The Essentials of Unclaimed Property Reporting Compliance

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.