Unclaimed Property Risk: What Should Companies Know?

Almost any type of company has the potential to generate unclaimed property (UP) during day-to-day operations. Overpayments, rebates, gift cards, payroll, accounts payable, certain types of securities and retirement accounts, mineral proceeds, and more — are just a few ways your company might be creating UP liability now.

The risks are not insignificant. Although companies are required to report unclaimed property, states estimate that as many as 90% of companies fail to do so. This creates a significant source of revenue for states, and with abundant post-Covid budget shortfalls, many are stepping up their audit efforts, with lookback periods stretching as far back as 25 years.

Noncompliance comes with substantial financial and reputational exposures, and, to make matters worse, UP compliance has been overlooked in the past. What’s more, every state has its own complex set of laws. That means even your accountant may be in slightly unfamiliar territory!

But you don’t need an accountant to add this one up: it’s time to get caught up on what your company needs to know about unclaimed property risk.

In this blog post, we’ll explore this topic in more depth, including:

  • An overview of unclaimed property laws
  • Ways companies can reduce their UP liability
  • The basics of unclaimed property laws in New York and New Jersey

To avoid exposing your business to risk, continue reading below.

What is unclaimed property (UP)?

Unclaimed property refers to tangible or intangible financial assets or properties held by a company and abandoned or unclaimed by a third-party owner.

There can be any number of reasons for a property to go unclaimed, but some of the most common types of UP include the following:

  • Stocks
  • Uncashed dated disbursements (payroll, accounts payable, rebate, dividend, vendor checks, and so forth)
  • Insurance payments or refunds
  • Unclaimed benefits
  • Unresolved accounts receivable credit balances
  • Dormant savings or checking accounts
  • Gift cards or certificates
  • Credits owed to customers or patients
  • Virtual currency
  • Abandoned safe deposit boxes

Once a piece of property has not been claimed by its rightful owner for a specific period (usually three to five years), it becomes “escheatable,” meaning the UP must be reported and handed over to the state.

Many companies inadvertently become non-compliant by misunderstanding their own unclaimed property liability.

Although most companies believe they have little or no exposure to unclaimed property, it is crucial to understand that states are now using more aggressive audit methods and pursuing revenue more vigorously following the COVID-19 pandemic. Assuming that your company has no unclaimed property or files accurate UP reports, it is wise to look closely at your company’s compliance.

What are unclaimed property laws?

All 50 states, as well as the District of Columbia, Guam, Puerto Rico, and the Virgin Islands, have laws governing the disposition of unclaimed or abandoned property, which can vary drastically from state to state. However, most states generally follow the revised Uniform Unclaimed Property Act, which provides a framework for administering unclaimed property laws.

In most states, unclaimed property laws are typically administered by the state treasurer’s office or a similar agency and apply to all types of businesses, including corporations, partnerships, sole proprietorships, nonprofit organizations, and government entities.

Broadly speaking, the purpose of these laws is to protect the rights of the property owners and ensure that they can reclaim their assets in the future. States usually hold the unclaimed property until the owner can be located and will often try to locate the owners through various means, such as publishing the owners’ names in newspapers or on state websites.

Finally, in most states, failure to comply with these laws can result in penalties, fines, and interest. In addition, companies that fail to comply with unclaimed property laws can face legal action from state regulators and private plaintiffs, who can bring lawsuits under state unclaimed property laws or federal laws.

How can companies reduce their risk of unclaimed property law noncompliance?

To minimize the risks of noncompliance with unclaimed property laws, companies should ensure that they comply with the laws in all relevant jurisdictions. The following are some critical considerations for companies that want to stay compliant with unclaimed property laws:

