So, who wants to read another article about unclaimed property audits and how burdensome they are? I mean sure, most of you have either heard, read about, or experienced firsthand how difficult the examinations are to navigate and how long they can be, but rarely do we hear any good news when it comes to audits. Rarely do you hear a story about how great the auditor was, or how reasonable the review was. Even more surprising would be an agreement between the holder and auditor as to the audit findings – holders often wonder “are we truly non-compliant or did we simply not retain the appropriate records?”
Unfortunately, the harsh reality is that today’s unclaimed property audits are characterized by demanding and invasive data requests, intense interview schedules, and rigorous data analysis. Rest assured, there will be disagreements with the auditor, auditors will request data beyond your company’s record retention criteria, and you will have to allocate more resources and time than you imagined to support the audit. You will have to reach depths of data that you would never think would be necessary for your role.
It is likely you’ve either already heard, read about, or experienced all of this, right?
Our unclaimed property consulting team at Sovos wishes to finally share some insight into audit results with a positive outcome for the holder.
Unclaimed Property Audit Results
Our consulting team has a track record of successfully supporting many companies across a variety of industries throughout the audit process. During the first half of 2021 alone, we worked with several clients to enable them to complete the audit process in two years or less, reduced multi-million dollar audit findings to an immaterial fraction of the initial discovery, and negotiated the abatement of penalty and interest with states that have not historically done so. Of course, we would not be in a position to boast our results if it were not for the collaboration of our clients.
Here are some examples of how our team assisted clients in the reduction of audit timelines and, more importantly, material liabilities:
Summaries of Recent Success
Unclaimed Property Audit Example #1:
A Sovos consultant spoke with a holder at a conference following an audit support presentation. The holder had recently been notified of an audit and was attempting to manage the audit internally without assistance due to constrained budgets and level of ease working with the auditor. After some general discussion and high-level guidance regarding audit best practices, our consultant advised the holder to reach out to us if they ever found themselves in an uncomfortable or vulnerable situation during the examination.
Years passed, and the holder eventually reached out to Sovos after receipt of audit findings exceeding $15M. Due to the aggressive timelines and seemingly impossible remediation efforts, the holder felt it had done everything reasonably possible and exhausted all options to reduce the liability. Once engaged, Sovos conducted a thorough review of the participating state(s) and scheduled properties. In a span of five months, Sovos reduced the potential liability by over $14M. What the holder thought would be a never-ending audit quickly finished after signing an agreement with the Sovos team.
Unclaimed Property Audit Example #2:
A third-party audit firm representing multiple states notified a holder of an unclaimed property audit. After Sovos conducted a thorough assessment, which included reviewing policies and procedures, performing a risk assessment, and developing a mitigation plan – Sovos assisted the holder with gathering, reviewing, and providing the information applicable to the participating states to the auditor. Additionally, Sovos helped respond to the auditor’s questions and inquiries and participated in all audit-related discussions. The preliminary schedule of findings included nearly $3M in presumptive unclaimed property. However, after applying rigorous mitigation strategies on the schedule of items provided by the auditor, the initial amount was reduced to less than $500K.
Unclaimed Property Audit Best Practices & Recommendations
The aforementioned stories are just a couple of the vast number of successes that holders have experienced by engaging Sovos’ unclaimed property consulting team. Be on the lookout for more success stories in future issues – in the meantime, we would like to leave you with the following best practices and recommendations:
- Engage the services of an unclaimed property consultant that specializes in audits within your industry to help navigate the audit, whether conducted by a third-party contract auditor on behalf of multiple jurisdictions or by the audit personnel of a single state.
- Execute a non-disclosure / confidentiality agreement with the third-party audit firm.
- Develop timelines to assist in the timely and efficient completion of the audit.
- Appoint a project manager who can work with all areas in treasury and accounting to ensure complete and researchable data is being leveraged.
- Respond to auditor requests in a timely manner, but if more time is needed, do not be afraid to ask for an extension.
- Review and verify record retention policies. In the event of an audit, records are needed to demonstrate compliance for the scope of the review that often includes 10 reportable years plus dormancy, depending on the state(s) participating in the audit. Having sufficient documentation can help avoid the use of estimation for determining unclaimed property liability.
- Develop strategies to potentially reduce unclaimed property exposure (identify any applicable state exemptions, remediate the high dollar value properties first, etc.)
- Conduct statutory due diligence and enhanced remediation efforts prior to agreeing to the final schedule of findings.
- Ensure policies and procedures are in place to track potential unclaimed property and comply with the applicable state reporting requirements.
- At the completion of the audit, request the auditor provide a closing agreement identifying the years, entities and property types included in the review.
By: Gary Joseph & Paola Narez
Sovos Compliance can help expediate the audit timeline, simplify the process, educate your personnel regarding unclaimed property obligations, limit organizational disruption, minimize the assessment and potential penalties and interest, and ensure the best experience for the owners of unclaimed property. Get in touch with an expert today.