Escheatment

Escheatment

Escheatment refers to the legal requirement mandating organizations report and transfer unclaimed financial assets to state governments after a defined period of inactivity. Treasury and payments teams frequently encounter these situations through uncashed vendor checks, customer refunds, payroll payments and other outstanding funds.

Because escheatment laws vary by state and carry potential penalties for noncompliance, organizations must maintain clear processes for identifying, researching and reporting unclaimed property. Clear and effective policies and payment controls help ensure compliance while minimizing operational and audit risk.

Below is an overview of escheatment, based on the AFP Enterprise Payments Virtual Series session, “Payments Policies and Escheatment: Making Critical Updates,” delivered by Barbara Carpenter, A/R Consultant for Motion & Control Enterprises.

What is escheatment?

Escheatment is the legal process whereby unclaimed financial assets — belonging to customers, vendors or employees — are transferred from an organization to a state government after a specified period of inactivity known as the dormancy period. This process is governed by state law.

Companies act as “holders” of the property until the dormancy period ends. Then they are responsible for identifying, reporting and remitting unclaimed property to the state. The state holds the assets until the rightful owner claims them. Individuals and organizations can search for unclaimed property through the public databases maintained by state governments.

What is unclaimed property?

While the term “escheatment” refers to the legal process of turning property over to the state, unclaimed property refers to the assets themselves. Unclaimed property can take many forms, including:

  • Uncashed vendor checks
  • Uncashed payroll checks
  • Customer refunds or credits
  • Rebates or promotional payments
  • Customer deposits or down payments
  • Unused gift cards or certificates
  • Stock or dividend payments
  • Dormant bank accounts

Most unclaimed property laws in the United States are governed by state regulations, and each state defines its own dormancy periods, reporting requirements and filing formats. For treasury and payments teams, this means compliance often involves coordinating reporting across multiple states, depending on where the property owner is located.

Why escheatment compliance matters for treasury and payments teams

As transaction volumes grow, payment methods expand and states increase enforcement activity, escheatment compliance has become more complex. Organizations with outdated payment policies or inconsistent processes face several risks, including:

  • Financial penalties and audit exposure: Failure to comply with unclaimed property regulations can result in penalties, interest charges and audit findings. In some cases, the penalties assessed by states can exceed the value of the unclaimed property itself. States may also review historical records during audits, sometimes looking back 10 to 15 years when investigating compliance issues.
  • Operational inefficiencies: Without clear processes for identifying and resolving unclaimed funds, organizations may spend significant time researching outstanding payments, reconciling records and responding to audit requests.
  • Customer and vendor experience: Unresolved credits or uncashed payments can create confusion or frustration for customers, vendors or employees. Strong processes help ensure legitimate payments reach the intended recipients before the property must be turned over to the state.

Process for resolving uncashed checks

Uncashed checks are among the most common sources of unclaimed property. Organizations should establish a structured process to identify and resolve these items before they reach the dormancy threshold. Common reasons checks go uncashed include:

  • Address changes or outdated contact information
  • Deceased recipients
  • Internal processing errors
  • Vendor or customer inactivity
  • Incorrect payee or address information

To resolve uncashed checks, follow this process recommended by Carpenter:

  1. Identify outstanding items: Finance teams regularly review outstanding checks during bank reconciliations and payment monitoring processes.
  2. Research ownership: The organization confirms the payee’s identity, payment history and contact information using internal records or vendor/customer data.
  3. Attempt resolution: If the payee can be located, the organization may contact the owner to confirm the payment or reissue the check if appropriate.
  4. Perform due diligence: Most states require organizations to make a good-faith effort to notify the owner before reporting the property. This often involves sending written notice within a specified timeframe before the reporting deadline.
  5. Report and remit: If the owner cannot be located or does not respond, the organization must report the property to the state and transfer the funds according to that state’s reporting schedule. Maintaining documentation throughout this process is essential, especially if the organization is later subject to an audit.

