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Reporting Unclaimed Checks
When you issue a check in payment of a liability and the payee does not cash the check, the underlying liability is reportable as unclaimed property. You should review any checks that are not presented against your bank account to determine if they need to be reported.

What are unpresented checks?
Unpresented checks are checks issued by an organization that remain un-cashed because the payee does not “present” them to the bank for payment. Outstanding checks on your bank reconciliation will become reportable unless there is an explanation that satisfies the underlying liability.  Unpresented checks make up a large portion of the unclaimed property reported to the Department of State Lands.
 
Unpresented checks include those that are:
  • Outstanding
  • Written-off
  • Stale-dated or returned by the post office (RPO)
 
For most reporters, unpresented checks are presumed abandoned after three years if they are not cashed.
 
Common types include:
  • Payroll
  • Employee commissions
  • Returnable garnishments
  • Accounts payable
  • Expense
  • Drafts
  • Vendor payments
  • Dividends
  • Refunds
  • Travel expense
  • Self-employed commissions
 

How do I determine what to report?
When you reconcile your bank accounts, research older outstanding checks to determine their status.   If a check is still outstanding after six months, it should be considered as potential unclaimed property.  Make notes on your adjustments to older outstanding checks. An outstanding check may have been issued in error, represent a duplicate payment, or the underlying liability may have been settled in some other way. 
 
The fact that a check has an expiration period listed or the check is voided does not excuse the underlying liability or the need to report it as unclaimed property. Unless the underlying liability has been settled in some way, you should report the unclaimed check.
 
 

May I deduct my costs?
Generally, you may not deduct your costs.  If you have an enforceable written contract with the payee that allows you to take fees, such as stop payments, due diligence costs, or inactivity fees, you may deduct these fees or costs when reporting unclaimed checks. Keep your contract documentation in case you are asked by our auditors to provide evidence of the contract.

Watch out for "buried" checks
Depending on the volume of checks you issue through your checking account and your outstanding check report parameters, you may miss unclaimed checks that become “buried.” It is possible to reuse a check number before you have cleared off a stale-dated check to a liability account. Also, if your outstanding check report sorts by month and day, but not by year, older checks may move from the top of the report into the middle. In both the above situations, a reviewer might not expect to find checks “buried” deep in the outstanding check report. Our auditors routinely look for this problem.

Payroll and other third party disbursement services
If you contract out payroll service or other disbursements, you will need to make sure any unclaimed checks get reported. The contracting organization usually remains responsible for reporting the unclaimed checks even though an outside service handles the issuance and may hold the funds. If the agent is reporting for you, obtain documentation from them in the event your firm is audited.

Review checks regularly
Research your outstanding checks regularly. A check has potential to become unclaimed property after it remains outstanding for six months. Document your adjustments to remove outstanding checks if the check was issued in error, a duplicate payment, or the liability was settled in some other way.
 
Consider setting up a liability account to track older outstanding checks and maintain a listing of the checks by payee, amount and by issue date, rather than the date removed or written-off.  Due diligence efforts and reporting will be simpler if you note the last known address of the payee.  Checks returned by the post office may be a useful source of payee information.
 
Without positive owner contact, simply reissuing your aged checks just prior to abandonment does not start the abandonment period again. The underlying liability, represented by the check, ages for abandonment from the date it was first payable to the owner.
 

Proving it's not unclaimed
Any unpaid check that appears to be due the owner is subject to abandonment without another explanation. It is important for your records to show when a check was reissued, issued in error, or cancelled as a duplicate payment.
 
We recommend that you set up your accounting information system to document when property is not abandoned. For example, have a written procedure regarding how you will handle stale-dated and unpaid checks and follow the procedure on a consistent basis.
 
If you find a stale-dated check during reconciliation, usually older than 90 days, make sure you document how you resolved the check. Did you put it in an unclaimed property liability account? Did you reissue the check? What was the replacement check number? Was the liability paid on another invoice?
 
If the relevant records that would help you explain the disposition of the check have been lost, writing the owner may be the only option. If you write to the owner, the letter should provide the owner the option of receiving the funds.
 
For example:
 
June 15, XXXX
 
Dear Vendor,
 
We show that check 1234 issued on March 1, YEAR for $1,200.62 appears to be owed to you. Please help us determine the disposition by checking the appropriate box below and return this letter.
 
I have record of receiving these funds. The amount is not owed to me.                         
I do not have a record of receiving these funds, please issue a refund for the amount.


 
Documenting the disposition of adjusted stale-dated checks is important but it doesn’t have to be time consuming. In many instances it can be as easy as writing the replacement check or invoice number out to the side of the voided check on your outstanding check report. In more complicated cases, you may want to keep the relevant correspondence from the owner or write a brief explanation of what occurred.

Summary
Resolve your outstanding checks on a frequent basis and make notes if you void or reissue checks. Occasionally scan the entire outstanding check report for “buried” stale-dated checks that can accidently shift down in the normal sorting process of the report. Finally, a consistent procedure for handling unclaimed checks will provide a trail of your actions in the event of an audit.