If your business is involved in transferring money in some way (so, virtually every business out there), chances are you've written a check that the payee never cashed. Did you know that you're responsible for reporting and submitting those funds to your state? That's right—even though your recipient never cashed the check, those funds are still considered the property of that individual.
Every state handles unclaimed money slightly differently. The specific regulations are known as your state's escheat laws. Unclaimed or abandoned property is transferred to the state to hold until the owner or owner's legal heirs claim the property. We're going to give you some of the broad strokes here, but be sure to look into the specifics for your state.
What kinds of outstanding checks do I need to report?
Uncleared checks can be from almost anything. Some of the most common types are:
- Payroll checks
- Overpayments on medical bills
- Returned deposits
If there are checks on your ledger that are older than your state's dormancy period, you need to report them as unclaimed funds. You should also make a journal entry to move the funds from the original account they were coded to (e.g. payroll) to an unclaimed funds liability account. These funds should be shown on your balance sheet as a liability/money you owe. When you submit the money to the state, you relieve your liability account.
What do I do with the money?
Once the dormancy period has passed, you're required to submit the money to your state for safekeeping. It goes into a pool of unclaimed funds and waits for the owner (or his or her legal heirs) to collect. It's worth noting that once you've written a check, that money is no longer yours—even if it still appears in your account. States can audit you for unclaimed funds and assess fines and penalties for non-compliance. Although you may not necessarily be submitting unclaimed funds at the end of the year, it's a good idea to review any outstanding checks that have been sitting on your books for an extended period of time and be sure the funds are allocated appropriately.
Again, be sure to look at your state's specific requirements. In general, you must first make a reasonable effort to find the owner of the funds prior to adhering to your state's escheat laws.
How do I see if I have unclaimed money?
Every state maintains an online database individuals can access to see if the state is holding their funds. The individual is required to go through a basic identification process in order to claim his or her money. Maybe you even have unclaimed funds sitting with your state!