Top Tips for Unclaimed Property Audits

By: Laurie Andrews and Paola Narez 

Picture this: you just completed a risk assessment on your unclaimed property processes, and you feel like you have this whole unclaimed property thing figured out. You enhanced your systems to make sure you are reviewing every property type and analyzing it the right way, but you have discovered a few pockets of past due property. You are contemplating enrolling in a few of the states’ programs to voluntarily report what you have identified through one of their voluntary disclosure agreements (VDAs), but before you have a chance to enroll, your CEO receives an audit notice. And then another one. And then another one. Suddenly, you are under a multi-state audit by a third-party audit firm that collects a contingency fee on its audit findings. Now what?

Facing unclaimed property audits

First, you concentrate on the audit at hand. Compliance in other states where you have identified past-due property is going to have to go on the backburner. After all, you are just a small department that handles unclaimed property, and it is not even your main job. You only moonlight as an unclaimed property professional.

The audit is going full-steam ahead and you feel like you are knee-deep in audit requests. Suddenly, you hear a rumor that the CEO got an audit notice from another state, but this one is different. It lists another third-party audit firm. This auditor contacts you and says there is more than one state participating in the audit and you should expect more audit notices from additional states.

What do you do? What can you do? State statutes provide states and their associated third-party audit firms with the right to examine the books and records of a holder for compliance with the state’s unclaimed property laws. States can also hire someone to do it on their behalf.

An unclaimed property examination typically begins with an official Notice of Examination letter from the participating state(s) followed by an introductory call and a document request to determine which entities should be included in the review and which years are in the audit scope. The volume of documents requested can be large, with many of them often unnecessary to confirm compliance. It is therefore important to use discretion in what you provide to auditors as you do not want to overshare records.

Audit requests can vary greatly between audit firms, and while you may be able to provide similar information to both firms, such as corporate organizational structure, there needs to be a careful review of other information being provided to auditors. This ensures that information not related to the scope of the audit is not shared (e.g., information from non-audit states or information related to states being audited by the other third-party auditor).

Here are some best practices when managing one (or many) audits:

1. Execute a non-disclosure agreement with the auditor.
2. Review each state’s official Notice of Examination letter and pay close attention to the entity or entities listed in the letter, property types, deadlines, review period and any other special instructions from the state (if listed).
3. Provide information related to the scope of the audit and for years where records are complete and researchable.
4. Designate a centralized, internal team to handle the audit. Engage the appropriate parties and support teams in your company to assist with this (legal, compliance and information technology).
5. Set up a tracking sheet to carefully monitor the participating states, audit requests, dates of requests, dates information and documents were delivered to auditors, etc.
6. Transmit data and documents through a secure portal. Ideally, the secure portal you use will time stamp and record a history of productions to the auditor.
7. Look into a third-party advocate experienced in supporting audits (like Sovos) and if there are legal issues, consider engaging outside counsel. An advocate and/or legal counsel may be able to identify industry-specific legal defense issues to help mitigate the audit.
8. Obtain closing agreements and verify it includes all in scope entities, property types and years reviewed.

Unfortunately, multi-state audits are not uncommon. If not managed appropriately, they can be extremely difficult as they require extensive work and will likely be a multiyear endeavor. Therefore, it is crucial to remain compliant, keep good document retention and develop effective policies and procedures. States employ a variety of tools to ensure unclaimed property compliance and they are becoming increasingly active in their enforcement efforts. Unclaimed property audits can seem overwhelming, but they are not insurmountable when you have the right tools and partners in place.