A field guide to unclaimed property

Internal Auditor, Feb, 1996 by Paula Smith

The utility deposit you made on the first apartment you rented after college, the Walt Disney stock your grandfather bought for you when you were seven - is there any chance of locating them? Where would you start looking? In the U.S., you might begin with the unclaimed property division of your state treasury or controller's office. Perhaps as many as 25 percent of all Americans have money in the custody of the state, waiting to be claimed.

What happens when a corporation pays its bills, but the checks aren't cashed? After accounting or treasury reconciles the corporate bank accounts, what happens to checks still outstanding after six months, a year, or even several years? Though the words on the face of the check indicate that the check is void if not cashed within six months, the debt owed by the corporation is not then extinguished. So what happens to the corporate funds earmarked for this purpose?

In the best of all worlds:

* Company checks returned by the post office are re-sent immediately to the same address. In more than 50 percent of all cases, the check sticks on the second mailing. But if it does not, the reconciliation clerk refers the undelivered check to the division of origin for assistance in obtaining a better address. These efforts should be made promptly after the check is returned undeliverable. The warmer the trail . . .

* If other methods for locating a valid address are unavailing, then the account is coded "dormant" and the "escheat clock" begins to run. The corporate officer or employee responsible for reporting abandoned property reviews all such outstanding items, either undelivered or uncashed; determines the state of the payee's last known address; and applies that state's correct dormancy period for the type of property involved - dividend check, royalty payment, or utility deposit, for example.

* Once a check has been uncashed for the requisite period of time, it is then reported and remitted to the state. There, a record of the payment is held indefinitely. The owner of the funds, with proof of ownership, may reclaim the utility deposit or royalty check at any time in the future. In addition, most states publish the names of owners reported within the year in newspapers of general circulation and in proximity to the owner's last known address.

In the worst of all worlds:

* No corporate follow-up to locate owners of uncashed checks is performed. The accounting department never notifies the division of origin that checks were uncashed. Checks shown as outstanding usually get transferred to a holding account.

* The corporation violates state laws by not pursuing even the minimal "due diligence" requirements. More significantly, outstanding checks are not reported as abandoned property and the payee may never know that a check was sent.

* Other possible horror stories are that the dormant funds may be subjected to a risk of employee embezzlement, or written off to company income, or the records to verify an owner's claim may be impossible to locate.

One should not assume that the amount involved may be insignificant. In fact, the average state claim paid annually is estimated to be between $200-$500.

* Corporate Payments

Corporate accounts containing funds for making payments to individuals or funds held for the benefit of persons outside the corporation may contain property that is subject to reporting under state unclaimed property laws. Unclaimed property is like rust; it is everywhere. Some individuals, believe it or not, overpay their Visa or Mastercard bills and end up with a credit. This is unclaimed property.

All traditional banking operations create pockets of abandoned property: checking accounts, savings accounts, even certificates of deposit. If the checking account, for example, shows no evidence of a deposit or withdrawal during the dormancy period, it is subject to reporting to the state as abandoned. Bank money orders uncashed, cashier's checks unnegotiated, and of course the safe deposit box on which the rental payments have gone unpaid for the dormancy period - all are abandoned property.

Virtually all business transactions involving corporate payments present a one to two percent risk that the payment will become abandoned. For corporations having a high employee turnover, such as fast food chains, uncashed wage checks become a significant category of unclaimed property. In companies engaged in oil and gas production, royalty checks are suspended because of many reasons - among them, failure to execute division orders or to notify the company of the death of the royalty owner.

A significant area of abandoned property involves dividends and payments related to publicly traded securities and mutual funds. When a company is acquired, shareowners of the traded company must submit their stock certificates for payment. Failure to do so results in numbers of individuals not receiving payments for the stock in the acquired company, and a substantial amount of unclaimed property.

* Funds Held in Perpetuity