In the ordinary course of business, checks are written and sent to vendors, employees, and other payees. On occasion, checks do not reach their destination, get misplaced, or are forgotten. As a result, these checks do not get cashed. All uncleared checks, including these, are reported as reconciling items on the issuing organization’s bank reconciliations. They cannot, however, remain there indefinitely.
The law requires that unclaimed property, of which the most common are uncashed payroll and vendor checks, be turned over to the state after a certain dormancy period. The Michigan Department of Treasury is the custodian of these assets, from whom owners can claim their rightful assets.
Dormancy periods depend on the nature of the check and the state in which the check was issued and, in most cases, starts on the date the check was issued. In Michigan, the dormancy period for payroll checks is one year. For most other checks, the dormancy period is three years. The Michigan Unclaimed Property Act allows for specific amounts to be excluded from reporting, including wages of $50 or less and non-wages of $25 or less. While these items are not required to be reported, organizations may choose to do so as they are not released from these liabilities and are obligated to honor those checks at the payee’s request.
The State of Michigan requires all organizations to evaluate unclaimed property in their possession as of March 31 each year to determine if any uncashed checks or other items comprising unclaimed property have reached their dormancy period and require reporting to the state. Once properties have been identified, the state recommends that organizations prepare and mail due diligence letters to the property owners by April 15. By May 15, organizations may then determine which property owners have not responded to these letters and begin preparing the annual unclaimed property report, which is required to be submitted to the state on or before July 1.
Property that has reached its applicable dormancy period as of March 31 must be remitted with and reported on Michigan State Form 2011, Michigan Holder Transmittal for Annual Report of Unclaimed Property, along with the appropriate annual reporting forms.
Fines and penalties for failing to report
Organizations that fail to file the required unclaimed property reports may be subject to fines and penalties. Such fines and penalties include civil penalties of $100 per day for each day the report is past due, not exceeding $5,000. Also, a civil penalty of 25 percent of the property’s value that should have been reported and paid may be assessed, in addition to interest charged from the date that the property should have been remitted to the State of Michigan.
While not required to do so, organizations who have determined that they do not have unclaimed property to report are strongly encouraged to file a Zero/Negative Report. Reporting on an annual basis establishes a filing history and documents the organization’s compliance with the Unclaimed Property Act.
Many organizations utilize their bank’s bill pay system that will issue and mail checks to pay vendors on the organization’s behalf. In most instances, these checks will only reduce the organization’s bank balance when the recipient has cashed their check. Checks issued using a bill pay system should be recorded by the organization and tracked as part of the reconciliation process in the same manner as regular checks issued by the organization. The same procedure for reporting unclaimed property to the state would apply.
The state’s website for unclaimed property, https://unclaimedproperty.michigan.gov, provides more detailed information regarding the law, filing requirements, fines and penalties, and voluntary disclosure and should be reviewed for the most up to date reporting requirements annually.