All 50 states have unclaimed property laws that require companies that possess abandoned property (a “holder”) to transfer that property to the state or potentially face investigations resulting in interest and penalties. Many companies limit their unclaimed property due diligence to traditional types of unclaimed property like wages and accounts payable. This is no longer enough. States consider unclaimed property an important revenue stream, accounting for nearly $41.7 billion in property currently held on behalf of individuals and businesses according to the National Association of Unclaimed Property Administrators (NAUPA). State administrators are beginning to focus on potential new types of unclaimed property, such as life insurance proceeds, health savings accounts, securities, gift and stored value cards, and promotional programs.
The Uniform Law Commission is considering revising the Uniform Unclaimed Property Act to include a variety of these property types. Approximately 40 states have enacted a version of the Uniform Act, with 16 states having adopted the most recent 1995 version.
Another proposed revision to the Uniform Act is an explicit recognition of private audit firms hired by state unclaimed property administrators and compensated via contingency fee arrangements based on the total amount of funds that the firms collect.
Recently, the U.S. Chamber Institute for Legal Reform argued against the contingency fee arrangement in its whitepaper, Best Practices for State Administrators and the Use of Private Audit Firms. Such an arrangement risks motivating the private audit firms to assert liberal interpretations of the laws to encompass new types of unclaimed property or new “holders” of unclaimed property. In the publication, the U.S. Chamber blamed the motivation structure for leading to an abuse of power and a lack of accountability by the audit firms and the state administrators. To fix these problems, the whitepaper advocates for transparency reforms in the audit bidding process; fee arrangements that compensate on an hourly basis as opposed to on the amount recovered; contract reforms to ensure transparency, oversight, and accountability by the state over the audit firms; and voluntary disclosure programs that incentivize companies to come forward when out of compliance with unclaimed property laws.
Companies should reassess their unclaimed property internal audit policies to ensure that they maintain compliance or risk investigation costs, interest, and penalties when audited by the state or their designees, the private audit firms.