Through new administrative rules, adopted and effective on March 14, 2017, Michigan 3791 2015 sets forth new unclaimed property audit standards under Michigan’s Uniform Unclaimed Property Act.
Originally filed in February 2016 and revised in November 2016, the new rules address the audit standards to which the state, auditors and holders must adhere.
Michigan Unclaimed Property Audit Standards
State auditors and third-party auditors contracted by Michigan must adhere to professional standards and practices for conducting an audit. Before an unclaimed property audit can begin, auditors are required to address audit milestones and provide a proposed timeline for each segment of the audit. Auditors must identify which property types are within the scope of the audit and what documents holders are required to present over the course of the audit.
If at any point during the audit the administrator deems that a third-party auditor has not conducted the audit in compliance with the new standards, the administrator has the authority replace the auditor.
Third-Party Audit Goals & Holder Selection Factors
Michigan’s new unclaimed property audit standards provide that during an audit, the administrator is prohibited from the use of collection goals or quotas. This provision promotes fairness between the auditor(s) and the holder, preventing any potentially questionable or inaccurate unclaimed property estimations.
Under the new rules, the administrator has sole authority to select businesses for an audit. The administrator may consider several factors in identifying holders eligible for audit.
Contributing factors for audit selection include the holder’s:
- Annual sales volume,
- Reporting history, or lack thereof,
- Merger and acquisition history,
- Audit history, or whether the holder has previously been audited by other states, and
- Evidence of complaints or non-compliance.
Holders will be notified of the audit by either the state or the third-party auditor conducting the audit on the state’s behalf. During the initial audit conference, an auditor must provide the holder with a copy of its contract from the state. This requires the administrator to monitor auditor contracts and confirm compliance throughout the audit process.
Liability Remediation Period
After preliminary audit findings have been distributed, holders have a remediation period of 120 days to provide proof that any past-due items identified in the report should be precluded from the final report. Situations and/or evidence that can reverse an audit finding include:
- Activity by an owner establishing that the property is not abandoned,
- 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.
Barring that there is no misrepresentation, evasion, or fraud by the holder, auditors and the state administrator must not conduct or authorize a subsequent audit of the holder for the property types and time periods covered within the scope of the audit.
Confidentiality & Non-Disclosure
Auditors may not disclose confidential information obtained during the audit nor use it for any purpose except for conducting the examination. Since the proposal of Michigan 3791 2015, language has not been added requiring the auditor or administrator to notify the holder if there is a breach or provide remedies for same.
Michigan also grants the option for the auditor and holder to enter into a mutually agreeable non-disclosure agreement. If a non-disclosure agreement is not in place within 30 calendar days from the date the agreement was provided to the holder, the audit will still commence.
If your company is facing an unclaimed property audit by one or multiple states, please contact us for assistance. Our expert team works in collaboration with you and counsel to ensure the accuracy and validity of all audit information requests and strives to negotiate more favorable outcomes on your behalf.