The state of California’s dual reporting requirement is different from every other state. Also called “bifurcated reporting,” this state rule exists in part due to past lawsuits directed toward the state, claiming the abandoned and unclaimed property program was being operated unconstitutionally. In response to the court actions, the state’s controller made the decision to return to the two-step process many states had required in past years.
The two-step reporting process requires extra due diligence—both by the holder and by the state administrator. Once the steps are understood, it’s not as difficult as it might at first seem. This white paper lays out the steps of California due diligence and reporting to clarify the holder’s responsibility. Use the document as a reference to help your unclaimed property team integrate California reporting into your organization’s abandoned and unclaimed property routine. It also may be useful when training new personnel. MarketSphere can perform any of these steps for you—or you can assign them internally, if you have the resources.
In many regards, California reporting is not that much different from general reporting requirements in other states. The difference lies within two aspects of the California law: 1) there are two reports required (a Holder Notice Report and a Holder Remit Report); and 2) in addition to the holder conducting their due diligence, the state of California conducts its own due diligence process.
Step 1: Document Dormant Abandoned and Unclaimed Property
Examine all departments, divisions and affiliates of your organization to identify dormant property of all types. Don’t forget to remove and rule out accounting errors. When possible, contact owners early to keep property from becoming dormant and reportable.
Step 2: Conduct In-House Due Diligence
Before submitting the Holder Notice Report, holders must conduct their own statutory due diligence in an attempt to find property owners. This step must be completed at least 180 days before submitting the Holder Notice Report, but not more than 365 days before submitting the report. California law contains very specific requirements for this step.
Step 3: Submit Holder Notice Report
For most industries, this report is due on October 31st for all property defined as dormant. For the insurance industry, the filing date for the Holder Notice Report is May 1. The report must be accurate and complete, representing all dormant property in your company’s records at this time. There is no remittance with this report.
Step 4: Create Processes and Handle Due Diligence Responses
The state will conduct its own due diligence campaign, reaching out to owners listed on your Holder Notice Report and asking them to contact your company to receive payment. Responses might come to your organization via U.S. mail, phone, fax or email. Ensure that processes exist to help staff handle all types of communications. You will need to train staff to receive communication from owners and process requests. Owners sometimes misunderstand the reason they are being contacted, and may even be hostile, believing you are trying to take money from them.
Step 5: Manage Fraudulent Requests
Because of the manner in which California contacts owners, holders receive a high incidence of fraudulent requests. Criminals pose as owners based on the owner and account information communicated publicly by the state. For advice about identifying and managing fraudulent claims, consult this MarketSphere blog—or call us and we’ll help you establish criteria to avoid fraud.
Step 6: Solicit Acknowledgement via U.S. Mail
It’s important to create documentation of the owner’s acknowledgement of their ownership of the property. No matter what method an owner uses to contact your company initially after due diligence, we suggest that you ask the owner to forward the California letter to your company with an authorized signature. This acknowledgement back to you will act as definitive proof of owner contact and provide appropriate support for fund reissuance.
Step 7: Track all Responses and Reissuances
In the event of an audit, you might be required to show proof that you made appropriate owner contact and reissued checks, where applicable, or reactivated accounts. No matter what the result of each owner contact during due diligence, make sure your internal processes provide a clear and complete record of communication with the owner and any resulting actions. The best process is to mark the Notice Report file, showing reductions and reasons. In some cases, the owner will acknowledge there is no amount due. Make a note of that, too.
Step 8: Issue Holder Remit Report
For industries other than insurance, the Holder Remit Report is due between June 1 and June 15. For insurance holders, the report is due between December 1 and December 15. This final report will include remittance of funds and must be accurate and complete, representing all property that remains unclaimed after the due diligence effort.
As you can imagine, there can be a lot of work involved in identifying unclaimed property then managing due diligence communications and summarizing the final report. Your organization might or might not have the skill or time internally to handle this process without compromising other priorities. That is why many companies engage the services of professional unclaimed property specialists such as MarketSphere. Not only are we prepared to manage these processes in a streamlined fashion, but we have a wealth of experience to help you assess your abandoned and unclaimed property and minimize assessments.
For more information about fraud potential in CA: http://www.unclaimedpropertyspecialists.com/blog/beware-californias-added-unclaimed-property-fraud-potential
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