Risk Considerations For Recovery

Risks of Claiming

For a corporation, the risk is not just about the paperwork; it is about “poking the bear.” While recovering assets (like uncashed vendor checks or tax refunds) can improve the bottom line, it often signals to state regulators that the company is aware of unclaimed property laws but may not be fully compliant in its own reporting.

The primary risks for a corporation fall into three categories: Audit Exposure, Operational Drain, and Successor Liability.

1. The “Audit Trigger” If Not Already In Compliance

The single biggest risk of a corporation claiming its own property is that it flags the company for an unclaimed property audit if the company is not already in compliance with escheat laws.

• The Logic: State controllers often view a company’s claim for funds as proof that the business understands escheatment laws. If you are claiming money from the state but haven’t filed a “Holder Report” (reporting money you owe to others) in recent years, the state may initiate an audit.
• The Consequences: These audits are notoriously aggressive, often handled by third-party “bounty hunter” firms paid on contingency. They can look back 10–15 years and may use estimation techniques to create multi-million dollar liabilities if your records are incomplete.
• Interest and Penalties: If an audit finds you haven’t been reporting property correctly, states like California can charge up to 12% annual interest on the past-due amounts.

2. Operational & Administrative Drain

Recovering corporate assets is far more complex than a personal claim.

• M&A Complexity: If your company has a history of Mergers and Acquisitions (M&A), you must prove you are the legal successor to the entity that originally owned the property. This requires original articles of merger, name change documents, and tax ID history.
• Documentation Burden: States often require a “Secretarial Certificate” or specific board resolutions authorizing an individual to claim funds on behalf of the corporation. The time spent by legal and accounting teams to gather this often exceeds the value of the claim itself.
• “Low ROI” Claims: Many corporate properties listed in state databases don’t show the actual value. A company might spend 10 hours of a controller’s time chasing a claim that turns out to be a $5.00 utility refund.

3. Successor Liability and “Limbo” Assets

If a corporation is recovering property from a previously acquired subsidiary, it may inadvertently “inherit” that subsidiary’s past compliance failures.

• Unmasking Liabilities: By claiming a predecessor’s assets, you are legally asserting that you are responsible for that entity. If that entity had a massive unreported debt (like thousands of uncashed payroll checks from 2012), you have now linked your current corporation to those liabilities.
• Public Record Risk: Because corporate claims are public, they can be searched by “Whistleblowers” or “Qui Tam” relators who look for companies that claim assets but fail to report their own obligations, potentially leading to lawsuits under the False Claims Act.

Corporate Risk Mitigation Strategy

To recover funds safely, most corporate tax departments follow these steps:

Step	Action
Audit First	Conduct a “Self-Audit” of your own outstanding checks/credits before claiming state funds.
VDA Programs	If you find you haven’t been reporting property, enter a Voluntary Disclosure Agreement (VDA) to get amnesty on penalties before you start making claims.
Thresholds	Only pursue claims above a certain dollar amount (e.g., $500+) to ensure the recovery outweighs the labor cost.
Centralize	Use a single “Holder ID” and a dedicated person to manage both inflows (claims) and outflows (reporting) to ensure consistency.

Risk of Not Claiming

While the risks of attempting recovery often involve “poking the bear” of state audits, the risks of failing to recover corporate unclaimed property are primarily financial and fiduciary.

If a corporation ignores its own assets held by the state, it faces “silent” losses that can impact the balance sheet, internal controls, and even shareholder trust.

1. Financial Loss and Opportunity Cost

The most obvious risk is leaving “money on the table.” For large corporations, this can involve millions of dollars in uncashed vendor checks, tax refunds, or insurance payouts.

• Asset Attrition: Unlike a bank account, many states do not pay interest on the unclaimed property they hold. Every year the money sits in state custody, its real value is eroded by inflation.
• Balance Sheet Inaccuracy: If your accounting team has already “written off” an old receivable that is actually sitting in a state’s unclaimed property fund, your financial statements may technically under-report the company’s true asset position.
• Erosion of Stock Value: If the unclaimed property is in the form of shares (e.g., from a merger), some states have the right to liquidate those shares and hold only the cash value. If the stock price increases significantly after the state sells it, the corporation loses out on all that growth.

2. Internal Control and Audit Weaknesses

Failure to track and recover assets can be seen as a “red flag” for a company’s internal financial controls.

• The “Sloppiness” Signal: External auditors (like the Big Four) look for “stale” items. If a company has a significant amount of money sitting in state databases, it suggests that the Accounts Payable (AP) and Accounts Receivable (AR) departments are not properly reconciling their books.
• Internal Fraud: Funds that the corporation has “forgotten” are prime targets for internal embezzlement. Dishonest employees may attempt to claim these corporate funds for themselves or reroute them to personal accounts, knowing the company isn’t watching those specific assets.

3. Fiduciary and Shareholder Risk

In extreme cases, failing to recover significant assets can lead to legal or reputational blowback.

• Breach of Fiduciary Duty: Executives and directors have a duty to protect and maximize corporate assets. Knowingly leaving material amounts of money with the state could, in theory, be framed as a failure of that duty.
• Shareholder Activism: Large institutional investors or activist shareholders may use a company’s failure to manage its “lost” assets as evidence of poor management or lack of oversight.

4. Permanent Forfeiture (Local/Foreign Risks)

While most U.S. states hold property “in perpetuity,” this is not a universal rule.

• Municipal and County Exceptions: Some local government agencies or smaller jurisdictions have much shorter windows (e.g., 3–5 years). If the money is not claimed within that window, it may be permanently absorbed into the local general fund.
• International Risks: If your corporation has global operations, many foreign countries have “statutes of limitations” on unclaimed assets. After a certain period, the government may take full legal title to the money, making it unrecoverable.

Comparison: Claiming vs. Not Claiming

Risk of Claiming	Risk of NOT Claiming
Triggers a state audit of your records if not already in compliance.	Permanent loss of capital (foreign/local).
High administrative labor cost.	Erosion of value due to inflation/non-interest.
Potential tax liability on the windfall.	Red flag for internal control weaknesses.
Disclosure of corporate structure/M&A history.	Potential for internal employee fraud/theft.

Boomerang Asset Recovery

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