  1. Identify unclaimed property: Companies should regularly review their financial records and other documentation to identify any unclaimed property. This includes reviewing bank accounts, uncashed checks, and other financial assets to determine whether the owner has abandoned them.
  2. Conduct due diligence: Companies should make reasonable efforts to locate the owners of unclaimed property before turning it over to the state. This includes sending written notice to the owner’s last known address and publishing notice in a newspaper or other publication.
  3. Keep accurate records: Companies should maintain accurate and complete records of all unclaimed property and the efforts made to locate the owners. This includes maintaining records of written notices, newspaper publications, and other forms of communication.
  4. Comply with reporting requirements: Companies should comply with all reporting requirements under state unclaimed property laws. This includes filing annual reports with the state identifying any unclaimed property that has been turned over.
  5. Stay up to date on changes to the law: Companies should stay informed about changes to state unclaimed property laws and adjust their compliance practices accordingly. This includes monitoring legislative developments and court decisions that may impact compliance obligations.
  6. Work with experienced professionals: Companies should work with experienced professionals, such as tax advisors (like us!) and legal counsel, to ensure they comply with unclaimed property laws in all relevant jurisdictions. These professionals can help companies identify and mitigate compliance risks and provide guidance on best practices.

What are the unclaimed property laws in New York and New Jersey?

With unclaimed property laws differing state-to-state, companies need to be familiar with how these laws work in the state where they do business — for example, in New York (where our office is located) or New Jersey.

In New York, the Office of the State Comptroller (OSC) oversees the administration of the state’s UP program. It provides resources for businesses to report and remit any unclaimed funds properly. The OSC also maintains a searchable database of unclaimed funds, allowing individuals to search for any unclaimed property they may have.

Companies that hold unclaimed property in New York must report the property to the state annually by filing a report with the Office of Unclaimed Funds. The report must include a description of the property, the owner’s name and last known address, and other relevant information.

New York also requires holders to perform due diligence to locate the owners of unclaimed property before turning it over to the state.

Similarly, New Jersey requires holders of unclaimed property to file annual reports to the state, including a description of the property, the name and last known address of the owner, and other relevant information.

In New Jersey, the Unclaimed Property Administration (UPA) handles recovering and recording lost or abandoned property.

Like New York, New Jersey also requires businesses and organizations to report UP to the state. The New Jersey Unclaimed Property Act gives the state the right to take possession of these assets until the rightful owner can claim them, and, also like New York, the state maintains a searchable database. Finally, New Jersey also requires holders to perform due diligence to locate the owners of unclaimed property before turning it over to the state.

Failure to comply with unclaimed property laws in both states can result in penalties and interest charges.

A final note: New York, along with several other states, including Illinois, Washington, and Florida, have joined the trend of enforcing unclaimed property laws by sending self-audit notices to companies with very short deadlines.

Conducting a comprehensive review of all general ledger accounts in a brief period could be a daunting task. To make things more challenging, the self-audit notices may apply not only to the company in question but also to its affiliates, subsidiaries, and other related parties.

In fact, most audits are not due to actual unclaimed property but rather the inability of the business to prove that the property was not unclaimed. Therefore, it’s essential you ensure that your company’s historical policies and procedures do not put it at risk.

In closing…

To minimize the potential for significant financial losses and reputational damage, it is essential for companies to be mindful of their unclaimed property risks and have a comprehensive understanding of the relevant laws and regulations.

The time is now to protect your company’s reputation and bottom line by taking control of your unclaimed property risk management.

Not sure where to begin or have questions about compliance?

We can help. Our team of experts stands ready to assist you with your needs.

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If you are a client and would like to book a consultation, call us at +1 (212) 382-3939 or contact us here to set up a time.

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Jeff Coyle, CPA

Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.

He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.

His business experience includes:

Creating and preparing financial reporting, budgeting and forecasting.
Planning and preparation of GAAP and other basis financial statements.
Providing insight on financial results and providing advice based on those results.

Jeff also has a long history of helping individuals manage their taxes and plan their finances including:

Income tax planning and strategy.
Filing quarterly and annual taxes.
Audit support.
General financial and planning advice.
Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.

Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.

Jody H. Chesnov, CPA

Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004.  After a career of public accounting and general management, Jody knows the value of good financials.  Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.

He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles.  His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.

He has a particular expertise in early-stage growth companies.  His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.

Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller.  He has experience across industries, which gives him a deep understanding of business.

Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.

In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.  

He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.

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