Millions of dollars in unclaimed property are sitting on the table — creating liabilities many businesses do not even realize they have.
Unclaimed property, or escheat, refers to assets that are not claimed by their rightful owners. All U.S. states have laws governing how this property must be identified, reported, and remitted to state authorities. The state will hold the property and safeguard it until the rightful owner comes forward to claim it.
Unclaimed funds are rarely the result of a single broken process or failure in a system. They develop over time because books and records are not kept up to date to catch and correct them. Unclaimed property generally goes unnoticed on a company’s books until it has accumulated significantly and gets challenged by authorities.
Under state laws, unreported credits about unclaimed property carry consequences, including interest on overdue amounts, penalties for late or non-filing, and in some states, additional fines for willful non-compliance.
Unclaimed property can become a compliance issue in any industry but is especially prevalent in the complex healthcare industry where it can be created via common, everyday transactions. Multiple payers are regularly involved in every claim, outdated contracts are not updated, payments are misapplied, and insurance balances are often adjusted. All these factors create overpayments that can linger on the books without resolution.
To illustrate with an example, if a patient in a healthcare facility pays out-of-pocket, their insurance may reimburse at a higher rate than expected. A credit must be created, and a refund check is mailed out. But what if the check is returned as “undeliverable?” The patient may have relocated, passed away, or simply never cashed the check. Situations like these can compound, and reimbursements and credits can sit on an organization’s books indefinitely. Multiply a scenario like this across thousands of accounts, and the financial and regulatory exposure adds up quickly.
High Stakes
The healthcare industry has drawn heightened attention from multistate audits in recent years, partly due to consolidation, mergers, and private equity activity that complicates financial records and makes ownership of funds harder to trace. In recent years, states have significantly stepped up enforcement efforts, with the goal of both increasing compliance and accessing the revenue that recovered funds generate. Many organizations only learn they are under scrutiny when an audit notice arrives in the mail.
Recent enforcement actions in California illustrate the risks of noncompliance. U.S. Healthworks, a CA healthcare provider, reached a $7.7 million settlement with the state over its failure to properly report and remit unclaimed patient funds. The case focused on patient refund checks, mostly originating from insurance overpayments, that had been returned undelivered or left uncashed. Those balances were never reported or forwarded to the state’s unclaimed property program as per the law.
How an Audit Unfolds
For organizations that have never been through an unclaimed property audit, the process can seem obscure. Audits are typically conducted by third-party audit firms contracted by the state. They often work on a contingency fee basis, where the auditor’s compensation is directly tied to how much they recover- so auditors have a financial incentive to scrutinize deeply.
During an examination, auditors request detailed records to identify potential unreported property. They review outstanding checks, dormant account balances, credit memos, and other records to determine what should have been reported to the state and when. The process typically concludes with negotiations over the scope of liability, followed by the remittance of any funds owed.
What Organizations Should Do Now
A few fundamental steps can prevent unclaimed property exposure. Organizations should build periodic reviews into their internal controls and regularly check their records for old, unused credits. They should be aware of their state’s legal reporting deadlines and make it a policy to return credit balances to patients quickly to avoid unexpected legal or financial problems.
States have relief programs, or Voluntary Disclosure Agreements (VDAs), that allow a holder to come forward, limit the lookback period, and reduce or waive penalties in exchange for compliance. The process is usually handled directly with the state’s unclaimed property administrator or treasury department. The Unclaimed Property Professionals Organization (UPPO) and the National Association of Unclaimed Property Administrators (NAUPA) can also be helpful. Businesses should confer with their accounting professional to determine if these resources are appropriate options for their individual needs.
The Risk Is Bigger Than It Looks
A common misconception about most regulatory compliance issues is that small balances don’t matter; this is simply not true. State laws do not exempt minor amounts, and when auditors calculate liability, they can turn a modest compliance gap into a significant financial exposure. Meanwhile, legal fees, staff hours, and the operational burden of an extended audit can drive the total cost much higher. Assessments can reach millions of dollars even before factoring in interest and penalties.
Unclaimed property compliance will never be the most crucial item on a healthcare organization’s agenda, but as states continue to ramp up enforcement, ignoring it is a realistic risk and potential liability.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
