Many aspects of unclaimed property reporting can affect the outcome of an audit. For example, reporting property to the wrong state can lead to audit issues. One misused code can cause auditors to more closely examine every code. Preparation for an audit begins long before an audit appears on an unclaimed property holder’s radar.
Here are a few items that you should be aware of that, if not managed properly, could increase your chances of getting noticed for an escheat audit.
Audits are time consuming and expensive. Unclaimed property auditing requirements for documentation are greater than what may be required for other types of audits. It is important to have robust policies and policies that ensure an audit trail is available at the end of the reporting cycle to demonstrate source transactions and their resolution. Supporting information is a necessity to confirm the correct reporting of items. For example, do you as a holder have support for:
The audit trail frequently exists at the time of reporting. However, over time changes in personnel and/or systems frequently result in the breakage of the audit trail. You may also want to consider how well you communicate changes to the states. Providing them background of the drivers resulting in changes to your reporting metrics (e.g., property types reported, quantity and dollars), is helpful in reducing the likelihood of selection for an audit.
We’ve shared with you a few areas that can help keep your company off the escheat audit radar. There are no guarantees. In fact, one of the most common phrases you’ll hear from those that manage unclaimed property is: “It’s not if you’ll get an audit letter, it’s when you’ll get an audit letter.”
The key is to have unclaimed property policies and procedures in place that are effective, which can reduce the risk of errors and make the process easier in the event an audit. Consider engaging with a professional advisor if you need a review of your current processes. Professional advisors live and breathe unclaimed property, can draw on experiences from the many different companies they’ve worked with, and have fought side-by side with their clients through difficult audits.
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