General Ledger Unclaimed Property

This blog was last updated on September 15, 2021

General ledger is an area all companies, regardless of industry, should monitor for unclaimed property compliance. In this section, general ledger refers to unclaimed property potentially generated from payroll, accounts payable and accounts receivable credit balances. These accounting cycles or functions are present in every organization, therefore it’s important companies explore and review these areas for unclaimed property at least once a year. 

General ledger and payroll 

Payroll has generally become an area of reduced unclaimed property risk as companies are encouraging their employees to enroll in electronic transfers such as direct deposit. While that is the trend, payroll still requires review as it applies to your organization. Consider if payroll processing and issuing occurs in-house from the company owned bank account or if a Third-Party Administrator (TPA) is used for all functions or limited functions. If payroll is in-house, the bank reconciliations and outstanding checks lists need monitoring and aged checks reviewed as potential unclaimed property. There should also be a process in place to handle any rejected electronic transfers, so that the employees can update payment information in a timely manner. The dormancy period of payroll is generally one year with certain states going up to five years, so aged payroll payments can quickly become dormant.  

Payroll function handled by a TPA has its own distinctions for the company to consider depending on how the TPA is being used for—issuing checks or electronic transfers. Determine if there is language within the contract with the TPA that addresses unclaimed property and the party responsible for escheatment. The contract may require updating to add language surrounding escheatment. If the company is responsible for escheatment, pay special attention to how the TPA handles stale-dated checks and returned funds. It is critical to keep detail of the unsuccessful payments as these would potentially become unclaimed property if the obligation were not fulfilled. Ensure there is a process in place to handle funds returned by the TPA.

General ledger accounts payable

Accounts payable unclaimed property typically takes the form of uncashed accounts payable checks, vendors checks, or expense checks issued out of the company owned bank accounts. The volume of potential unclaimed accounts payable checks correlates with the industry and number of unique vendors a company may possess. While there has been an increase in electronic transfers utilized for these payments, this is an area companies should review for unclaimed property. It is vital to confirm review of all cash accounts for aged outstanding checks by identifying the general ledger cash accounts on the trial balances and the underlying bank accounts. This will also help to reduce the risk of gaps in identification of potential unclaimed account payable property. The dormancy period for accounts payable is typically three or five years, depending on the state.

General ledger accounts receivable

Accounts receivable as it relates to unclaimed property is focused on credit balances that are typically created from instances of overpayments by a customer, duplicate payments received for the same invoice, or credits issued for returns. Additional consideration for accounts receivable includes the review of how unapplied cash or unidentified remittances are handled. Potential unclaimed property from credit balances is more prevalent in manufacturing or retail companies versus financial institutions that may have limited or no credit balances from trade receivables. Again, a review of the general ledger accounts receivable to confirm  potential exposure in this area would be prudent regardless of the industry. Identify accounts that hold or will hold credit balances then implement a process to address the occurrence of these credit balances. It is certainly easier to address credit balances closer to creation while both businesses have details regarding the transaction, rather than waiting the length of the dormancy period, typically three or five years, to address the balances.

Some states have provisions in their unclaimed property laws that exempt business-to-business (B2B) transactions from being escheatable to the state once the dormancy period has expired. Certain states have conditions such as the need for an ongoing business relationship to apply the exemptions. While the states may consider credit balances exempt from reporting as unclaimed property, the company still has an obligation to address the credit balance with their customer.  

In summary, while these general ledger property types are relevant to all industries, there are certainly varying degrees of impact to an organization depending on how the different accounting cycles operate. The critical message is to review these areas periodically and ensure a process is in place to address any aged transactions if they arise.