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4/25/16 12:29 PM

Dispelling the Myths of Unclaimed Property Audits

by Greg VerMulm

unclaimed-property-audit-myths.pngWhen someone suddenly is told they are going to be in charge of this mysterious thing called “unclaimed property and escheatment,” the first thing they may do is ask around to find out what it’s all about. And the answers they get may incite fear and loathing. If you don’t do it right, it could cost the company big-time! People have been fired over unclaimed property mistakes! Wait until you have to deal with more than 50 different sets of laws!

But the one thing that can really make a newbie’s blood run cold is the thought of having to manage an unclaimed property audit. There are horror stories of audits that have lasted more than five years. You’ll hear about requests for an inordinate number of records and extreme assessments. When people talk about their audit experiences, they roll their eyes and sigh and shake their heads.

True…unclaimed property audits sometimes do last a long time, and they can be complicated. They are not for the faint of heart. But it’s good to bring down the high pitch to a realistic level. Some of the stories are not true…and some are only true in certain circumstances.

Let’s examine three of the most common myths related to unclaimed property audits and see if we can’t slow the heart-rate of readers who hold audit notices in shaking hands…

Audit Myth #1: Unclaimed Property Audits Last for Years

Truth: Some audits do last for years. But this is usually when a company has a large and complex accounting environment, when the company’s records are in terrible shape, and when these records are not in an electronic format. The longest audits often are for very large companies, where auditors have the potential to find larger amounts of money to assess. This is especially true when auditors are paid on a contingency fee basis—the more they find, the more they make. Most audits aren’t like this and can be expected to last from six to 18 months. To minimize the length of your audit, make sure your company remediates any potential records problems, comes into compliance as soon as possible, and takes advantage of any Voluntary Disclosure (VDA) programs available.

Audit Myth #2: Unclaimed Property Auditors Request an Inordinate Number of Records

Truth: There are cases for which auditors have requested thousands of records—some have even been taken to court in an attempt to minimize the reach of an abandoned and unclaimed property audit. However, most audits are not this extreme. The unclaimed property auditor’s job is to test your records, not examine every single one. The depth of the audit will often hinge on the state of your records and your past reporting history. Again, the fix for this is to come into compliance as soon as possible and clean up your records.

Audit Myth #3: Unclaimed Property Audits Lead to Extreme Assessments

Truth: It can be argued that some auditors in some cases have dug for every last penny they can find and have worked estimations in the state’s (and their) favor to increase assessments as much as possible. However, most audits are not this way—especially if the holder’s records are in good shape. If you do a pre-audit assessment to estimate your potential liability, then remediate your records before the audit begins, it will minimize assessments. If you show a willingness to cooperate, your auditor will be more likely to work with you to keep assessments reasonable—while still following the law.

Recourse when an Audit Goes Bad

If you do happen to be one of those organizations that finds itself in a long, complicated, costly audit, you have three tools at your disposal that may help: 1) negotiation with the auditor, 2) direct communication with the state in question, and 3) as a last resort—legal remedies.

No, unclaimed property audits are not for the faint of heart. But don’t let your imagination run away with you! Calm your heart. Take a deep breath. And call MarketSphere for backup, if needed.