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Increase in Unclaimed Property Pre-Audit Activity

Ann Fulmer
September 27, 2021

Sovos’ consultants have noticed a growing trend in 2021 as states across the country increase their unclaimed property pre-audit activity or voluntary compliance programs. Due to the negative economic impact resulting from COVID-19, Sovos’ consulting, reporting and regulatory teams have been preparing for increased unclaimed property compliance enforcement efforts to shore up struggling state budgets.

Massachusetts Self-Review Invitations

The Commonwealth of Massachusetts State Treasurer’s Office as they introduce a new wave of unclaimed property self-review invitations. Recipients of these self-review invitations have 30 days from the receipt of the letter to log into the state website to provide updated contact information. As this is a new process for Massachusetts, it’s still not determined if no response within the 30-day window will result in an audit initiation. Massachusetts advises that upon response to the self-review letter, holders may be contacted by a representative from Kelmar Associates, LLC (“Kelmar”), as Massachusetts has contracted with them to assist with the administration of this outreach process. Kelmar is a well-known third-party auditor in unclaimed property.

 

New York Self-Directed Compliance Program (SDCP)

New York unclaimed property recently introduced the NY Self-Directed Compliance Program  geared towards identifying both non-reporters and companies that reported in 2021, but failed to report property types expected to be seen. The State of New York Office of the State Comptroller sent out letters to holders encouraging them to review their records for any unclaimed property that may be subject to reporting. The letter goes on to detail steps to come into compliance with New York unclaimed property law. The first step outlined is completing their Self-Audit Checklist administered through an online survey. It is noted in the letter that the survey is to be completed even if the holder does not have any additional information or unclaimed property to report. Specific ramifications for not completing the survey are not outlined in the letter. In other states, such as Delaware, holders that do not respond to the invitation letters such as this are referred to a State Escheator for audit examination. As this is a new process for New York, it is still unknown if a failure to respond will result in an audit.

Results from the survey will help to identify if the holder could have additional unclaimed funds reportable to the state. If a company discovers additional unclaimed property through the survey, they are immediately referred to the Self-Directed Compliance Program. The SDCP program is not an audit and provides an opportunity to reduce or eliminate potential interest and penalties related to past due properties

Florida Contractor Assisted Self Examination Program

The Florida Department of Financial Services approved Faegre Drinker, Biddle & Reath LLP to begin enrolling holders into the Florida Contractor-Assisted Self Examination Program (the program). This is a voluntary unclaimed property compliance program that provides a waiver on interest and penalties. The scope of these self-examinations extend for the last ten report years plus dormancy and include requirements such as due diligence. To enter into this program a holder must not be under audit or scheduled for examination. The program also specifies that a holder must file a final unclaimed property report within one year from starting the program in NAUPA II format and then continue to perform an annual review and unclaimed property filing in compliance with the Florida Disposition of Unclaimed Property Act.

Delaware Voluntary Disclosure Agreement Program 

The Delaware Secretary of State (SOS) continues to distribute letters inviting companies to enter the Voluntary Disclosure Agreement (VDA) Program. The most recent wave of letters went out on May 28, 2021. Holders have 60 days from the date of the letter to enroll in the SOS VDA program. Organizations should encourage their unclaimed property contacts, CFO’s, upper management, and DE registered agents to be on the lookout for this letter. Many times, when holders receive these letters they are not brought to the attention of the appropriate person or department causing the company to miss their VDA invitation window. Holders that do not respond to the VDA invitation letter within 60 days will be referred to the State Escheator for audit examination.

Unclaimed Property Audits

As states and third-party auditors continue to expand their compliance efforts, there is a growing concern that initiatives such as those detailed above are forerunners to increased audit activity. Sovos’ experts expect to see an increasing trend in audits due to the budget shortfalls many states are experiencing from the COVID-19 pandemic. Ensure your company is prepared for the increase in compliance efforts from the states by doing a mini-risk assessment and reviewing your unclaimed property policies and procedures.

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Author

Ann Fulmer

As National Director of Consulting Services, Ann leads the Sovos Consulting and Advisory Services team that provides clients with a comprehensive approach to achieving and maintaining compliance with state unclaimed property rules and regulations. Ann’s experience as an unclaimed property audit manager for the Commonwealth of Pennsylvania affords her the opportunity to provide the unique insight and knowledge required to represent clients seeking to achieve voluntary compliance, as well as defend those that are facing an unclaimed property audit.
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