Unclaimed Property

The Essentials of Unclaimed Property Reporting Compliance

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In recent years, states have become more aggressive in their pursuit of unclaimed property audits. The reason is simple: unclaimed property can be a source of revenue for states.

Nonprofits aren’t immune, with a full 60% of unclaimed property audits occurring at nonprofit organizations. Legally, all unclaimed must be declared. Each state issues their own guidelines for reporting unclaimed property. Washington state, for example, requires that unclaimed property of $75 or more be reported. Their reporting deadline is October 31.

Failing to comply with unclaimed property laws is a serious matter which can result in fines or criminal prosecution. There’s no statute of limitations, either, so reporting errors can be costly!

Definition of Unclaimed Property

Before talking about reporting unclaimed property, it’s helpful to have a shared definition of what it actually is. Unclaimed property may be defined as any financial account that has no activity in over a year or any property remaining with a company for longer than a year. An example common to nonprofit organizations is an uncashed paycheck, or checks returned without being forwarded to a sender. Other examples may include gift certificates or customer overpayments that go unclaimed after a full year.

5 Steps to Unclaimed Property Reporting Compliance

It’s the responsibility of the organization to take the proper steps to track down the owners of unclaimed property. A few steps to take include:

  1. Review ledgers and accounts: Review all your ledgers and accounts to find potentially unclaimed property. If your organization has multiple EINs, document each list of unclaimed property by EIN.
  2. Ask all departments for their reports: Ask all departments to supply lists of potentially unclaimed property, too, and check it against your records.
  3. Review journal entries and accounts receivable reports: Thoroughly review journal entries and accounts receivable reports to identify possible unclaimed property.
  4. List all possible unclaimed property and note which steps have already been taken to contact the owners before initiating a formal contact process.
  5. Documentation: Many states require that you send a physical letter to the property owner’s last known address. The letter should include the name of the property owner, the name of your organization, a description of the unclaimed property, and the language required by your state to notify the person they have unclaimed property. Give the person a timeframe and process for claiming the property, too.

Submitting Reports: Software Simplifies the Process

One tool that greatly simplifies and streamlines the unclaimed property reporting process is having the right software. MIP Fund Accounting can track and report unclaimed property and provide a standard file format that can be uploaded to most states’ unclaimed property reporting system. It makes the entire process a lot easier than manually creating spreadsheets, and removes much of the potential for human error, too.

What Triggers an Unclaimed Property Audit?

If you’ve taken the right steps, you’ll hopefully avoid an unclaimed property audit. But there are certain red flags that states look for that can trigger an audit. These include:

  • Not filing reports on time. Even if you have no unclaimed property, some states require you to complete and submit a report. Check your state requirements and submit the reports by the deadline.
  • Not following the correct reporting standards.
  • Providing inadequate detail on the unclaimed property, the owners, or the steps taken to find the owners.
  • Reporting property before it’s officially unclaimed. Don’t report an uncashed paycheck a month after it’s been sent to the recipient, for example, if the law declares it unclaimed only after a year has elapsed. Check your state laws.
  • Not taking adequate steps to find the owners. The due diligence process is important, as is the documentation that the process was followed in accordance with state law.

Unclaimed property reporting is something many nonprofits overlook. Be sure to review your state’s guidelines and follow them to avoid an audit.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Compliance Focus: Unclaimed Property Laws

By | Accounting, Nonprofit, Unclaimed Property | No Comments

Unclaimed property remains a revenue source for many states. It can take two forms: tangible (such as unclaimed safe deposit boxes) and intangible (unclaimed general ledger property). Each state sets its own rules regarding when property may be declared unclaimed and how to legally dispose of such property. This article offers a general overview of unclaimed property laws and guidelines for how entities must comply with them, but for specific laws regarding unclaimed property in your state, consult your state’s website or an attorney.

What Exactly Is Unclaimed Property?

Unclaimed property is just what the name implies: something left behind, unclaimed for a period of time, or abandoned.

A good example is a bank safe deposit box. Often, families aren’t aware that a relative has a safe deposit box, nor do they have access to the key. If the owner of the box passes away, the bank may be unaware for a period of time during which the family has already settled the estate. The bank may be unable to find the legal owner of the box.

Banks are required to conduct due diligence and make every effort to find the legal owner. After exhausting these avenues and after a specific time period has passed, the laws governing the disposal of such unclaimed property go into effect, and the contents may revert to the state or to the property holder. If the property reverts to the state, this is called escheatment.

Nonprofits May Have Unclaimed Property, Too

Intangible property, such as general ledger entries, may also be declared unclaimed property. An example of such unclaimed property may be paychecks owed to an employee who leaves, moves away, and provides no forwarding address. In such an example, nonprofits are bound to use every appropriate means (letters, emails, etc.) to find the person to which the money is owed. If the owner cannot be located after a set time, state laws also govern how intangible property is disposed.

Dormancy Period

The time period in which property remains idle is called the dormancy period. Depending on the state, this may be one, two, three, or more years. During this time, the holder of the property is required to make every good faith effort to contact the original property owner. After the appropriate efforts have been made and the period has passed without contact from the property owner, the holder must escheat or give the property over to the proper jurisdiction. First dibs go to the property owner’s state, with the holder’s state in second place for the escheatment.

Types of Unclaimed Property Nonprofits May Encounter

Most nonprofit accountants will go through their career with very few instances of unclaimed property crossing their desks. But it can, and does, happen. A few examples of unclaimed property a nonprofit may encounter and should account for include:

  • Customer overpayments
  • Rebates from manufacturers
  • Unclaimed rights (mineral, oil, gas)

If your nonprofit has a history of inconsistent reporting of unclaimed property, the state may flag it as the target of an audit. Audits are conducted by third parties. Once one state requests an audit, others may join in as well.

One way to potentially avoid the unpleasant disruption of an audit is to have a consistent and clear method of reporting unclaimed property. Voluntary Disclosure Agreement programs enable organizations to become compliant and avoid audits and associated late fees and penalties in their reporting.

Although unclaimed property isn’t something you’ll encounter often, it is a possibility, so it pays to be prepared.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

New Webinar Added to the Enrichment Series!

By | Accounting, Nonprofit, Nonprofit Enrichment Series, Uncategorized, Unclaimed Property, Webinar | No Comments

Unclaimed Property Requirements and Solutions

Thursday, Aug 11, 2016 9:00 AM – 10:00 AM PDT
Click here to register

Ensuring compliance with unclaimed property state requirements and making the process less painful and cumbersome is key to this free webinar. Learn what constitutes “unclaimed property”, and the major changes to the Unclaimed Property Law that impacts all holders of unclaimed property. Receive an overview of the unclaimed property reporting process and some of the various techniques that auditors use to uncover unclaimed property. Understand the various types of property that may be claimed by the states as unclaimed property and learn various possible structuring techniques to reduce unclaimed property liabilities.