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Due Diligence: Beyond the Minimum

Posted By Administration, Thursday, July 6, 2017
Updated: Monday, July 10, 2017

State unclaimed property statutes require holders to conduct due diligence, generally consisting of a first-class letter sent 30 to 90 days before the property’s report date. Some property types, such as life insurance, may require additional due diligence efforts, but more commonly the last-ditch letter is all that is required. However, going beyond the minimum statutory requirements offers some significant advantages.

 

“Going above and beyond the last-ditch mailing effort at the end of the dormancy period, holders can drive down the total amount of reportable unclaimed property and thereby reduce their associated unclaimed property risks,” said Will King, senior manager, SALT, unclaimed property at KMPG LLP. “It’s also a good customer service practice, demonstrating that the company is proactively trying to reunite owners with their property.”

 

By the time holders send required due diligence letters, property has been aging for three to five years, in most cases. One proactive step holders can take is reaching out to customers, vendors and other payees who have credit balances or uncashed checks much earlier than required. Putting processes in place that call for outreach after six or 12 months of inactivity, for example, encourages owners to claim their property before it is officially classified as unclaimed. 

 

Another proactive step can be taken as soon as the holder believes a property owner’s address is no longer current. State requirements typically specify that the due diligence letter must be sent to the apparent owner’s last known address. If the holder receives returned post office (RPO) mail and believes that a due diligence letter will not be received, performing a search using a publicly available source or a third-party vendor may produce an accurate, current address.

 

Although the due diligence letter typically must be sent by first-class mail, that constraint isn’t present for efforts above and beyond the requirements. If holders have a phone number, email address or other method of authorized contact, they may be able to reach out using those methods, increasing the likelihood of a response.

 

If proactive measures are unsuccessful, there are still some things holders can do beyond the statutory minimum requirements to improve due diligence efforts. States generally mandate the inclusion of specific disclosures and language. Holders may want to add additional language—perhaps marking envelopes as “urgent” and including a “reply by” date to encourage higher open and response rates. 

 

As with so many aspects of unclaimed property, due diligence requirements change often. Keeping up with these changes and the nuances from state to state and property type to property type is essential to ensuring compliance. 

 

“Often due diligence gets lumped into a single bucket,” King said. “Holders know they need to send a letter by first-class mail, for example, but there are special considerations in many states. Some require due diligence letters to be sent by certified return receipt requested. Some require a secondary letter to be mailed if the dollar value is over a minimum threshold and the first mailing is RPO. For some property types, due diligence takes on a publication requirement. So, there is nuance, and things are always changing.”

 

One of the most significant recent changes is the expansion of due diligence by electronic means. The Revised Uniform Unclaimed Property Act includes such a provision, and some states are beginning to include it in their statutes. Tennessee H.B. 420, for example specifies that if the apparent owner has consented to receive electronic mail from the holder, the holder will send the due diligence notice by both first-class mail and email unless there is a reason to believe the email address is not valid. 

 

Failing to comply with due diligence requirements opens up holders to potential risks:

  • Some states impose penalties for noncompliance.
  • Holders jeopardize the indemnification granted for reporting property in good faith. 
  • An inordinate number of claims to the state compared to the amount of property reported could signal that proper due diligence isn’t occurring and could raise an audit red flag. 

“Developing processes for conducting early and recurring outreach makes the unclaimed property compliance process easier,” King said. “Taking such steps, you have a greater degree of certainty about what needs to be reported, and you can honestly say you’ve done everything possible to reach out to property owners.”

 

To learn more about due diligence requirements beyond the minimum requirements, join Will King and co-presenter Michelle Graf from Disney Worldwide Shared Services for UPPO’s Advanced Due Diligence webinar on July 26. Topics will include increasing responses, locating lost owners, developing an efficient due diligence process and staying in compliance with statutory requirements, outside of the normal basic concepts. They will also discuss recent and pending legislation affecting due diligence requirements. 


To help with compliance efforts, UPPO members can access the Jurisdiction Resource Guide, which provides reporting deadlines, dormancy periods by property type, due diligence letter requirements, exemptions and deductions, and other helpful information for U.S. and Canadian jurisdictions.

 

Tags:  compliance  due diligence  unclaimed property 

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