Responding to an unclaimed property audit notice: What to do first
Executive summary
State unclaimed property enforcement activity has intensified in recent years, leading to a notable rise in unclaimed property audits. Although unclaimed property is not a tax, it serves as a meaningful revenue stream for states, which collect and hold these funds on behalf of owners until they are claimed. Because states consistently take in more unclaimed property than they return each year, unclaimed property enforcement remains a financially attractive revenue stream. To further strengthen compliance, many jurisdictions have expanded their enforcement tools, including audits, voluntary disclosure programs and self-review initiatives, resulting in increased scrutiny for holders.
This article explores the current unclaimed property audit landscape and outlines key considerations for responding to an audit notice and reducing risk before an exam is initiated.
Introduction
Unclaimed property refers to liabilities recorded on a company’s books that are owed to another party but remain unclaimed or unresolved for a specified period—known as the dormancy period. The company holding the liability (debtor) is commonly referred to as the ‘holder,’ and the party to whom the liability is owed (creditor) is the ‘owner.’
There are more than a hundred categories of unclaimed property. Common examples include uncashed payroll and vendor checks, accounts receivable credit balances, gift cards, refunds, consumer rebates, stock and dividend-related property and unclaimed mineral interests. In essence, any outstanding obligation owed to a third party can become unclaimed property.
Every U.S. jurisdiction has its own unclaimed property laws that dictate when a liability becomes reportable and must be remitted to the state. Dormancy periods vary by state and property type, but most range from three to five years, with payroll items typically requiring one year. The rules for determining which state has jurisdiction were established by the U.S. Supreme Court in Texas v. New Jersey, 379 U.S. 674 (1965). Under this framework, the state with first priority is the owner’s state of last known address. For example, if a payroll check is issued to an employee with an Illinois address, Illinois would be the state with jurisdiction over that check if it remains uncashed. If the address of the owner is unknown, the liability defaults to the holder’s state of domicile. ‘Domicile’ typically means state of incorporation or formation. States have also expanded the concept of ‘unknown address’ to allow the use of estimates to fill gaps in incomplete records during audits or voluntary disclosures, as well as taking claim to foreign-addressed property.
Audit landscape
Unclaimed property has become a significant revenue source for many states. In Delaware, the Delaware Economic and Financial Advisory Council has indicated Fiscal Year 2025 unclaimed property revenues of over $500 million with claim payments at only approximately $130 million. Meanwhile, Illinois’ Treasurer’s Office has reported receiving over $560 million in cash in Fiscal Year 2025, while only paying out approximately $304 million. This persistent gap between collections and payouts underscores why states continue to increase their focus on enforcement.
Because unclaimed property serves as a non‑tax revenue stream, holders have experienced heightened enforcement activity nationwide. Most states rely on third‑party audit firms, oftentimes compensated on a contingency‑fee basis, to conduct examinations. These firms also maintain contracts with multiple states, meaning that once one jurisdiction initiates an audit, others can easily be invited to join.
Although state‑driven triggers are not always transparent, several factors commonly increase the likelihood of an audit:
What do you do if your business receives an audit notice?
If you receive an audit notice from a jurisdiction, there are a few things that you can do to prepare for the upcoming examination:
Unclaimed property audits may involve a single jurisdiction or can include multiple jurisdictions. Early in the process, confirm the audit’s current scope and participation, including the specific jurisdictions involved and the effective periods under review. Because scope can change over time and communications may arrive through multiple channels, make it a priority to centralize audit correspondence and maintain a clear record of all correspondence and authorization letters received.
As the audit proceeds, the auditor will typically request information to determine which property types and legal entities will fall within scope of the review. To stay ahead, outline your likely areas of exposure based on your business operations, reporting history and identify where supporting records are maintained. This allows internal teams to prioritize early research and assemble relevant records before formal document requests become time-sensitive.
Start by confirming what historical records exist for the periods under review and how quickly they can be retrieved. Consider major system or process changes and your retention practices so you have a realistic view of what you can produce.
Expect requests for supporting materials that reconcile general ledger balances and activity back to source data. Plan to provide information in a consistent format and be prepared to explain how it was generated.
Finally, assess whether your records are detailed enough to research items, explain their status and document resolution. Where data sources do not fully align or older support is limited, document those limitations, align internally on a consistent explanation, and involve the right stakeholders before producing large volumes of information.
If some periods have limited or incomplete records, the audit process may involve estimation to address those gaps. In some cases, management may be asked to confirm record availability through a signed management representation letter, so document your assessment carefully and ensure it is internally reviewed.
To effectively prepare for an audit, it is essential to collaborate with all departments that may generate or manage unclaimed property and understand both their current and historical procedures. As you map these processes, look for areas where items may be cleared, reclassified or closed without a clear audit trail showing how the underlying obligation was resolved, and document your findings so you can address questions consistently.
Pay particular attention to how outstanding payments and credits are managed over time (for example, aging, voiding/reissuing, outreach, escheatment decision points and documentation standards). Confirm who owns each step, what triggers follow‑up and what evidence is retained to support resolution. Where practices vary by business unit, system or time period, capture those differences and consider whether additional controls or documentation would reduce audit risk.
Reducing risk before an audit notice
If you have not yet received an unclaimed property audit notice, there are several proactive measures available to assess your risk and strengthen your readiness.
Takeaways
Unclaimed property compliance is no longer a low priority back‑office administrative task. It has become a critical governance priority in an era of heightened state scrutiny and aggressive audit activity. By understanding your risk profile, strengthening documentation practices and proactively addressing gaps before an auditor does, companies can significantly lessen the operational and financial impacts of an audit. Whether preparing for a newly issued notice or fortifying compliance programs before one arrives, thoughtful planning and informed action are essential.
For more information about RSM US’ unclaimed property services or further insights, visit the RSM Unclaimed Property page.