Let it Go… How to Let Go of Unclaimed Property

As a local government agency, you may have heard of unclaimed property, but do you know how to handle it properly? Did you know that the State of California allows you to recapture those funds to your general fund if you have a reasonable process and tracking system that satisfies their due diligence requirements? If the answer is no, you are not alone. We know firsthand the challenges that arise from limited staff resources to tackle the procedural aspects related to implementing and sustaining this process, but the potential to recapture those funds makes this process one that you won’t want to defer.

What is Unclaimed Property?

First, let’s define what unclaimed property is. Unclaimed property can include outstanding checks that haven’t been cashed by the payee, utility account deposits, accounts receivable credits, and other types of intangible property (usually money) that are owed to third parties. These items formally become “unclaimed property” when they have been held by a government agency for a three-year period, as per California Government Code Section 50050.   If they remain unclaimed after three-years and you have done your due diligence to attempt to contact the property owner these funds  are deemed “abandoned”. Second, let’s define escheatment. Escheatment is the process by which the state takes ownership of property that has been abandoned or unclaimed by its rightful owner for a certain period of time. Once property is escheated to the state, the state holds the property in trust until the owner or their heirs claim it.

In California, local government agencies can manage their unclaimed property themselves and not escheat to the state as long as they have a defined process AND reasonable tracking system that follows the Government Code Section 50050-50057. If done properly, this means that your agency has the opportunity to recapture those monies to your general fund, should they remain unclaimed.

So, what does an agency need to do to maintain their own unclaimed property program?

1. Agency must identify unclaimed property that has been held for three years. This doesn’t mean you have to wait three years. Once checks are moved to the outstanding check listing, you should maintain a comprehensive listing of items that will become subject to the unclaimed property rules when they reach three years, including contacting the property owner and publishing newspaper notices.
   1. This can be an excel spreadsheet or some organizations have the listing embedded in their website.
   2. Establish a page on your website to keep this listing public so property owners have a way to search for their property, similar to the state’s unclaimed property website. While this isn’t required, it is a best practice. (LSL Tip: Make sure you implement fraud prevention measures if published online to ensure fraudsters can’t just call and have the address changed and claim the funds.)
2. Attempt to contact the property owner. California law requires all holders of unclaimed property to attempt to contact property owners before reporting their property to the State Controller’s Office.
   1. If you escheat to the State, you should send a notice to the owner’s last known address informing them that the property will be transferred to the State Controller’s Office for safekeeping if the owner does not contact them to retrieve it.
   2. If you administer your own process, as a best practice, you should send a letter with identifying information to the last known address for companies with unclaimed property. (LSL Tip: Before sending letters, search the Secretary of State’s Business Entity website https://bebizfile.sos.ca.gov/eforms for updated contact/address information.)
3. Agency must publish two notices in newspapers one week apart for any property that remains unclaimed after three years. The notice should state the payee name, check number, the check date, the amount of money, the fund in which it is held, and the date that it will be claimed by the general fund if not claimed (which is required to be a designated date not less than forty-five days nor more than sixty days after the first publication of the notice).
   1. The California Government Code requires the publishing in “a newspaper of general circulation”. It is a best practice to publish in two newspapers, one local and one regional.
   2. It should be noted that the California Government Code gives an exception to the public noticing requirements for any amounts that are $15 or less. In addition, any amounts of this value are considered “unclaimed” after a one-year period, not three. These funds can be immediately recaptured to your General Fund.
4. Following these due diligence attempts, you can prepare that journal entry and move those funds to your General Fund.
   1. Some agencies have asked if the funds can stay with in the originating fund. This is likely ok, especially if the originating fund is restricted, such as a special revenue fund.
5. We recommend consulting your legal counsel on guidance for records retention related to the documentation of your due diligence efforts should a claim/request be received after monies have been recaptured to the General Fund. While it is a policy decision to reject or honor the request, once the due diligence requirements are met and the money is transferred to your general fund, it is the property of the local agency.

Below are some additional tips and reminders:

• Ensure your organization has updated policies and procedures.
  • LSL Tip: Differentiate the outstanding check policy from the unclaimed property policy.
• Identify a responsible party in the Finance Department to manage the unclaimed property program.
• Establish an unclaimed property account in the General Fund and reconcile it monthly. This account will hold funds as it goes through the unclaimed property process.
• Always search the Secretary of State’s website for alternative contact information. We noted this above, and are repeating it here, as this is another effective way to demonstrate your due diligence requirements were met. This can take some time so you may want to consider a threshold for this.
• LSL Tip: Search your agency on the State of California’s Unclaimed Property website and see if you can recapture unclaimed property that companies have remitted to the State of California that is yours!
  • Go to the website listed https://ucpi.sco.ca.gov/en/Property/SearchIndex and put in your government name but make sure you mark the box for a less specific match.
  • If your agency’s name has an unusual spelling, also make sure you search the most common misspellings because a lot of unclaimed property is due to typos in the name and address lines.

Conclusion

Throughout this process – from website listings, due diligence letters, or the public notice – claims of unclaimed property can arise before the date the unclaimed money becomes the property of the local agency pursuant to the California Government Code Section 50052. Note that there are procedures to reject a claim which allow the claimant to file a protest through the Courts.

If you need help establishing procedures and processes for managing unclaimed property or want more specific guidance on a compliant tracking system, we are always here to help. Contact us to learn more.