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4/6/17 9:47 AM

The Changing Dimensions of Unclaimed Property Audits

by Clive Cohen

progression-of-unclaimed-property-industry.pngThere were many educational sessions at this year’s UPPO Annual Conference held in March in beautiful Austin, Texas. This year, MarketSphere had the privilege to co-present three sessions including “The Changing Dimensions of Unclaimed Property Audits”.  The session discussed how the multi-state audit process has changed over time and what organizations, either under audit or possibly exposed, can do to avoid being caught flat-footed.

The following are some of the takeaways from the session that can assist holders with their planning and decision making.

  • The likelihood of an audit has increased in recent years due to several factors, including the proliferation of new third-party auditors, realization by states that significant amounts are involved, and the widespread reporting of unclaimed property litigation.
  • Most state statutes permit the use of third-party auditors and allow for contingent fee arrangements. Certain states (e.g., IL, OH and VA) ban the use of contingent fee examiners for in-state businesses.  Additionally, NC has completely banned the use of contingent fee auditors.
  • In the last several years, many states including, DE, MI and AZ, have provided statutory guidance for the conduct of audits, thereby allowing holders to better understand the states’ audit policies and procedures.
  • Estimation is permitted by the various Uniform Acts and certain state laws, with some states (e.g., TX and MI) now including in their statues the permitted use of “reasonable” estimation methods. However, it should be noted that there is a lack of statutory interpretation as to what is meant by “reasonable”.  Also, Delaware has recently introduced draft regulations specifically focused on estimation.  See our blog for more information on this topic.
  • Current, pending and resolved litigation challenging such things as the states’ right to estimate liabilities in audits, has and will continueo impact how multi-state audits are conducted and the states’ use of third-party auditors.
  • Pro-active steps are increasingly important to minimize the creation of unclaimed property. These steps include utilizing creative due diligence methods to locate missing owners; seeking mutual releases with large dollar vendors and customers; and utilizing legal counsel to implement contractual limitations and provisions that may mutually release small dollar balances due.
 So what should a company do to avoid being caught flat-footed?  We recommend these 4 steps:
  1. Obtain as much information as possible from external sources, such as UPPO, state websites, NAUPA, etc. to better understand the current unclaimed property environment.
  2. Ensure that you have appropriate policies and procedures in place to mitigate the creation of unclaimed property and to hand any unclaimed property generated. 

  3. Monitor activities of third-party administrators such as payroll processors, rebate processors and stock transfer agents, to ensure that any unclaimed property generated is appropriately handled.

  4. Be proactive and determine whether the company has an unclaimed property exposure. If it does, understand the options to mitigate this exposure and execute the best mitigation strategy. 

    Unclaimed property is at the forefront of the states’ mindset.  Compliance is no longer optional.  Non-compliance can be expensive when you take into account potential penalties and interest.  With the states now using better technology to identify non-compliant companies and the increase in the number of state audits, if you’re non-compliant, being audited is not a matter of if, but when.  Consequently, the best defense is offense.  Partnering with an unclaimed property professional can provide holders with guidance to determine exposure, or risk, thus allowing holders to be proactive and mitigate potential issues.

    Visit the MarketSphere Knowledge Vault for more valuable resources on a wide range of topics to help you start to master any unclaimed property compliance challenges.

 

Topics: Compliance, Reporting, Audit, Voluntary Disclosure Agreements