Run a Dormancy Check Before a State Unclaimed-Property Audit Finds It for You

The Signal

A distributor I know ran an internal cleanup project last year and found something nobody had looked at in a decade: eleven thousand dollars in vendor checks that had never been cashed, some from vendors who'd gone out of business, some from vendors who'd simply lost the check in the mail and never followed up. The bookkeeper had been voiding and reissuing a handful of them each year, but most just sat in outstanding-check limbo on the bank reconciliation, quietly aging. Nobody had asked the actual question: after a check sits uncashed for years, whose money is it?

The answer surprised the owner. It isn't the business's money anymore, and it hasn't been for a while. Every state has unclaimed-property law that applies to businesses, not just banks and insurance companies, and it covers more than old checks — uncashed payroll, unused store credit, unapplied customer deposits, and credit balances on vendor accounts all qualify. After a dormancy period that varies by state and property type, the business is required to attempt to locate the owner, then report and remit whatever it can't return.

Why this matters now

States have gotten more serious about enforcement, not less, and a growing share of audits are run by third-party contract auditors paid on a percentage of what they recover. That arrangement means the auditor has no incentive to interpret a gray-area balance in the business's favor, and it means audits increasingly reach back further and across more states than businesses expect. A company that has never run a formal unclaimed-property review usually has more exposure sitting in its own books than the owner realizes, because the balances that trigger an audit are the ones nobody has looked at recently.

The mistake to avoid

The common mistake is treating old outstanding checks as a bookkeeping nuisance instead of a compliance obligation. A business writes off a stale check to other income, or just lets it ride in the outstanding-items list on the bank rec year after year, assuming that if the vendor wanted the money they'd ask for it. Neither response satisfies the actual requirement. Writing it off as income doesn't make the liability disappear — it just means the money was never reported when it should have been, and the clock on exposure keeps running. The property doesn't become the business's money through neglect; it becomes a reporting failure.

The dormancy and due-diligence check

Pull every outstanding check, unused credit, and customer deposit still on the books after 90 days and separate them by type and age, since dormancy periods differ by property type and by state — typically one to five years, with payroll checks often shorter than vendor checks. For anything approaching or past the dormancy threshold in the applicable state, confirm whether a due-diligence letter was sent to the last known address before the reporting deadline, since most states require a documented attempt to contact the owner before the property can be reported as unclaimed. If no letter went out and no reporting ever happened, that gap is the actual exposure, not the dollar amount sitting on the books today.

What stays protected

This isn't a reason to start writing checks to every name on an aged list without verification — a genuinely disputed balance, a check already replaced, or a credit already applied elsewhere shouldn't get swept into a report by mistake. The fix is accurate classification, not blanket write-offs or blanket remittance. Keep the normal AP and credit-memo process intact for anything still active and reconcilable; the review only needs to isolate the balances that are genuinely stale and ownerless.

The first move

This week, export every outstanding check, unapplied credit, and customer deposit still open after 90 days, and sort the list by age and property type. Don't report or remit anything yet — the goal is an honest inventory of how much aged, unreconciled balance the business is actually carrying before deciding what's dormant and what isn't.

The move this week

For anything that looks dormant under your state's rules, confirm the last communication attempt on file and, where one doesn't exist, get your CPA or a compliance advisor to walk you through the state's required due-diligence and reporting process before the next filing deadline. Reporting what's genuinely unclaimed on your own schedule is a routine filing. Finding it during a contingency-fee audit, with interest and penalties attached, is not.