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Identifying Records for Unclaimed Property Review, Part I

Posted By Administration, Thursday, July 30, 2020

When trying to identify outstanding unclaimed property obligations, property holders should conduct a periodic review of areas where potential exposure lies. To help ensure that all potential property types and sources are being captured in the unclaimed property review process, examine trial balances, general ledger and bank statements.


Bank Accounts

The review should identify all open and closed bank accounts used to distribute checks and electronic payments. For open accounts, verify that outstanding checks associated with the accounts are being captured in the unclaimed property procedures. Review closed accounts to determine the resolution of outstanding items. Examine voids to ensure they are well-supported and not being issued to circumvent unclaimed property. 


General Ledger Accounts

Review general ledger accounts to identify accounts that have been established to capture unknown, unreconciled, write-off or suspense balances. If accounts are noted in the system, conduct additional research to verify whether the balances represent unclaimed property.


Uncashed and Voided Checks

Looking at uncashed checks is intrinsic to every unclaimed property review. Research checks outstanding more than 180 days to determine whether the funds remain due and payable to the payee. If the distribution is still owed, confirm payee name and address and conduct outreach to contact the payee about the status of the outstanding check. If the payee lost or destroyed the original check, void the original issuance and reissue payment. Always maintain notes pertaining to the reissuance in the accounting records, along with the date the reissued check cleared.


Review transactions voided greater than 90 days from issuance to verify that the reason for the void is documented in the accounting records and not simply because it was outstanding and not cashed.


Checks issued by third parties on behalf of the holder can create unclaimed property exposure for a company if responsibilities are not well-defined. Review third-party contracts to verify the duties are clearly outlined and documented, and those responsibilities are executed based on the contract terms. If the third party is reporting on the company’s behalf, request and maintain copies of the unclaimed property reports, detail of the reported property, and all associated payments and remittances to the state. Ultimate responsibility for the outstanding checks tends to fall back on the company unless adequate supporting documentation can be produced.


Credit Balances

Accounts receivable credit balances tend to be one of the most complicated accounting types in unclaimed property as a result of states holding various positions regarding when or if property is deemed reportable. In some states, accounts receivable credit balances are not reportable while there is an active relationship with the customer, but the state may not provide a thorough explanation of what constitutes an active relationship. Other states consider all credits as potential unclaimed property, no matter the account relationship, and want the holder to confirm that the customer is aware of the credit and has the opportunity to use it.   


Most states also allow credits owed to a customer to be offset by balances owed to the company, but they have to be for the same customer. For example, a company cannot take Jim’s credit balance to pay Mary’s bad debt. Debits due from the customer that were written off to bad debt during the same time period can be used to offset the credit balance write-offs. 


When conducting an analysis of the accounts receivable transactions that are potentially escheatable, look at transactions that may no longer be included in the receivables account. For example, such transactions may include credits that were reclassed out of accounts receivable and into accounts payable because they were refunded to the payee. The process should include reviewing reports that contain any unresolved credits that were reclassified out of the receivables account. 


The holder should review the general ledger detail to identify any credit balances that were reclassified because these transactions may represent unclaimed property. The states do not accept write-offs to income as sufficient to remove the credit balance and, therefore, prevent the credit balance from being escheated to the state as unclaimed property.


Unapplied Cash Detail

Review the unapplied cash detail, also commonly referenced as an unidentified remittance, to identify any receipts that are stale-dated and have not yet been applied to a customer’s invoice to offset the credit. The determination of when the transaction is stale-dated may vary by state. The unapplied cash detail analysis may not be applicable if the holder maintains unapplied cash on the accounts receivable aging reports. In that case, review the aging reports on a regular basis.


Next week’s UPPO Unclaimed Property Focus blog post will discuss additional records to examine for potential unclaimed property.

Tags:  records  unclaimed property 

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