For years now, we’ve been hearing that checks are going away. However, they still represent approximately 14 billion in volume with a value close to $26 trillion, according to the 2019 Federal Reserve Payments Study.
Checks don’t age well and are more likely to go unclaimed than electronic payments, resulting in escheatment, the process of reporting and remitting unclaimed property to the state. Escheatment is a compliance headache for most organizations and checks are front and center. There is tremendous opportunity to improve how unclaimed checks are managed and potentially escheated to the applicable state.
It is estimated that only 10-20% of companies are in full compliance with the various escheatment requirements due to all the complex state regulations surrounding them. With 55 jurisdictions having laws that require unclaimed property reporting, there is no way to avoid the costs of tracking and processing escheatable items, but there are ways to contain them. Most uncashed checks are for small amounts – small enough for the rightful owner to lose sight of them – but large enough to become a big headache for the companies that need to account for them. Recent advances have allowed for the automation of some parts of the escheatment process, with more on the way.
Automation can decrease the time, energy and money spent processing escheatment, and through increased visibility and digitizing the claims process, may even be able to speed up the process of identifying and returning some of that money to its rightful owners before it becomes escheatable.
State governments have the right to take ownership of unclaimed funds based on specific laws and practices built around this escheatment process. In essence, if a business makes payments that go uncashed or holds money in accounts that go untouched, it’s responsible for escheatment.
And the cost of escheatment can grow quickly because it’s tied to the number of possible properties rather than the value of them. It typically costs just as much to process an unclaimed payment of $5 as it does for $500 or $5,000. And if the property is not escheated, significant fines and penalties can be levied by the state that date back several years.
Add a patchwork of laws that vary from state to state and rules that even vary by property type, and the costs continue to mount. Yet with states facing increasing economic pressure as they emerge from COVID, the focus on escheatment compliance is likely to grow in the coming years.
Worse yet, the time and effort spent on escheatment is work that creates no true value. After all, the money identified during the process is either returned to its rightful owner or turned over to the state. However, doing it more efficiently can at least cut down some of the costs. And new technologies available because of improvements in smart devices and digitization of payments can do that considerably.
Few accounting processes are more manual and time-consuming than escheatment. Just ask Becky Stephens, Assistant Vice President in Business Project Analytics at U.S. Bank, who has worked in escheatment for 20 years.
“The first reporting that I was engaged in required us to obtain a list of outstanding checks from our Account Reconciliation Package (ARP) group and manually keying that information into the reporting software,” she says. “There was no integration with other systems, and nothing was automated.”
Whether working with outstanding checks or deposit accounts, the only technology involved was the reporting software. All of the information was hand keyed.
“We had to manually close out everything,” she says. “If we wanted to close out the deposit account, we had to go into our online transaction system and debit the funds from every account one at a time using an online transaction application or general ledger ticket. Now, all of those things are automated.”
Other pieces of the escheatment process that are ripe for additional automation include:
While some pieces of the puzzle still require manual labor and personal attention, it’s a far cry from the way things were when Stephens started.
“The automated escheat solution that has been developed internally here at the bank for our clients brings much needed automation to escheatment processing. Tracking and monitoring payments has always proven to be time consuming and tedious. This is an area that still requires much manual intervention to be compliant with escheat reporting. I’m very impressed with the automated solution being presented by this team,” says Stephens.
With so many steps and processes involved in escheatment, the next phase of modernization is creating a wholistic application, rather than using stand-alone systems to accomplish those goals. Linking escheatment to a digital treasury management platform can create a fully integrated workflow with automated processes and the benefits of end-to-end visibility.
“As a bank, we are uniquely positioned to offer a better, more automated experience to our clients for escheatment services. We can meet them where they are along their digital journey as they migrate to more electronic forms of payment,” says Marck Dorvil, Senior Vice President of Treasury Management Product Development at U.S. Bank, whose team is responsible for bringing new and innovative products in the market. “Until the day comes where all payments are electronic, we are here to help our clients every step of the way.”
Imagine a system where uncashed checks were automatically identified and processed as they aged, following the rules of the individual applicable jurisdiction, right up until the time the money was either delivered to its rightful owner or turned over to the respective government entity.
Larry Andretich, Vice President of Treasury Management at U.S. Bank and a member of Dorvil’s team, is working on the automated escheatment solution that delivers those end-to-end results. He sees advantages for any company that deals with unclaimed property, but highlights obvious benefits for public utilities, commercial real estate entities and health care companies that often deal with stale deposits or small overpayments on accounts. According to Andretich, “the new solution will be integrated, automated, and exception-based.”
“Integrating the application with our Check Disbursement Services and the behind the scenes operations creates the opportunities for automation and exceptions-based handling of only critical items requiring review. This full end-to-end system truly provides a virtually hands-off approach to managing unclaimed property,” says Andretich.
The entire process will be automated, with full end-to-end visibility in the user interface. The new service will do all the heavy lifting in terms of liability analysis, due diligence mailing, managing the responses and filing the state reports.
“Taking an integrated approach to the escheatment solution will allow clients to take advantage of all our Check Disbursement services including account reconciliation, check fraud prevention and access to check images for research,” says Michele Johnson, Vice President of Core Payables at U.S. Bank, whose team will manage the new escheatment solution. “Clients can also choose to outsource their check printing and mailing process to the bank, completely automating their check disbursements from print to escheatment.”
Beyond the increased efficiency and cost savings, the most exciting opportunity of end-to-end automation is the ability to shorten, or even eliminate the escheatment cycle for some payments.
“We're also going to create some unique tools within the due diligence letter,” Andretich says. “We’ll have a QR code so when the person who didn’t cash the $2.50 check because it was too much effort to get it to their bank, or lost or misplaced the item gets their letter, they’ll be able to scan the QR code with their phone. It will take them to a web page that will ask them to validate their identity and give them the option to get paid via Zelle® or ACH.”
In other words, automating escheatment makes it smoother and easier for all parties attached to the unclaimed property.
Contact us to learn more about how automation could make escheatment more efficient and effective.