Credit professionals and other company officials may not spend
much time considering what to do with their unclaimed property. However, there
are legal responsibilities for the accounting and reporting of this company
asset that could result in significant civil and even criminal penalties if not
met. NACM recently held an educational teleconference by Valerie Jundt, Senior
Manager, Deloitte & Touche LLP, who has extensive knowledge and experience
on the subject.
The July 11, 2007 teleconference, entitled, “The Credit Manager’s
Guide to Unclaimed Property/Escheatment,” offered a detailed definition of what
constitutes unclaimed property as well as the precise legal responsibilities
associated with it. Jundt noted that unclaimed property is an intangible asset
that has gone, for a period of time, unclaimed by its rightful owner. Some
examples of unclaimed property that she gave where uncashed checks, safe deposit
items, utility deposits, insurance proceeds, accounts receivable credit balances
and refunds and rebates.
Holders of unclaimed property must perform a degree of effort to
track down the rightful owner of the unclaimed property. This effort or due
diligence is set forth in state law. “As a holder of funds, you want to make
sure you get the property back to the rightful owner,” Jundt said. Also, after a
period of time in which efforts to locate the property’s rightful owner have
been unsuccessful, the property is considered abandoned. After this time, the
property must be returned to the proper jurisdiction. The rules for when
property is considered abandoned and what state to report unclaimed property are
contained in state law. Generally, state laws require that unclaimed property be
reported to the state of the owner’s last known address. If that is unknown,
then the report would have to be sent to the state of the holder’s incorporation
or domicile. Jundt pointed out that there are a few exceptions to this, such as
in the case of travelers’ checks that are sent to the state where the original
transaction took place. When unclaimed property is properly turned over to the
correct state, the state is obligated to release and indemnify the holder from
liability, secure the funds in a custodial capacity, make efforts to locate the
owner and pay rightful claims on that property.
The concept of escheatment means, in the case of unclaimed
property, the transfer of the title or ownership of property to the state. Most
states however, only remain custodians of unclaimed property submitted to them.
Generally, corporations are not legally entitled to private escheatment of
property. For example, Jundt said, “Just putting in the words on a check ‘void
if not cashed within 90 days’ does not necessarily mean the owner of the
property(payee of the check) doesn’t have a legal claim on it.”
Jundt offered some important advice to companies that are advised
they are going to be audited by a state on their unclaimed property. Most
importantly, Jundt advised taking such audits seriously. Then, she recommended
assessing the company’s potential liability with respect to unclaimed property.
She also noted that it is important not to ignore an audit notice or to assume
you don’t have a liability. Jundt advised not to give the auditor unsupervised
access to company records, but, instead assign a company official as a point of
contact to assist the auditor.