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Five Emerging Securities Audit Trends

Posted By Administration, Thursday, November 15, 2018

Unclaimed property holders in any industry may be subject to audit, but the nuances of the audit will vary depending on the property types involved. For holders working with securities, several audit practices are becoming more common. 

 

Transfer Agent Record Requests 

Auditors examining transfer agents are increasingly requesting documentation about their issuer clients. Those records belong to the securities issuer, so the transfer agent should not provide such records without their clients’ authority.  

 

Overreaching Requests

Auditors often ask for information that is not necessary to determine which shareholder accounts could be considered unclaimed property. For example, requests for contracts with transfer agents or search firms retained to locate share owners, account open dates and shareholder Social Security numbers are not relevant to establishing whether accounts represent unclaimed property. 

 

“Holders can push back on overreaching requests,” said Freda Pepper, counsel for Reed Smith LLP. “Just because an auditor is requesting information doesn’t mean it’s relevant and that it’s appropriate to be provided.” 

 

Long Silences

After providing large amounts of information to auditors, holders may not hear from them again for months. In some cases, such “radio silence” may continue for years. Some holders may choose to “let sleeping dogs lie,” while others prefer to seek confirmation that the audit has ended. 

 

Follow-up Requests

When following up on information the holder submitted, auditors often seek: 

  • Proof of contact, including system-generated reports or screenshots.
  • Proof that contact is actually “owner generated,” demonstrating that it was sufficient to restart the dormancy period. 
  • Cash transaction history. 
  • Date of last first-class mailing, proven with a screenshot.
  • Additional escheat filing detail. Auditors often ask for unclaimed property reports that have been filed within the past two years, which is unusual since the states they are representing already have this information. Increasingly, they are also requesting a preview reports before the next escheat report deadline. 

    “From a practical and logistical standpoint, doing a one-off preview report early in the cycle may be costly or not feasible, so holders may wish to push back on such requests,” Pepper said. 

 

Death Master File Use

As a result of success in the life insurance industry, auditors are increasingly using the Social Security Administration’s Death Master File as an audit tool for securities audits as well. Comparing records to the DMF, they seek to determine holders who may be deceased and accounts that are overdue to the state as unclaimed property. States and their auditors argue that the dormancy period for unclaimed property begins upon the date of death rather than the triggers established by state law. 

 

After identifying potentially deceased property owners, auditors claim the burden shifts to the holder to prove an account is active. Holders may choose to remove Social Security numbers from information provided to the state and its auditors for this reason. However, providing only names may result in even more work. Auditors may run account owner names against the DMF, receive false positive hits for common names and insist the holder prove such account owners with matching names are still alive. 

 

The 2019 UPPO Annual Conference will feature industry-specific breakout and educational sessions that offer attendees the chance to discuss and learn about trends facing the industries in which they work. Multiple educational sessions, including Audit 101, Third-Party Auditor Differences, and Estimation Under Audits and VDA, will also focus on audit trends. Visit UPPO’s Annual Conference website for details and registration. 

Tags:  Audits  securities 

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