If the phrase “unclaimed property” gets you thinking of that perpetually unmanned desk at the airport for finding lost bags, you are fortunate . . . 😉
If you are in Finance & Accounting in the US, or have US operations, you will know all about this . . .
The painful “gift” that just keeps giving . . .
In the US, any cash, checks (cheques), credits, stocks, bank accounts, and/or other assets that are held by an entity but owed to either a person or business is regarded as “unclaimed property”.
After a designated dormancy period, this “unclaimed property” MUST be remitted to the State, by law.
The State becomes the custodian of the property until such times when it is claimed by the rightful owner.
It is a mandatory requirement for companies to report their “Unclaimed Properties” to the appropriate States under specific rules.
Not YOUR state, but the state of the rightful owner’s last known address!
Failure to do so can result in litigation and state audits (aaaargh!), resulting in penalties and interest.
In the absence of records, auditors may use “estimation” to calculate liability, which can result in massive, disproportionate fines.
States can genertae revenues from the use of these funds until they are claimed.
All this directly affects accounting operations, specifically accounts payable and accounts receivable, relating to US operations.
Think of all those uncashed checks (cheques), for example.
An added impetus to accelerate the shift from check to electronic funds transfer or ACH payments, you might think!
But, this isn’t a US originated problem.
Unclaimed property law in the U.S. evolved from English common law (ah, it’s them again!). Back in the day, this common law of “escheat” meant land reverted to the lord or king if a tenant died without heirs . . . . Classic medieval fairness!
Today, all 50 states have such laws, and are holding over $70 billion in total.
It is estimated that over 65% of companies that should be filing unclaimed property returns do not, or they do so inaccurately, which allows the liability to balloon over time.
The issue, and the associated liabilities for businesses, is a major one. The source is typically missing, erroneous or outdated data, especially Master Data;
- Uncashed vendor, payroll, and dividend checks are the most common, stemming from outdated contact details in Master Data.
- M&A activities often create “hidden liabilities” when historical data is lost or merged, making it difficult to identify the true owners of the assets.
Many businesses attempt to outsource the problem, but this does not get to the root cause.
The objective is to address and action all outstanding “unclaimed property” in a timely manner.
The key, however, is to address the root cause issues and develop and sustain a continuous “Stay Clean” process in which you are self-sufficient and compliant when it comes unclaimed property administration.
If you operate entirely outside the US, take a breath and be thankful. You can continue imagining that unmanned “lost bags” desk at the airport . . . 😉
Thanks for reading . . .
“Unclaimed Property” or “Lost Property”?