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8/27/15 10:30 AM

You Can Master Unclaimed Property Reporting of Uncashed Checks

by Greg VerMulm

Payroll is the most common area to generate uncashed checks in any industry. However, even departments such as Accounts Payable produce them—uncashed refund checks and uncashed vendor payment checks, for example. No matter where they occur, uncashed checks must be handled carefully to prevent improper reporting and associated financial liabilities.

Although it is the responsibility of unclaimed property personnel to gather data aligning with unclaimed property in every department and report it to the states, it is the responsibility of the department generating uncashed checks to reconcile them correctly. Once reconciled and documented, the information can simply be turned over to the unclaimed property team to report, transfer to an unclaimed property servicing firm, and/or provide to auditors if needed.

Collaboration between the unclaimed property team and department accounting staff is critical to ensure checks are not being forgotten or accounted for inappropriately.

Causes of Uncashed Checks for the Purposes of Unclaimed Property

The first step in gaining control of uncashed checks for the purposes of unclaimed property reporting is understanding how your company generates checks that do not get cashed. Sometimes an employee, client or vendor simply misplaces a check or fails to cash it for another reason. However, in some cases, what looks like an uncashed check is really just an accounting error. When an error is corrected appropriately, the amount is no longer considered unclaimed property. 

To determine the causes of uncashed checks in your organization, begin by compiling and documenting uncashed checks, wherever they may occur in department financial books or the company's general ledger. Research each uncashed check to determine its source and the reason the check was not cashed.

Locations of Uncashed Checks in Any Organization

Experienced unclaimed property professionals become adept at researching and finding the causes of unclaimed property, including uncashed checks. The number of different reasons for uncashed checks is equal to the many different types of transactions throughout a company. We can't list them all here! However, we can use one department as an example to provide ideas where to look in other departments. We will use the payroll department, since it is the most common originator of uncashed checks.

In a payroll department, this can involve payroll checks, bonus checks, benefit checks, reimbursements and many other types of payments by check. If you are responsible for another department, simply use these examples as clues to help you identify uncashed checks specific to your discipline.

Sources of Uncashed Checks in a Payroll Department

  • An employee quits or is terminated and does not leave a forwarding address.
  • A person is going through a divorce and decides not to cash a payroll check, believing the significant other will not be able to find the money. (Not true.)
  • A current employee moves to a new address and doesn't tell the employer, so checks are sent back from the old address or simply disappear.
  • An employee gets married, changes her name and transfers to another department. Payroll is unaware this is the same person.
  • A payroll check is lost. A new check is issued, and the old check is not voided. The un-voided check now appears to be unclaimed property.

Once the unclaimed property team understands how uncashed checks are generated, policies and procedures can be put into place to prevent or reconcile them. In a payroll department, remedies might include the following:

  • Establish a protocol to obtain secondary addresses from every employee.
  • Ensure employees confirm current addresses or share new addresses during exit interviews.
  • Where possible, set up direct deposit so amounts go directly into the employee's bank account.
  • Eliminate as many uncashed checks as possible by establishing a policy to communicate with employees when a check is outstanding at 30, 60 and 90 days. 

There are many other aspects to the management of uncashed checks and unclaimed property reporting. You and your unclaimed property team can master the challenge of reporting uncashed checks by carefully studying what causes them and correctly reconciling them. 

For more information about unclaimed property and payroll departments, check out the MarketSphere blog titled Abandoned and Unclaimed Property in Payroll: How to Find It.

Topics: Reporting