Complying with state escheatment laws

One of the biggest challenges in escheatment compliance is the fact that each state has its own rules and reporting requirements. Organizations may need to comply with:

  • Different dormancy periods
  • Different reporting deadlines
  • State-specific reporting formats and portals
  • Varying due diligence notification requirements

In most cases, unclaimed property is reported to the state of the owner’s last known address. If the owner’s address cannot be determined, the property may instead be reported to the company’s state of incorporation.

Because reporting requirements vary by state, organizations often maintain a compliance calendar to track reporting deadlines and due diligence notification periods. Maintaining good communication with state agencies and responding quickly to inquiries can help reduce audit risk and resolve reporting questions more efficiently.

“Being proactive and organized goes a long way in managing these inquiries and examinations,” said Carpenter.

Updating payments policies for escheatment compliance

Because escheatment often arises from routine payment activity — such as vendor payments, customer refunds or payroll checks — the policies governing payment issuance and reconciliation should address how outstanding items are monitored and resolved.

In many organizations, escheatment compliance breaks down because policies are incomplete, outdated or unclear about ownership. When responsibilities are spread across treasury, accounts payable, accounts receivable and legal teams, unresolved payments can fall through operational gaps.

“Strong policies and consistent processes are your best defense against unclaimed property risk,” said Carpenter.

A strong payments policy documents the full lifecycle of a payment, including:

  • How payments are issued
  • How outstanding payments are monitored and researched
  • Which department owns the process for investigating uncashed checks
  • How due diligence and escheatment requirements are handled

Common policy gaps

Even organizations with established payment policies often encounter compliance issues when policies do not reflect current operations. “Many organizations have policies, but they're incomplete or outdated,” said Carpenter.

Common gaps include:

  • Outdated policy documentation that does not reflect current payment methods or regulations
  • Unclear ownership of unclaimed property processes across departments
  • Inconsistent procedures for handling uncashed checks or outstanding credits
  • Limited monitoring of dormant payments before dormancy thresholds are reached

These gaps frequently become visible during audits, when organizations must demonstrate how outstanding payments were tracked, researched and resolved.

Best practices for policy updates

Organizations can strengthen compliance by periodically reviewing and updating their payment policies to reflect current regulations and operational practices. Effective policy updates often include:

  • Documenting the full payment lifecycle and related controls
  • Assigning clear ownership and escalation paths across departments
  • Standardizing workflows for monitoring and resolving outstanding payments
  • Aligning policies with current state escheatment regulations
  • Establishing a regular policy review schedule, such as an annual compliance review

By strengthening payment policies and defining clear responsibilities, organizations can improve visibility into outstanding payments, reduce compliance risk and ensure unclaimed property requirements are handled consistently.

Escheatment FAQs

Who is responsible for unclaimed property reporting at a company?
Responsibility for unclaimed property reporting varies by organization. In many companies, treasury oversees the overall process because it has visibility over payment flows, bank reconciliation and cash reporting.

However, other departments often play important roles. Examples include:

  • Accounts payable: Monitoring vendor payments and uncashed checks
  • Accounts receivable: Managing customer credits or refunds
  • Payroll or HR: Tracking uncashed employee payments
  • Legal or compliance: Ensuring regulatory requirements are met

Because responsibilities may span multiple departments, organizations typically assign a central owner — often treasury or accounting — to coordinate the reporting process.

How long before unclaimed property must be reported to the state?
Dormancy periods vary by state and by type of property, but they commonly range from one to five years after the last owner activity.

What happens after unclaimed property is reported?
Once the unclaimed property is remitted, the state holds the funds until the rightful owner submits a claim through the state’s unclaimed property program.

Escheatment resources for treasury and payments teams

Unclaimed Property Checklist (AFP members-only tool)
This checklist provides a structured framework for identifying potential unclaimed property exposure and documenting compliance activities.

AFP and Zanders: Expert Guidance on Developing Effective Treasury Policies
Developed in collaboration with Zanders, this resource includes guidance and templates for creating comprehensive treasury policies, including a payment management policy template that can support escheatment compliance.