A division of the state treasurer's office is failing to perform its core function: reuniting Coloradans with their lost property through the "Great Colorado Payback" program, the Colorado state auditor says.
The auditor's performance review of the last five years of the Division of Unclaimed Property, released Monday, said that more than 91% of the 429,526 state records attached to unclaimed property were "duplicate, incomplete, inaccurate or questionable that did not represent valid claims."
The errors, the audit claimed, were "due in part to IT system conversion issues." That conversion, to a system called KAPS, took place in 2017 under then-Treasurer Walker Stapleton, who has since been succeeded by Dave Young.
The audit identified 391,938 inaccurate records representing 713,637 properties. Of those, 678,356 properties included cash, checks and money orders valued at $271.5 million. The auditors said those inaccurate records did not represent valid claims and removed them.
The auditors tested a subset of about 37,588 claims paid between May 2017 and March 2019. In those records, in four instances, division staff entered a property receipt date of Oct. 10, 2020. In another record, division staff incorrectly listed the property as being with an auctioneer when it was actually in the division's vault.
Another 5,550 records lacked complete or accurate names of owners, including 144 properties where the owners were listed as "%" and 398 owners with a name of "000 00 00000000," according to the review.
The audit found the division accepted property with unknown or unidentified owners, including payroll checks, savings accounts and safe deposit boxes. Within the KAPS system, that totaled 6.2 million properties with a value of $137.1 million.
Some of that property — totaling about $23.4 million — is comprised of gift certificates and gift cards, which the audit said might not have a clearly identifiable owner. But the rest "would be expected to have an identifiable owner."
The division, in response to the audit, blamed the KAPS system, noting that when a record has no name of an owner, the system does not flag or allow it to process reports with missing owners.
"In addition, KAPS does not allow information in the holder reports to be corrected; the holder report must either be approved or rejected as it was submitted," the division stated.
The division said it plans to implement an update to the system next year that will allow for reports on records that lack an owner's name.
Due to those errors, the audit said that "we were unable to determine if the unclaimed property database provided to us and on which we performed our testing was complete and accurate."
The division also failed to act on almost half of the claims submitted within the statutory guidelines, which is 90 days, the audit said. Some claims took up to 1.8 years to process.
In addition, according to the review, the division:
- Failed to mail notifications to 1.6 million owners of unclaimed property as required by state law, and hasn't done so since March 2005.
- Failed to take "physical custody" of 1,085 "tangible" items reported to the division, although state law requires the division to take custody of tangible property when it is reported.
- Failed to sell tangible unclaimed property within three years, also as required by law. The audit said that by "choosing to discontinue selling and accepting tangible unclaimed property, the Division has failed to comply with its statutory charge and meet its overall mission to reunite citizens with lost or forgotten property." The division admitted it "fell behind" in taking possession of tangible property, although pointing out that tangible property — more than 32,000 items — represents only a small fraction of the unclaimed property held by the division, some 7.8 million claimable properties.
- Incorrectly transferred funds to the wrong accounts in 2016, and even after being notified of the error have yet to correct it. The division blamed its vendor for a programming error, and promised, "if necessary," to fix those mistakes.
Finally, the audit said that treasury accounting staff had "recorded claims and interest distributions incorrectly, and the department has not determined the amount of the error or made any necessary adjustments."
The audit said the division could not prove it had "adequate oversight" of the contractor's data conversion process when the KAPS system was implemented, nor does the division have a process in place to check data integrity and completeness of records in the new system.
The division, according to the audit, also lacks any documented policies and procedures for how to enter complete information into KAPS, nor does it have any written procedures for division staff on deadlines to act on a claim.
The audit recommended the division implement those written policies, identify data conversion issues so that KAPS is accurate and complete, and follow state laws on claims processing to wipe out the backlog.
The division said it would comply with the audit's recommendations and that it has already reduced the backlog from more than 12,000 claims in May 2018 to 2,200 by March of this year. The division also has a new director.
With regard to notification, state law requires a mailing to the last known address of a property holder for property valued at $50 or more, but the division hasn't done so in 14 years, the audit said.
The division has instead relied on advertising the Great Colorado Payback program the state's database of unclaimed property and other advertising venues. More than 1.6 million owners of unclaimed property have never been notified about their property, the audit said.
The division claimed it stopped mailing notices in 2004 because more than half were returned by the post office as undeliverable. But the division never sought statutory changes to eliminate that requirement.
Legislation passed in the 2019 General Assembly updated the law to allow for email addressees to be used when available but maintained the requirement to notify property owners by mail.
The audit's findings are raising concerns outside of the auditor's office.
The legislature's Joint Budget Committee relies on information from the unclaimed property fund to make occasional transfers to the general fund and has done so each of the past five years, in amounts ranging from $27.7 million to $38.5 million.
In 2019, the state general fund was boosted by $30 million from the unclaimed property trust fund. That transfer is intended to go to the state's Housing Development Grant Fund to fund affordable housing throughout the state for fiscal years 2021 through 2023. The audit found that unclaimed property trust fund did have sufficient revenue to cover those transfers.
JBC Chair Sen. Dominick Moreno, D-Commerce City, told Colorado Politics that based on what he has heard so far (he hadn't yet seen the audit), the JBC "would need to pause on any further transfers until the audit recommendations are resolved."