The goal of an effective unclaimed property compliance environment is to ensure you are not under-escheating or over-escheating, and do it in the most cost-effective way possible. There is no aspect of unclaimed property where this is more important than during an abandoned and unclaimed property audit. Holders have many tools at their disposal to ensure fair assessment during an audit.
Even before an audit starts, holders can affect limits on final audit assessments by building audit defense strategies into recordkeeping and finance controls, as well as completing a pre-audit assessment and mitigating problems with records. The reason this is so important is that clear, accurate records reduce the likelihood auditors will keep researching and stretching to find more unclaimed property they can force into audit assessments.
Another important principle to limit unclaimed property audit findings is to define the scope of the audit in the beginning and document the agreed-upon scope. Auditors may not offer this by default. You may have to insist upon it. This helps define when the audit is over and limits expansion of the audit — especially when it comes to inviting other states to participate.
Voluntary Disclosure Agreements (VDAs) are a bit different. When a VDA is in force, the holder completes a self-audit of its own books and records, using each state’s specific guidelines (found in state enrollment forms). During the application process, the holder works with the state to describe any record limitations and the scope of the review.
At the end of the audit or VDA examination, you should ask for an agreement that closes transaction years audited plus all prior years, all entities reviewed and all property types where unclaimed property was reviewed. Unfortunately, it can be very difficult to obtain this type of agreement. Even those states that sign agreements often are unwilling to make changes to their standard language, which tends to release a holder only from property paid.
What to ask for in unclaimed property audit closure
If you are allowed a closing agreement, make sure it is as broad as possible to rule out as many areas of future assessment as possible. If you're unsure how to go about asking for a closing agreement, or what to ask for, engage with a professional unclaimed property advisor for assistance.
Unclaimed property audits are complex
Every audit is different and the process tends to be cumbersome, with many layers of compliance to consider. Closing an audit often involves negotiations that lead to offers, settlements or compromises. To receive the fairest and most reasonable results possible in an unclaimed property audit, many holders engage the services of an advocate who has been through the process before and has a track record closing audits.
It’s not unheard of for professional unclaimed property specialists to be able to help holders avoid a state-authorized audit. This is possible at times when holders are working with advisors who have direct relationships with state administrators. In these cases, holders may be allowed to come into compliance through a self-audit.
When audits do occur, unclaimed property specialists can conduct prescriptive pre-assessments, act as the holder’s advocate during the audit, help present records accurately to auditors, leverage important advantages specific to a particular holder and help get the audit completed as quickly as possible.