Reporting unclaimed property is an extremely intricate and oftentimes confusing process. This is especially true for holders of unclaimed property who do not specialize in the reporting process and attempt to complete it entirely on their own.
Due to this process being so complex, it can be difficult for holders to even realize when and where they made a mistake to begin with. Therefore, it is imperative for holders to be aware of common mistakes that are often made during the reporting process.
When holders of unclaimed property make errors, it can be extremely costly for them. Organizations that make reporting mistakes or file late reports after the reporting deadline risk being subjected to paying penalties and/or interest on the unclaimed property they are holding.
Furthermore, inaccurate reporting of the unclaimed property that is riddled with one or more errors can trigger a compliance review or audit. These are performed to see if the organization holding the unclaimed property is abiding by the unclaimed property rules and regulations of the states where they are filing reports.
Now that you know why avoiding making mistakes when reporting unclaimed property is so important, let’s break down some of the most common errors holders make during the process.
One of the most common mistakes organizations make is the amount of unclaimed property sent to the state does not match the amount reported. Therefore, it is important for organizations to ensure they are reporting and submitting all unclaimed property in a consistent manner. They should only report property they will be sending to the state.
Another error organizations make is neglecting to report property types to the state that they would normally expect to receive from their type of company. One example of this would be a bank failing to report certificates of deposit. On a broader note, another example would be any business forgetting to report accounts receivable. When organizations neglect to report property like this, it acts as a warning signal to the states in which they operate and makes them question their unclaimed property reporting compliance.
When reporting unclaimed property, organizations also often make the mistake of applying the wrong dormancy period. This may lead them to report unclaimed property to the state either too soon or too late, leading them to be non-compliant with the reporting process.
Organizations also commonly make the mistake of reporting all unclaimed property to the state in which they were incorporated. This frequently occurs as organizations often assume their state of incorporation will send the property to the state of the owner’s last known address. This is a process known as reciprocity. However, only some states participate in reciprocity. Others do not. The best practice is to follow the priority rules for unclaimed property, the first of which is to report directly to the state of the owner’s last known address. If no address exists or the address is foreign (and that country does not have unclaimed property laws) the property should be reported to the state of incorporation.
Before formally reporting unclaimed property, organizations also often make the error of sending all due diligence letters to the rightful owners of the unclaimed property at once, regardless of the state’s reporting deadline. Most states require holders of unclaimed property to send these letters 60 to 120 days prior to their reporting deadline. This requirement exists to give the owners ample time to come forward and claim their property before it is turned over to the state.
Organizations also commonly make mistakes when reporting unclaimed property because they do not have updated procedures or checks and balances in place surrounding the process. Oftentimes, management neglects to oversee or delegate duties for the reporting process. This often leaves one or a few employees left to complete this confusing process with little to no direction.
Furthermore, reporting unclaimed property is a process that frequently leads to internal fraud. In order to combat this, organizations should never have just one employee who prepares the report, files the report, and remits the funds to the states. When the same employee is responsible for all of these duties, they have the opportunity to change owner information on the report as well as neglect to report everything that is due. Thus, this leaves the organization liable for being non-compliant with the reporting process.
Mistakes are also commonly made by organizations when they wait until the last minute to report unclaimed property to the appropriate state. Doing so leaves them largely unprepared to handle something going wrong in the process. This also results in organizations missing the reporting deadline and being left with no choice but to file the unclaimed property late.
When this occurs, some states will charge penalties and/or interest on these late reports and late payments. In Florida, for example, organizations are charged $100 for every day the report is late. However, if organizations are unable to report the unclaimed property on time, many states will grant them a reporting extension. Doing so requires organizations to contact the state and provide a reason for needing the extension.
Lastly, organizations often make mistakes when reporting unclaimed property by failing to complete owner information on a report. These incompletion errors include filing reports with partial addresses or neglecting to include a social security number for the owner on the report. It is particularly important for organizations to be aware if the states they are reporting to require an owner social security number. Some states require any payroll reported as unclaimed property to have a social security number tied to the account. These states assume if someone worked for a company, the company has their social security number and it, therefore, should be reported with the rest of the owner’s information.
Reporting unclaimed property is a meticulous and time-consuming process when done correctly. Therefore, it is more common than not for organizations to make mistakes when completing it. That’s why Dunbar is here to help. Our consultants spend their careers studying unclaimed property law. They understand which rules and regulations apply to each state’s reporting process, and they know how to help holders get unclaimed property reported right the first time. Our consultants are here to assist you with all of your unclaimed property reporting needs.
Dunbar is a reputable provider of unclaimed property compliance services, offering a comprehensive suite of solutions to help organizations remain compliant with all applicable laws. With a professional team with decades of experience, Dunbar is the ideal choice for businesses seeking a reliable and knowledgeable provider for their unclaimed property compliance needs.