KeepUP™ Blog

7/2/15 10:30 AM

Unclaimed Property Best Practices: Types of Fraudulent Claims

by Greg VerMulm


Every industry sustains a potential for fraud. Wherever money changes hands, criminals look for opportunities to hijack funds. It's no different in unclaimed property. Fraud is a very real concern for unclaimed property holders who are looking to reunite property with rightful owners. Unclaimed property fraud can result in damage to a company's finances, reputation, and audit outcomes, in addition to creating a feeling of distrust among employees and customers.

Fraudulent owner claims can be difficult to identify and resolve, but a conscious assessment of the potential for fraud in your organization can help you beat this frustrating challenge. We recommend beginning your fight against unclaimed property fraud with an understanding of where it originates.

Types of unclaimed property fraud and how they happen

Property-finding scams

  • Most common unclaimed-property-related fraud
  • Fraudulent calls or letters offer to find property for exaggerated fees
  • Legitimate companies charge fair, minimal fees for navigating red tape
  • Legitimate companies are transparent and forthcoming
  • Every state offers a free website for property searches

Internal fraud: employees

  • Staff assisting with unclaimed property abuses access to records
  • Fraud happens when funds are diverted to fraudulent owners
  • Example: Employee modifies account and diverts property to outside accomplice
  • Prevent with checks and balances in record management systems
  • Control and document all employee access to owner files

External fraud: holders

  • Criminals pose as owners in attempt to take possession of property
  • Due diligence publication tips off perpetrators
  • Example: Claimant sees publication, then calls and requests name change
  • Prevent by requiring apparent owner to provide account information
  • Aid prevention with comprehensive records checks and balances

External fraud: state administrators

  • Criminals make fraudulent claims after holders remit property
  • Identity theft techniques aid fraudulent claims
  • Claims made via state unclaimed property website or phone calls
  • Example: A son discovers fathers property and attempts to claim it
  • Can result complications when real owners make claims

Some state laws embolden unclaimed property criminals

A few states have laws in place requiring publication of owner information during statutory due diligence activities. This can spawn new incidences of external fraud, because it notifies potential criminals there is actual property to be claimed. In some cases, enough owner information is provided to complicate the task of identifying criminal claimants.

California is the most common state that comes up in conversation about this issue. California statutes require a bifurcated reporting process. Every holder that is required to report in California must provide a preliminary "notice report". For most industries, this is required in November for properties that have reached the end of dormancy periods in the previous year. While the holder implements due diligence efforts, the state sends out its own due diligence letter and publishes information about dormant accounts and owners. In the publications, owners are asked to contact holders, who still possess the property. If property is not united with owners, a final report is due by June 15th of the following year.

A high potential for fraud in California occurs after publication. Information published about missing owners is substantial enough that criminals believe they have a good chance of using the information to convince holders they are the actual owners. They follow instructions included in the publication to make a claim by returning the letter, completing a form online, or placing a phone call.

Three other unclaimed property reporting jurisdictions require the holder to publicize the property in a newspaper if you represent certain industries, although they do not require the two-layer reporting process. These states are New York, Delaware and Puerto Rico.

Awareness is the first step toward fraud mitigation

The potential for unclaimed property fraud has increased with recent increases in publicity by state unclaimed property administrators. The intention is good. Laws are in place to protect the property of consumers, and it's important to inform individuals and companies where and how they can recover property. However, the increased publicity also encourages criminals. Holders and state administrators should assume fraudulent claims will be an unavoidable side effect of this higher visibility.

In a future blog, we will share specific ways to prevent, identify and resolve fraudulent claims. For now, just know the first step toward mitigating fraudulent unclaimed property claims is knowing how they happen. We recommend printing the chart above as a reminder for all personnel in your company who are involved with unclaimed property management. The presence of the chart will not only help educate your staff, but will put potential internal perpetrators on notice that you are watching.

Topics: Risk, Best Practices