How to Keep Voided Checks from Becoming an Unclaimed Property Liability

May 9, 2016

In an unclaimed property audit, your assigned auditor will be looking for clues that might indicate pockets of unclaimed property—in many cases, processes your organization has not thoroughly cleared of stale dated items. Voided checks are one of the trails auditors commonly follow to find indications that you may not be processing stale dated items correctly.

Fortunately, it’s fairly easy to keep voided checks from becoming an area of the unclaimed property audit that results in inflated assessments.

Unclaimed Property Best Practices for Voided Checks

The first step simply is to become aware that voided checks could be tagged as unclaimed property by an auditor. Your staff may believe a voided check can’t be considered unclaimed property. But voided checks still can be included in unclaimed property assessments, depending on how they were resolved and how well the void was documented. Ultimately, unresolved voided checks can prompt an auditor to investigate further, which could lead to discovery of other issues and further increase assessments.

Generally, audit problems related to voided checks can be avoided by maintaining proper void procedures and adequate documentation. To keep voids out of audit considerations, make sure:

  1. Checks are voided for appropriate causes.
  2. There is solid evidence that supports the resolution of the underlying obligation

In an auditor’s view, appropriate causes for voiding a check include:

  • The obligation has been included in another payment
  • The obligation has been settled via another medium; e.g., a wire has been sent in place of the check
  • The obligation can be proven never to have been owed
  • The check was accidentally written to the wrong address
  • The check was written for the wrong amount

What kinds of voided checks are NOT accepted by an auditor as having resolved the unclaimed property? Any voided check connected with a true remaining stale dated obligation. And any check for which resolution can’t be proven with solid evidence!

How to Research and Resolve Voided Checks for the Purposes of Unclaimed Property

There is only one way to make it clear to an auditor that voided checks should not be a factor in an unclaimed property audit: demonstrate well-defined, formal company void procedures, faithfully follow your own rules for voided checks, and ensure any test of your records will not show improperly handled voids.

To test your records:

  1. Determine a consistent cutoff date for researching voided checks. It can be whatever you want it to be to fit into your records processing schedule, as long as you use the same procedure for all records—and as long as the cutoff meshes with your timetable for unclaimed property reporting. Your established cutoff date must be documented in a procedures manual or process memo.
  2. Provide a method for tracking the reasons any given check was voided, as well as the path the obligation followed, from original transaction to the void, including any reissued check. This might include noting all applicable account numbers, listing invoice numbers on records, recording dates a check was first logged and the date it cleared the bank, recording any varying amounts/splits, entering explanations in contact record notes, etc.
  3. Instead of simply gathering data, think in terms of the story behind the transaction. How did the obligation begin? What happened next? What issues arose in the process of resolving the obligation? How was it ultimately resolved? Make sure your procedures efficiently capture documentation for each step of the process.

Overall, in the event of an audit, you need to be able to create a complete picture of how any transaction progressed through all stages up to resolution. An auditor will research records from beginning to end, so you should, too. To ensure your company comes out on the positive side of an unclaimed property auditor’s research, test your own records, find the gaps and resolve them.

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