Regardless of prior escheat compliance history, an audit can be a disruptive and costly event for any organization. As states continue to increase their outreach and enforcement efforts, the number of companies subjected to audits continues to rise. Oftentimes the outcome of the audit is less about a company’s past compliance history and more about their ability to understand and defend themselves.
Companies face several issues when under audit. Many of these revolve around the varied protocols used by the states and/or their third-party auditors when conducting the audit, including individual jurisdictional auditing guidelines, varied and extensive lookback periods, and the assessment of interest and penalties.
In certain scenarios, it is not unusual for the estimated liability and penalty and interest assessments to be significantly more than the addressable property identified to be due and owing. Scenarios like this can be further amplified when other complexities such as merger and acquisition history, ERP system migrations, and historical accounting restructuring are factored into the audit. Due to the risks that unclaimed property audits can pose to an organization, the creation and implementation of a comprehensive audit defense strategy is essential.
A team of experienced advocates can help
Engaging with an experienced unclaimed property advocate that has a comprehensive understanding of the auditor’s methodologies and the states’ enforcement tactics can help a company develop a proactive audit defense strategy. Holder advocates support an organization in a number of ways, as they can:
• Provide in-depth knowledge of state statutes and audit methodologies
• Preemptively identify and remediate potential exposure, allowing the company to adequately plan and reserve for any amounts that will be due to the states
• Navigate complex legal entity structures including merger and acquisition history to ensure the auditor’s scope relates only to entities for which the company has an escheat obligation
• Reign in overly aggressive auditors from expanding the audit scope and making unnecessary and overly burdensome requests
• Assist in compiling records and remediating potential liability, thereby reducing the drain on company resources
• Manage requests and correspondence with auditors, ensuring the company is afforded a reasonable period to respond and refute the auditor’s findings
• Utilize experience to ensure limited and valuable company resources are focused on the most impactful activities
• Ensure audit techniques and estimation methods are within permitted state guidelines
• Identify areas for process improvement to ensure ongoing compliance and protection against future audits
Who makes up an effective team of advocates?
Unclaimed property audits are complex and include a myriad of intricate accounting, technical, and legal issues. We recommend that the holder advocate team include the following key members:
1. Unclaimed property consultant. A consultant has the experience and ability to manage the audit process and limit the impact on the organization. A consultant can ensure that the overall process is fair, including making sure that auditors do not overstep boundaries, that document requests and response deadlines are reasonable, that audit methodologies are permissible, and that differences in opinion regarding the adequacy of the data provided and the supporting documentation are resolved efficiently and effectively.
2. Counsel specializing in unclaimed property law. While most audits do not result in litigation, there are many important protections that experienced legal counsel provide, including in-depth analysis and understanding of an organization’s contractual obligations, the creation of legal privilege for workpapers and communications, the preservation of legal rights, and the creation and negotiation of non-disclosure agreements and settlement and release agreements.
An unclaimed property audit can pose significant risks, from both a financial and company resource perspective, even for companies with seemingly strong compliance histories. As states continue to become more aggressive in their outreach efforts, companies that retain the services of an experienced unclaimed property advocate can greatly reduce the impact on time, money and resources needed internally, which allows them to focus on their area of expertise, and leaving the escheat matters to those who know them best.
MarketSphere partners with organizations providing managed services and subject matter experts to navigate escheat compliance responsibilities including audit defense. Contact Us for a free consultation. There is never a wrong time to ask questions or engage with us to manage the audit process.
*Content contained in this article is considered accurate as of the publish date.
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