2 Ways to Stop Escheatment Headaches

Ask any government agency’s finance team about their biggest challenges, and the words “unclaimed property” and “escheatment” are likely to top the list. These terms represent a massive, ongoing problem — one that consumes time, resources, and creates inefficiencies that can feel like an unending cycle.

In this blog post, we will explore what escheatment is, how it happens, and steps your agency can take to streamline disbursements, making escheatment a less painful process to manage.

Why Don’t Residents Cash Checks?

One of the primary causes of unclaimed property is uncashed checks, but why do people fail to cash them? The reasons are varied and often situational.

• Some residents don’t have a fixed address or move frequently, which makes it difficult to receive checks by mail. 
• Others might be part of the unbanked population, meaning they don’t have a checking account into which they can deposit a check. 
• Some banks won’t cash a check if the person presenting the check is not a customer of the institution.
• Checks can also get lost in the mail or misplaced at home, or in some cases, the amount on the check is so small the recipient doesn’t feel it’s worth the effort to deposit it.

Regardless of the reason, the result is the same: the check remains uncashed, eventually turning into unclaimed property.

What Happens When a Check Goes Uncashed?

When a resident fails to cash a check, the process for a government agency becomes more complicated. The unclaimed funds eventually lead to escheatment, the legal process by which the state claims ownership of unclaimed property. Before this happens, however, your accounting team must spend time attempting to track down the recipient’s current address and send notifications of pending submission to the state — tasks that  are both labor-intensive and time-consuming.

Additionally, your team may have to cancel the original check and issue a new one, which incurs further costs in terms of bank fees, check stock, printer ink, envelopes, postage, and labor. What started as a simple payment turns into a complex administrative task, burdening your agency’s resources.

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Unclaimed Property in the United States

The issue of unclaimed property is not confined to a few isolated cases; it is a widespread problem in the United States. According to the National Association of Unclaimed Property Administrators, over $5 billion in unclaimed property is escheated each year. Approximately one in seven Americans has unclaimed property waiting for them, much of which stems from uncashed checks.

After a designated dormancy period — during which there is no activity or contact — the property becomes legally classified as “unclaimed” and must be turned over to the state. This ongoing issue reflects the inefficiencies many government agencies face when handling disbursements.

Why Does Escheatment Matter?

Escheatment is more than an administrative burden; it’s a drain on time and resources. For government agencies, the process of managing unclaimed property requires significant manpower, as accounting and finance teams must dedicate time to tracking down individuals, canceling checks, and reissuing payments. This creates reconciliation headaches, as unclaimed checks linger on the books and complicate the process of closing out financial accounts.

Moreover, when unclaimed property is turned over to the state treasurer's office, the inefficiency continues as yet another layer of bureaucracy is added to the process of managing and tracking unclaimed funds.

Do Something About It: Best Practices for Reducing Escheatment

While it may be impossible to eliminate escheatment entirely, there are proactive steps your agency can take to significantly reduce its impact.

Best Practice #1: Rethink the Way Your Agency Issues Paper Checks

One of the most effective ways to minimize escheatment is to rethink how paper checks are managed from the beginning of the disbursement workflow. 

Checks are expensive and inefficient, with the average cost to issue a commercial check coming in at $7.78 — and in some cases, the cost can be as high as $20.00. Checks also involve multiple touchpoints that increase the chances of failure, from getting lost in the mail to being accidentally discarded by the recipient.

One way government agencies are reimagining the check-writing process is via managed disbursements. Here’s how it works:

No matter the payment preference, the disbursement process is exactly the same for your agency. Recipients are paid how they want to be paid, whether that’s by check, ACH, PayPal^®, Venmo^®, or another method. 

By outsourcing check-issuing to a trusted third party, your agency benefits from a disbursements process that is faster, more secure, and more efficient. And best of all? If a check is returned or uncashed, your office isn’t burdened with managing escheatment.

Best Practice #2: Transition to Digital Disbursements

Digital disbursements are a powerful alternative that can streamline the payment process, and have transformed how governments pay residents, allowing payments to be made faster and at a much lower cost than issuing paper checks.

Electronic disbursements dramatically reduce check fraud risk, unclaimed property, lengthy reconciliations, escheatment, and cash handling.

In some instances, issuing funds on a debit card can also make sense. Card issuance offers all the same benefits as a digital disbursement, but with the addition of a pre-paid debit card. Residents, including the unbanked, will be able to use their funds immediately, avoid check-cashing fees, and turn the card on and off if stolen or misplaced. 

This digital approach leads to higher claim rates, significantly reducing the likelihood of unclaimed property. As more residents receive their funds promptly, the need for end-of-year escheatment diminishes, and bank account reconciliation becomes a much smoother process.

Mohave County, Arizona’s Success Story

One county that has successfully reduced escheatment is Mohave County in Arizona. In 2019, the Mohave County Superior Court made a pivotal decision to change how it handled juror payments. As Christina Spurlock, the clerk of court, explained, “We’re pretty proactive in improving how things are done, and we try to be very fiscally responsible with our budgets. Juror payments seemed like an area we could make more efficient and cut down on costs.”

The decision to transition from paper checks to electronic disbursements came after years of frustration with the escheatment process. Spurlock described the difficulties her team faced in tracking down uncashed checks at the end of each year. “We would see there were hundreds of checks that had never been cashed. So, we would have to send letters to those people notifying them they hadn’t cashed their checks and asking if they still had the originals and, if not, how to get them new ones.”

Switching to digital disbursements has made the escheatment process obsolete for the county. “This past escheatment process was the last one since we no longer have any checks left to track,” Spurlock noted. The change has saved the county significant time and resources, making the switch an obvious success.

Say Goodbye to Escheatment

Escheatment may seem like an unavoidable issue for government agencies, but it doesn’t have to be such a significant drain on resources. By understanding the root causes of unclaimed property and adopting best practices such as managed disbursements, digital disbursements, and card issuance, your agency can drastically reduce the burden of unclaimed property and escheatment.