Beware California’s Added Unclaimed Property Fraud Potential

January 9, 2015

Abandoned and unclaimed property holders with reporting responsibilities in California submitted preliminary reports to that state by October 31st of last year, with the exception of life insurance companies, which submitted their preliminary reports on April 30th of last year. A singular California requirement to publish those owner names and property descriptions could open your company to fraud.

As with any business function, unclaimed property offers a variety of openings for consumers and businesses intent on committing fraud. Perhaps the most famous unclaimed-property-related fraud scheme is the effort by some companies to convince consumers they must pay an attorney or other provider high fees to recover their property. It’s not true. Consumers can contact state governments on their own to claim property. If you Google “unclaimed property fraud,” you will find countless articles about this. (Note: Legitimate companies provide reasonably-priced optional claims services to owners who desire help with the red tape even though they can do it for themselves.)

Unclaimed property fraud can involve bogus accounts, extortion of reimbursements and other ploys. As a holder, your most likely experience with fraud might involve attempts by persons posing as owners to claim property belonging to someone else.

A simple example situation might go like this:

  • Your unclaimed property department sends a due diligence letter to an inactive customer
  • The customer’s son intercepts the letter, poses as his father and reactivates the account, then empties the account

As you can imagine, there can be many variations on unclaimed property fraud.

California publication of unclaimed property records invites fraud

In California—a state with unusually complex unclaimed property rules and a history of stringent enforcement—allows tangible property held by the state after escheatment to be sold after three years in the state’s possession. Before the property can be sold, state law requires an attempt be made within one year of the state’s obtaining the property to reunite the property with its owner. The state publishes names, dates, and values of these properties in at least two mainstream newspapers where owners are most likely to see the notification. If, after three years, the owner still is not heard from, the tangible property can be sold, with proceeds deposited into the state’s Unclaimed Property Fund, from which property owners may still claim it. The state must once again publish notification before the sale to give owners one last opportunity to claim property.

This seems like a great idea, because the ultimate goal of unclaimed property statutes is to reunite property with owners. However, publication of owners’ names and property descriptions provides an opening for criminals who use the published information to pose as owners and attempt to claim the property.

Unclaimed property holders must identify true owners

When, as a result of one of the state notifications, an alleged owner contacts the state to inquire about the property, the person is referred to the holder for final verification of ownership and reconnection of the property to the owner. This means the holder must be prepared to verify ownership and prevent fraudulent claims.

The best way to do this is to be ready with information that hasn’t been published or cannot be easily obtained through public means, including the California unclaimed property website. An owner can verify his or her right to the property by providing this unpublished information.

In one case, a glitch in the California unclaimed property system caused more information to be published than was intended. MarketSphere assisted the holder in designing a reliable verification process to identify true owners and reveal posers under those challenging conditions.

Each year, California State administrators use information in holders’ preliminary October 31/April 30 reports to prepare lists of missing owners for the notifications. Your staff should be prepared to receive phone calls after notifications are published and also to remit properties to rightful owners or reactivate accounts. Any properties you restore to owners will not be included in your final escheatment report to the state.

Before the calls come in, identify a clear and effective process for ownership verification and train staff to implement the process. If this step is not completed for property owners with last-known addresses in California, you might inadvertently release funds to fraudulent owners. This causes a problem when a true owner approaches you for restoration of the property.

If your company reports unclaimed property to the state of California, it’s worth digging into this further to make sure you understand statutes and potential consequences, so you can design an effective plan of action. (Ask your MarketSphere representative about California-specific services, including owner verification, training and records management design.)

Categories: California
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