. This is the most common cause of an interest assessment from California. California assesses 12% interest for every year the property is late. 

• California assesses interest for late reported properties based on the properties reported on the Notice Report (filed in the fall) not the Final Report (filed in the summer). Therefore, if a reported item is resolved between the Notice Report and Final Report (i.e. by response to California’s due diligence outreach), interest will still be assessed on that item because it was reported on the Notice Report.  

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.

(This blog entry is an excerpt of Don DeCelles’ introduction to MarketSphere’s e-book, The Invisible Plan: Navigating and Negotiating Unclaimed Property for Least Impact.)

Unclaimed property is administered and managed by real people who want to be recognized for the excellent work they do. Unclaimed property, though, by nature does not put achievers into the limelight.

If things go well, no one notices you. When things go badly, you get all kinds of notice—the wrong kind! This article suggests eight ways you can draw attention to your good work and get the kudos you deserve. 

The problem with abandoned and unclaimed property

Responsibility for abandoned and unclaimed property management is often viewed as a burden — just one more thing to do. To make matters worse, unclaimed property tasks, such as annual reporting, are due at the end or beginning of the month when many other tasks are due. Add to this the fact that corporate leaders rarely understand the level of resources necessary to manage unclaimed property properly.

When abandoned and unclaimed property management is going well, few people care about it. This is because unclaimed property, when it’s being reported as required, impacts few other aspects of a business.

When unclaimed property is NOT going well and difficulties are encountered, such as an audit or a long period of non-reporting, unclaimed property has the potential to do real damage across an organization through past due payments, penalties, interest — even possible damage to a company’s reputation.

For those reasons, it’s important to keep leaders up-to-date with potential risks of exposure and liability. It’s not just a matter of c.y.a. for unclaimed property staff. Communicating with your organization’s leaders about unclaimed property could be a matter of material importance.