Master the Due Diligence Process: Your Essential Unclaimed Property Checklist
Maintaining compliance with unclaimed property laws isn’t just a legal chore, it’s a critical part of your business’s financial health. If your organization holds uncashed checks, credit balances, or inactive accounts, you must follow specific “due diligence” steps before reporting those funds to the state.
To ensure your process is airtight, use this guide to audit your letters, track state-specific rules, and prepare for potential audits.
1. 5 Non-Negotiable Elements of Your Due Diligence Letter for Unclaimed Property
Every due diligence letter must be clear and compliant. Ensure yours includes these five components:
- The Reporting Notification: Explicitly state that the property will be turned over to the state if the owner fails to respond.
- Property Description: Identify exactly what the property is (e.g., an uncashed payroll check or a specific credit balance).
- Reclamation Rights: Inform the owner that even after escheatment, they always retain the right to reclaim their property from the state.
- A Clear Deadline: Provide a specific date by which the owner must contact you to claim the funds.
- Full Contact Information: Include your company name, physical address, email, and phone number so the owner can easily reach out.
2. Know the Statutory Triggers
Before you mail a single letter, verify these three conditions:
- Valid Address: You must have a record of the owner’s address, and your records should not indicate that the address is “bad” or inaccurate.
- No Legal Bars: Ensure the claim isn’t blocked by other state laws, such as delinquent taxes or child support offsets.
- The Valuation Threshold: Most states only require due diligence if the property exceeds a specific dollar amount (the “aggregate amount”). For example, if a state’s threshold is $50.00, you only need to perform formal due diligence on items valued above that mark.
3. Navigate State-Specific Variations
Compliance isn’t one-size-fits-all. Keep these regional nuances in mind:
- Certified Mail Requirements: States like Iowa, New York, New Jersey, and Ohio may require you to send letters via Certified Mail in certain situations.
- Mailing Cost Deductions: While most states view mailing costs as a “cost of doing business,” California, Illinois, and Nevada allow you to deduct these expenses from the property value.
- Officer Certification: About a dozen states require a company officer to sign an affidavit or verification checklist certifying that you completed the due diligence process.
4. Your Internal “Pre-Mailing” Checklist
Before you send out search letters, ask these questions to confirm the property is truly “unclaimed”:
- Has the owner recently increased or decreased the account balance?
- Has the owner contacted you regarding this account?
- Does the owner have other active accounts with your company?
- Is the owner a current employee?
- Is the owner a well-known business or government entity?
5. Timing and Audit Preparation
How long should you wait for a response? Timing varies by state. Some mandate a strict 30 or 60-day window. Others require the process to be finished by October 1 for a November 1 reporting deadline. When in doubt, provide enough time for a reasonable person to receive and return the mail.
Why documentation matters: States are increasingly imposing penalties for non-compliant due diligence. To protect yourself during an audit:
- Keep a copy of the actual letter template used.
- Maintain a log of when letters were mailed and to whom.
- Save all return mail or owner responses.
Need a Total Solution? Navigating these changing statutes can be overwhelming. Contact Pat Healy directly at 410.303.5510 or email phealy@peacc.com to see how PEACC can manage your unclaimed property compliance from start to finish by turning to PEACC.com as your total solution to unclaimed property compliance!!
