Top Tips for Unclaimed Property Audits

Laurie Andrews
July 7, 2022

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.

Take Action

Learn how Sovos Unclaimed Property Consulting solutions can help you meet your compliance needs. Talk to an expert.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Laurie Andrews

As Principal Consulting Director, Laurie assesses clients’ unclaimed property gaps in compliance, performs risk assessments, analyzes liability and fraud, and also collaborates with clients and third-party auditors during state examinations. With over 15 years of service with the Pennsylvania Department of Treasury, Laurie has an extensive unclaimed property background, focusing on fraud prevention, claims, and research.
Share This Post

North America ShipCompliant
September 29, 2022
5 Essential Questions to Ask When Searching for a Compliance Partner

Managing beverage alcohol compliance and tax in a rapidly evolving regulatory environment takes expertise and a relentless attention to detail. Odds are, you didn’t get into the industry to spend countless hours each week pouring over mandate changes, tax laws and regulatory updates. Partnering with a compliance software company is an easy way to mitigate […]

E-Invoicing Compliance EMEA
September 27, 2022
Billing SAF-T in Portugal: A New Obligation for Non-Residents

Portugal’s state budget entered into force on 27 June 2022 after protracted negotiations. The budget contained an interesting provision: the obligation to present invoice details to the tax authorities was extended to all VAT-registered taxpayers including non-resident taxpayers, who had long been exempt from this obligation. VAT-registered non-residents now have three options for communicating invoice […]

EMEA IPT
September 27, 2022
Understanding Insurance Premium Tax Prepayments in Italy

Continuing our IPT prepayment series, we take a look at Italy’s requirements. In previous articles we have looked at Belgium, Austria, and Hungary. All insurers authorised to write business under the Italian regime have a legal obligation to make an advance annual payment for the following year. What is the prepayment rate in Italy? The […]

EMEA VAT & Fiscal Reporting
September 23, 2022
Virtual Events and the Risk of Double Taxation

When organising a virtual event, it’s important to determine how this supply will be treated for VAT purposes. We have previously discussed VAT rules and place of supply for virtual events, this blog will discuss the potential future changes to the VAT position for EU Member States. Current VAT position for virtual events in Europe […]

Brazil E-Invoicing Compliance EMEA
September 22, 2022
Brazil Introduces National Standard for the Service e-Invoice

Brazil is known for its highly complex continuous transaction controls (CTC) e-invoicing system. As well as keeping up with daily legislative changes in its 26 states and the Federal District, the country has over 5,000 municipalities with different standards for e-invoicing. The tax levied on consumption of services (ISSQN – Imposto Sobre Serviços de Qualquer […]