On November 1, 2016 Michigan 3791 2015 revised the proposed administrative rules regarding unclaimed property audit procedures and rules, which were originally filed on February 15, 2016. The revised proposal addresses the many intricacies of Michigan unclaimed property audits.
Michigan was accepting comments and feedback from the holder community. The deadline to comment on the revised proposed rules was November 10, 2016.
Prohibition of Collection Quotas & Pre-Audit Selection Factors
Michigan, like many states, utilizes third-party auditors to perform unclaimed property audits on behalf of the state. Within the state’s proposed revisions to its audit procedures, the administrator is prohibited from the use of collection goals or quotas during an audit. This revision promotes fairness between the auditor and the holder, preventing inaccurate unclaimed property estimations.
The revisions also clarify the holder selection process for audits, indicating that the administrator has sole authority to select businesses for an examination. The administrator may consider the holder’s annual sales volume, reporting history, merger and acquisition history, and evidence of complaints against the holder as factors in initiating an audit or joining an audit initiated by another state.
The revised proposed rules specify that the holder will be notified of the audit by either the state or the third-party auditor conducting the audit on the state’s behalf.
Michigan Unclaimed Property Audit Standards & Practices
Auditors must provide the holder being audited with a copy of the auditor’s contract with the state during the entrance conference. Further, the administrator must determine whether a holder is eligible for Michigan’s “streamlined” unclaimed property audit process. The entrance conference must be scheduled within 30 days of receipt of the audit notice.
The revision also sets standards for data confidentiality such that the auditor may not disclose confidential information obtained during the audit nor use it for any purpose except the audit. Unfortunately, the rules do not require the auditor or administrator to notify the holder if there is a breach or provide remedies for same.
The auditor and holder are also permitted to enter into a mutually agreeable non-disclosure agreement; however, the audit will proceed even if the auditor and holder have not entered into such an agreement.
Post-Audit Remediation and Examination
The proposed Michigan rules provide a period of 120 days after the preliminary audit findings have been received by the holder for the holder to remediate items listed in the report. The rules specify the types of situations and/or evidence that will reverse an audit finding. Examples of such remediation evidence are:
- Proof that an item listed in the report is an accounting error, and
- Documentation indicating that an owner has a last known address outside of Michigan.
Auditors and the state administrator are not allowed to conduct or authorize subsequent examinations of the holder for the property types and time periods covered in the audit. The administrator can re-examine an audit if it is discovered that there was intentional misrepresentation, evasion, or fraud committed by the holder. While these items are outlined in Michigan’s proposal, several industry groups are seeking clarification on the intent and scope of the previous items.
Are you currently facing a Michigan unclaimed property audit, or audit by another state? Are you concerned about your level of audit risk? Keane helps organizations navigate this intrusive and burdensome process, ensuring accuracy of the examination and negotiating more favorable outcomes than going alone.