An Overview of Unclaimed Property Audits by umsymums38


									An Overview of Unclaimed Property

                Presented by:
                Mr. James O. Santivañez
                JMS Advisory Group, LLC
Unclaimed Property Audits

•Unclaimed property audits are used to
 determine the true amount of unclaimed property
 in the possession of the holder for the period
 under audit.

•Also used theoretically to prohibit unjust
 enrichment of holders.
Increased Enforcement

•States recognize abandoned property as a
 valuable source of sustained revenue and
 become increasingly aggressive in pursuing it.

•Auditors that discover noncompliance can
 enforce stringent state laws that result in stiff
Audit Triggers

•Registering in a state to do business or pay tax, but
 not filing unclaimed property reports.

•Industry type

•Claiming unclaimed property

•State of incorporation

•History of mergers & acquisitions

•Period(s) of rapid growth
Recent Audit Trends

•More third party contingent fee audits
•Delaware’s statute of limitations
•States recently contracting with additional
 contract auditors:
   -New York
Recent Audit Trends

 •States increased aggressiveness
     States asserting right to current
      relationship property

 •Delaware final regulations

 •Delaware audit staff

 •Cooperative state audits
Contracts & 3rd Party Auditors

•Kelmar Associates, LLC
•ACS – Affiliated Computer Services
   Acquired NAPPCO
•ASUS – Audit Services, U.S., LLC
•Healthcare Financial Network of CO
•Specialty Audit Services, LLC
•Local CPA firms
What to expect…

•Increased awareness of non-compliance
 among the states will lead to increased audit

•Third party audit firms auditing on behalf of
 many states at one time.

•Increased assessment penalties and interest or
 other enforcement actions by the states.
State Authority

• The language in the 1995 Uniform Act expressly allows an
  Administrator to contract with an independent third-party auditor
  to conduct an examination.

• The 1995 Uniform Unclaimed Property Act allows penalties up to
  $25,000 plus 25% of the value of the property for willful failure to
  report (more in some states).

• 12% interest rate is typical.

• Ignorance has not been acceptable defense – inadvertent failure
  to report is also penalized in many cases.

• Arizona Law
Joint Audits

• State may cooperate with one another in the audit process.

• One visiting auditor may represent more than one state
  under a cross-auditing agreement.

• One audit may result in penalties from all the states
  represented if non-compliance is discovered.

• The Securities and Exchange Commission (SEC) has
  announced that it may also extend its interests to include
  the disposition of abandoned stock and dividends.
Initial Response to the Audit Notice

Basic Recommended Tactics

Assess your liability realistically through:
   -Internal investigation with general counsel’s
   -Engage outside consultant – accountant and/or

Implement your strategy by:
   -Identifying your team
   -Involving counsel sooner rather than later; at least to
    draft a confidentiality agreement
Assessment of Records

    The burden of proof rests with
      the holder to contest the
    presumption of abandonment
Responding to the Notice

•Respond quickly & professionally
•Have defenses in mind
•Know the auditor (or auditing firm) & the states
•Know the law
•Be prepared to take control
•Be prepared to take off the gloves
Keeping Other States From Joining

• Can you request that the third-party auditor agree not bring
 additional states into the audit?

       YES – and you should!

• A confidentiality agreement should include such a

• As a practical matter, the audit should not proceed until
  such an agreement is in place.

• Resist providing an auditor with information relating to
  states that are not participating in the audit.
Audit Procedure

1. Notice and request for information

2. Opening conference

3. Identification of key audit elements

4. Detail review/sampling

5. Extrapolation/Estimation

6. Closing conference
Audit Procedure

Examination to determine unclaimed property

•Understanding of accounting policies & procedures
•Review of books & records
•Documentation of potential unclaimed property
•Review audit work papers
Audit the Auditor

What has been the experience of others
members in your industry with this auditor?

Due Diligence – seek the auditor’s:
•Authorization from the state(s) they claim to
 be representing
•Qualifications to perform the audit
•Experience with your property types
•Proposed methodology
•General procedures
The Basics

•Request that the auditor make all requests in
 writing and maintain a clear record of all
 acknowledgements of information received by the

•Give the auditor a space to work.

•Only provide the auditor with information relevant
 to the audit period & the state(s) participating in
 the audit.
Audit Guidelines

•Some states require the adherence to certain
 audit procedures that they have implemented
   Notable states: California and Texas.

•In other states, where there are no audit
 procedures, the holder or auditor may request to
 follow audit procedures of another state as a
 guideline in their examination.
Finding Guidelines on the Web


Holder’s Rights

•Have the right to raise any defense
   Including: Laches/statute of limitations

•Fair & equitable treatment

•Protection of constitutional rights

•Claim any statutory exemptions

•Freedom of information requests

•Objection to, or appeal of audit results
4 Simple Demands

Demand: confidentiality

Demand: proper authorization & fulfillment of
notice requirements

Demand: to know proposed methodology at

Demand: official written closure from each state
represented in the audit
Statistical Sampling

•Auditors may try to impose statistical sampling
 based on readily available records.

•Samples based on available records are used to
 extrapolate liability in years under audit where
 records are not available.

•Most states provide statutorily for the authority
 to use sampling in these audits.
Questioning the Sample

•Is the auditor qualified to implement a truly
 statistical sample?

•Is the validity and error rate within state-accepted

•Will the results be representative once

•Review the methodology before any sample is
Post Audit Remedies

•Can the state make you pay?

•Administrative appeals

•Access to the courts

•What do your records look like?
Your Rights

•Stipulate dispute resolution process

•Timely conclusion of the audit process

•Right to receive copy of audit report &
We thank you!

James Santivanez
JMS Advisory Group

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