Most organizations, whether they know it or not, might have unclaimed property and the associated obligations that come with it.
Unclaimed property is a dormant or unclaimed financial item that your organization owes to another organization or individual. A lot of times these include uncashed checks (including payroll), inactive savings accounts, life insurance proceeds, customer overpayments and even unused gift certificates.
In health care, you also see patient copays, employee benefits, insurance overpayments and possibly payments from services not performed. In short, these items must be given to the owner or turned over to the state.
Unclaimed property can have some expensive consequences if not handled correctly, so it's important to understand how property can qualify as unclaimed and what steps your organization may need to take to deal with it. Various states have begun to focus on auditing unclaimed property and there can be hefty penalties for noncompliance.
How does property become "unclaimed?"
There are a number of reasons property could become unclaimed. In some cases, the owner simply forgot about the property, passed away or left it behind. Unclaimed property can result from an employee termination, an owner changing their address without notification, or an owner moving from a location where a deposit was required.
Organizations holding these types of items may know they exist but think the item is too small for them to take the time to deal with it. This may seem like a small oversight but it could prove to be very expensive in the long run.
What do you do if your organization has unclaimed items?
There are three progressive steps that must be taken when unclaimed property is discovered:
- Identify any unclaimed property (research)
- Notify or return the unclaimed property to the owner (due diligence)
- If the owner cannot be found, remit the unclaimed property item to the state (escheatment)
Connecting identified unclaimed property with the rightful owner can be difficult and time consuming. Organizations need to make sure they are diligent in trying to locate the owner and documenting their efforts. Many organizations end up asking the following questions:
- What types of property do I have that may be subject to these rules?
- What is the value that should be reported?
- Which state should the property be reported to?
- How do I track down the property owner?
- How do I know whether or not an account is dormant?
- How long after the account is dormant do I have to report it?
There may be different answers to these questions depending on the state where an unclaimed property item is reported.
Importance of Compliance
States are increasing unclaimed property enforcement efforts, and there can be hefty consequences if your business is not in compliance. For example, there's a case currently in litigation where a mere $147.30 of unclaimed property found by a state auditor has turned into an extrapolated assessment of nearly $2 million. There's no statute of limitation on unclaimed property audits if you have failed to turn over all of the unclaimed property, which means a state can come knocking at any time, and it can be very costly.
For more information, please contact Mike Herold at 612.253.6671 or firstname.lastname@example.org. Or contact your Eide Bailly representative.