Enforcement and Voluntary Compliance Initiatives

Pamela Wentz, Director - Consulting & Advisory Services

March 16, 2016

Where we’ve been.

Enforcement efforts come in many different shapes and sizes.  They range from amnesty programs (like the current Washington state program) to voluntary compliance initiatives to educational programs or full blown audits.  As in the past, some states have state employee auditors and many states contract with third-party or contingent fee auditors.  Some states even use both.  The only thing that stays the same with state enforcement is the constant change.

Historically, there had been a small number of big players in the contract audit arena; two to three primary firms that may have had contracts with 30 plus states.  Over the last several years, the playing field has evolved.  Several new firms have emerged which typically contract with a fewer number of states.

Along with the addition of new contract audit firms has come the addition of new audit methodologies.  Even though auditors are in theory extensions of the states, their methodologies have been inconsistent.

Where we are.

While many states do have state employee auditors, states increasingly are becoming a part of multi-state audits involving third party auditor firms.  State employee auditors tend to audit within their own state borders.  Contract auditors tend to be used outside of state borders and in cases where the states do not have the resources to audit directly.

Generally speaking, smaller firms tend to represent fewer states (sometimes only one). As a result, audits tend to be shorter in duration and more focused in nature; as opposed to some of the audits that lasted several years.  But that doesn’t mean they are any easier on holders.  More companies are undergoing multiple audits by multiple auditors representing different states.   In fact, it is not unusual for a state to accidently sign on to the same audit with more than one third-party audit firms.  And new concerns have arisen: topics such as data protection, interpretation, and audit administration continue to arise further complicating the audit landscape.

With more audit firms has come the onset of varied methodologies.  More audit firms are attempting to use death matching (i.e. the comparison of customer social security numbers (SSNs) to the Social Security Administrations death master file) in unclaimed property testing.  This is a practice that started in the life insurance arena but it is quickly gaining traction in other industry audits as well.  Also, there has been a renewed focus on the different types of owner generated activity.  “Activity” is being scrutinized and there has much debate as to what does or does not constitute activity.  Some forms that have been utilized in the past, such as the non-return of mail, are now being rejected.

There are also unique situations as some of the newer auditors have introduced less-common or entirely new audit methodologies.  For example, instead of using the more common methodology of testing aged credits, one audit firm has been testing debits in an effort to identify unclaimed credits that may have been written off.  For the most part, these “new” methodologies may be harmless but they almost always result in the use of company resources at a time when companies do not have the resources to waste.

Where are we going?

There is no indication that the number or frequency of audits will decrease in the near future.  Most likely states will continue to increase and even accelerate the enforcement of state unclaimed property laws.  Regarding the audit methodologies utilized, there are more questions than answers and what the future holds with these methodologies is unclear. Due to the increasing attention that unclaimed property compliance and enforcement is receiving, it is a fairly safe bet that more contract audit firms will sprout. The new audits and new statutory changes, and the upcoming results of current litigation will cause some shifts in audit methodologies but it is too early to tell if this will be good or bad news for the holder community.  The one thing that we can be sure of is state enforcement efforts will continue to morph and change.

Key Highlights/Potential Trends for Enforcement & Voluntary Compliance Initiatives

  • States are increasing their enforcement efforts including increasing the number of audits performed and the use of third party audit firms to conduct audits.
  • The audit firm pool no longer is limited to a few big players who represent a large number of states. New audit firms have come on the scene and they typically represent fewer states.
  • New audit methodologies are being utilized by third party auditors the impact of which is yet unclear but they are at least taking more time and resources from the holders being audited.

Go from Enforcement & Voluntary Compliance Initiatives back to Keanotes Spring 2016 Issue

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