Two items in the news have caught our attention at Keane – the first of which may have a significant impact on unclaimed property auditors and their practices.
According to a recent article, members of the Delaware Legislature announced plans to introduce legislation that would prohibit commission-based contracting for unclaimed property and would forbid a person or business conducting an unclaimed property audit from receiving a percentage of the property recovered by the state. The article notes that Delaware paid one particular third-party unclaimed property auditor $53 million in contingency fees in 2013 alone – and $116 million in the past six years.
In a second news item, the U.S. Chamber Institute for Legal Reform issued a whitepaper of best practices for unclaimed property administrators who engage third-party audit firms. The whitepaper notes that the best practices are “intended to facilitate responsible and fair enforcement of state unclaimed property laws while minimizing the potential for abuse that can result from contingency fee arrangements with private auditors.”
The debate over third-party audit practices is likely just the beginning, as both items above suggest a transition from the current contingency model utilized by most unclaimed property auditors to a model wherein the auditor is compensated on a flat fee or an hourly basis.
Regardless of which path these discussions take, it’s important for holders to fully understand the current regulatory and enforcement environment. If you are concerned about potential unclaimed property liabilities or exposure, be proactive and take action through a risk assessment or look into compliance initiatives such as a voluntary disclosure agreement.
While the method of compensation for the unclaimed property auditors may be up for debate, whether or not audits will continue is not.