[an error occurred while processing this directive] [an error occurred while processing this directive] Comptroller's Office [an error occurred while processing this directive] Texas Taxes
Audit Manuals
Audit Procedures for Unclaimed Property
Revised 09/2007 [an error occurred while processing this directive]

MINERAL INTERESTS

Oil and gas companies hold royalties in suspense for many good and sufficient reasons, such as title disputes, clouded titles, or unpaid amounts due from the royalty owner on other business. A 1991 amendment to the Texas Natural Resources Code, dictating the form and content of division orders, had the effect of adding unsigned division orders to this list. Royalty suspense ledgers are a necessary part of the accounting system and here, as elsewhere, unclaimed property appears as an exception to the normal flow of business.

In addition to royalties payable from a company's own production, unclaimed royalty payments are also acquired through the buying of leases from other oil and gas companies. The abandonment periods for these suspended royalties should be calculated from their original payment dates, not the date received by the acquiring company.


DEPOSITS HELD BY BANKING ORGANIZATIONS

The five-year abandonment period is measured from the date of last contact with the depositor as defined earlier in the Basic Rules section. Positive, documented contact between the holder and the owner is required for keeping an account in active status. Change of address notifications, payments on loans, activity in other accounts belonging to the same owner, are all valid contact. However, the auditor must test for what else updates the last contact field in the holder's system. Examples of invalid updates to a depositor account's last contact date include automatic deductions of safe deposit box rental, automatic deposits of interest from one account into another, statement mailings and internally-generated file maintenance.

Special rule for certificates of deposit (CDs): The abandonment period begins to run on the first maturity date. In the case of automatically-renewable CDs, the first maturity date is used. This is not specifically mentioned in the statute, but was established many years ago as the only fair method to handle CDs because the first maturity date is the first date upon which the depositor may recover the funds without incurring an interest penalty for early withdrawal.

Depositors' accounts are protected from service charging after one year of inactivity. Since September 1, 1993, when the Property Code was amended, this one-year period is measured from the same date as the five-year abandonment period. Before that amendment, a customer-generated deposit or withdrawal was required to keep an account in an active status for the purpose of service charging, regardless of any other existing contact with the account owner.

Depositors' accounts are also protected from a banking organization's unilateral action to stop paying interest because of inactivity. An auditor discovering that this has occurred may be challenged by the bank to demonstrate where in the Property Code it says they are required to pay interest on inactive accounts. It doesn't. It does say, however, that they may not, by any procedure, reduce an inactive account to their own profits. A banking organization's unilateral action to stop paying interest on inactive accounts reduces the value of the account and is often in violation of their own contract with the depositor which specifies that interest will be paid. Thus, the bank must pay the contract-required interest on abandoned accounts up to the date they are closed and remitted to the state as unclaimed property.

When examining this type of property:


 

UNIDENTIFIED DEPOSITS/REMITTANCES

Banks, savings associations, and credit unions will typically hold unidentified deposits in a demand deposit account under that name, Unidentified Deposits. With on-line computer terminals at every teller station, unidentified deposits occur less often than in the past because tellers attempt to post deposits with customers still at the window. Most unidentified deposits now result from nighttime and mail deposits with incorrect or missing deposit slips.

Other companies with large volumes of direct billing to customers also receive unidentified remittances. Insurance companies, utility companies, and hospitals occasionally receive payments by mail from people who intend to pay someone else's bill or send their payment to the wrong company. Posting to the correct account is delayed, or sometimes not possible, when the party making the payment doesn't include a payment voucher from the bill, doesn't include an account number with the payment, has an incorrect address on their check, or pays with a money order containing no address. Until the true owner is identified, or the funds are written off to income, unidentified remittances are often held in liability accounts with titles such as Unidentified Remittances, Unapplied Payments, or Unapplied Cash.

Unidentified deposits and remittances are usually a small part of an auditor's findings but, despite the holders' best efforts to prevent them, they continue to occur when the holder has a large volume of transactions with the general public.

Steps to be followed include:

Sample suspense accounts and liability accounts used for recording and controlling unidentified items.

[Table of Contents]
[Basic Rules]
[Statute of Limitations to Property and Casualty Insurance Claim Checks and Drafts]
[Mineral Interests to Unidentified Deposits/Remittances]
[Checks Issued by Banking Organizations to Collateral]
[Employee Benefit Trust Distributions to Matured Endowments, Policies Reaching Limiting Age, and Other Maturities Due]
[Agent Credit Balances to Penalties and Interest]
[Interest Calculation Worksheet Illustration]
[Commonly Reported Types of Unclaimed Property Listed by Industry]

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