The number of unclaimed property audits conducted by third-party contingent fee auditors has exponentially increased in recent years, with no industry being immune to this surge in enforced compliance.
Below are a few helpful Dos and Don’ts that should be taken into account before, during, and after you receive a state escheat audit notice.
Unclaimed Property Audit DOs
Notify Stakeholders and Appropriate Parties
Engage internal legal counsel and compliance teams immediately. Have an authorized representative confirm receipt of audit notice(s) with the auditor – but do not sign anything until a proper review is conducted.
Secure a Non-Disclosure Agreement from the Auditors
Before providing any data or information to the auditors, ensure an NDA is in place. This will help limit the possibility that additional states join your audit. Further, do not provide any information until an official audit kickoff call occurs.
Confirm Audit Participation from All States
If not already provided to you, request official audit notification letters from the participating states. Keane has discovered instances where a state was listed as a participant within the audit, but had not yet officially signed on to the audit.
Define the Scope of the Audit
To limit opportunities for auditors to expand the audit scope, it’s important to define the lines of business to be included in the review. This enables the company to verify states of incorporation and establish appropriate look-back periods. It’s equally important to define the property types covered in the audit as defined by the state audit notification letters.
Get EVERYTHING in Writing
Safeguard yourself by getting all information requests in writing and review with legal counsel to confirm agreement. Don’t agree to anything verbally; it may be used against you. Auditors will attempt to use any and all information at their disposal to further the examination and increase the population of potential liabilities. Review all agreements and methodologies presented by the auditors to verify consistency with state requirements.
Use Proper Data Security Measures
Don’t compound your escheat audit with a data breach. Ensure that all data provided to the auditors is sent via secured means coupled with a log of records provided and date supplied.
Set and Agree to Realistic Timelines & Deadlines
Auditors will set aggressive due dates and track every day an item is late. Track their progress as well; it is not uncommon for auditors to sit on items for several months without returning any documents, correspondence, etc.
Unclaimed Property Audit DON’Ts
Don’t Get Caught Unprepared
Companies should conduct a complete risk assessment to review past and current procedures to identify potential risks. Being informed allows companies to adjust internal systems to correct weaknesses and to remediate any identified liabilities or exposure through research, outreach, and enhanced pre-escheat communication campaigns.
Don’t Sign Your Life Away
Certain third party audit firms recently began introducing state attestation forms at the onset of an examination. While these forms contain important scope-related information, they may also request your acknowledgment for estimation or extrapolation use where records are not present. Attestation letters should be reviewed by internal and/or external legal counsel knowledgeable in unclaimed property law prior to signing.
Don’t Attempt to Tackle the Audit Alone
Consider the services of a holder advocate. Consultants well-versed in the audit process can increase efficiency and limit scope creep by reviewing auditor requests and data prior to delivering same to auditors. Additionally, specialized legal counsel can provide guidance and enforcement of the legal limitations that should be imposed on the audit process.
Don’t Ignore the Audit Notice
It’s not going to go away and it doesn’t get better with age. Notify your stakeholders and formulate a plan of action. Being unresponsive may negatively impact any likelihood of an agreeable or beneficial settlement with the States.
Don’t Blindly Agree to Auditor Requests and Logic
Auditors continue to introduce testing methodologies and approaches that put undue burdens on companies to produce records unrelated to the audit, have the potential to misidentify liabilities, and ultimately tend to over-inflate the audit findings. Ensure requests are thoroughly reviewed and don’t be afraid to challenge findings through your own analysis.
Unclaimed property audits are intrusive, disruptive, aggravating, and expensive if not managed properly. The onslaught of information and data requests from the auditors can easily become overwhelming for any company – regardless of their history of compliance.
Keane has extensive experience assisting companies under examination by third-party contingent fee auditors on behalf of multiple states. Through active collaboration with the internal stakeholders, in-house and/or specialized external counsel, Keane enables holders to take a proactive approach to audits. We help companies ensure the integrity and accuracy of the audit activities, increasing efficiency and achieving more favorable settlements than when facing the audit on their own. Contact us for additional information on how Keane can help.