Finders keepers.

Unclaimed property can lead to unwanted fines

The issue of unclaimed property and its effect on small businesses is pervasive. According to the Arizona Department of Revenue, unclaimed property is any intangible asset that is held, issued, or owed in the ordinary course of a holder's business that has remained unclaimed by the owner after it became payable or distributable. The amount of time property remains unclaimed or abandoned varies from state to state, but generally ranges between three and seven years.

Until recently, entrepreneurs gave little thought to what to do with assets that were abandoned or simply forgotten by their owner. Many businesses were unaware that actual unclaimed property laws even existed. While some states, such as New York and Arizona, for example, have unclaimed property statutes stretching back to the 1940's and '50s, other states only recently adopted legislation specifically for unclaimed property. The most common examples of unclaimed assets, include:

* Outstanding payroll or vendor checks.

* Matured certificates of deposit.

* Dormant savings and checking accounts.

* Uncashed dividends.

* Money orders.

* Cashier's checks.

* Unreturned and unused security deposits.

* Escrow balances.

* Insurance policy claims.

Assets become unclaimed property for a variety of reasons. Businesses lose track of owners, owners forget about the assets, or the owner dies and the family is unaware of the property. In other instances, the property becomes unclaimed because of a custodial relationship begun when its owner was a child. Parents establish accounts in the name of minors and oftentimes forget about them.

Ronald Burgess Sr., senior manager in the Unclaimed Property practice at Deloitte & Touche, an international accounting and financial services company headquartered in New York, says the issue of unclaimed property received added attention in 1999 with the highly public prosecution of senior executives at Bankers Trust. The bank began undergoing prosecution in 1999 and ultimately was fined by state auditors for the flagrant misuse of unclaimed property funds. Among other things, it is reported that state auditors discovered that company executives failed to accurately report the unclaimed property the bank had in its possession, falsifying and shifting figures in order to make it appear as if the unclaimed property funds were profits instead of liabilities, which clearly violated state laws. Bankers Trust was ordered to pay a hefty $60 million fine for the egregious violation.

"Unclaimed property and its effects on businesses, both large and small, is a time bomb waiting to explode," says Burgess. "Unfortunately, some businesses are not conforming to accounting functions and procedures resulting in stiff fines and penalties, which was apparent in the Bankers Trust case."