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8/1/16 3:26 PM

Shedding Light on the Marathon Nature of Some Unclaimed Property Audits

by David Poehler

unclaimed-property-audit-marathon.pngAbandoned and unclaimed property audits are notorious for being so lengthy that the cost and time involved become a substantial operational factor for holder organizations. If you’ve been in this position, your first thought may have been that the scope of the audit seems unbalanced with the footprint of unclaimed property in your company.

Many elements of an unclaimed property audit inherently cause complexity and lengthen the process. The good news is that some of these elements are within the holder’s power to change, with the result being a less lengthy audit.

Let’s take a look at some of the elements of an abandoned and unclaimed property audit, and explore some ways holders can shorten the process.

#1 reason for lengthy unclaimed property audits:
scope of unclaimed property

Some of this is within the holder’s power to improve, and some of it isn’t. The volume of unclaimed property within the scope of an audit includes multiple subsidiaries and branches, numerous property types, and/or high volume of stale dated property. It may be possible to limit any single audit to certain business units and types of property. To do this, negotiate an audit agreement that specifically limits the audit. This doesn’t keep states from coming back for audits of additional units, but addressing a limited scope of unclaimed property within your company may be preferable to dealing with all of it at the same time. When a lengthy audit is simply due to large amounts of stale dated property within your company, the only way to reduce audit length is to complete a thorough risk assessment and exemption analysis as early as possible. Presumably, this would result in discovery of accounting errors, duplications, and legal exemptions, so you can resolve them before those records become part of the audit dialogue.

#2 reason for lengthy unclaimed property audits:
additional states

If your audit agreement does not limit the number of states involved, the auditor may choose to invite additional states to join the current audit. Once again, limiting the audit to a certain number of states doesn’t keep other states from coming back later and conducting audits. However, limiting the audit may be preferable in order to reduce the current burden on staff time and budget.

Other reasons for lengthy unclaimed property audits

  • The audit is seen as unimportant, so the holder commits limited resources to the audit, making it impossible to take advantage of methods of limiting the audit.
  • Holders take a contentious position toward the auditor, and may even decide to use untested legal theorems or other tactics to frustrate the auditors. This only makes it more difficult and time-consuming to work through the audit.
  • Holder records are not in good shape, and identifying stale dated property requires extensive and lengthy research, as well as additional dialogue between holder staff and auditors.
  • Holder personnel become difficult and auditors decide to forego leniency. Auditors must operate within the law, but they have a certain amount of discretion in how the audit is conducted.
  • Many holders offer more information than necessary, which opens up additional avenues for audit research.
  • Some holders neglect responding to auditors in a timely and thorough fashion, which not only delays the audit, but can confuse the issues.

How to shorten the length of an unclaimed property audit

Is it possible to shorten the length of an audit? The answer is yes, as long as the holder organization is willing to take certain steps. It may not work in every audit, but the benefits of taking these steps extend beyond the audit, because they streamline the process, which minimizes the impact of unclaimed property upon the holder organization.

  1. Make sure policies and procedures are in place, so your unclaimed property team can move quickly through the process.
  2. Ensure a consistent records management process is in place, so records can be easily identified and isolated for the purposes of unclaimed property.
  3. Work with your unclaimed property specialists to learn and implement a positive audit approach, including guidelines for interacting with auditors.
  4. Lay groundwork early to help company leaders understand the importance of limiting the audit process, including potential liabilities the company could face if an audit is not limited, which could include impact on budget, resource use, and time.

In general, it’s possible to shorten the length of unclaimed property audits in some cases by taking the audit seriously, getting records in order, and efficiently using resources. It helps to learn about the audit process and get all your ducks in a row before you receive an audit notice. With the recent increase in audits, it pays to assume your company eventually will face an unclaimed property audit.

To learn more about becoming unclaimed property audit-ready, contact your unclaimed property specialists at MarketSphere and schedule an audit consultation.

Topics: Audit