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How Should You React to an Unclaimed Property Self-Audit Letter?

Posted By UPPO, Tuesday, October 6, 2020

Reviewing the daily mail, you find an official-looking letter on Washington state government letterhead providing notice that your company may be out of compliance with state unclaimed property. Yikes! Questions rush through your head: Is this serious? Are we in trouble? What the heck is unclaimed property? How can you resolve this as quickly as possible?

 

Reading further, you find that the state has “authorized a self-audit program providing your company an opportunity to come into compliance… without undergoing an on-site audit and without assessment of penalties and interest.” The letter says the state is working with a company called Verus Analytics to assist. Panic begins to subside. It seems that simply completing the online self-audit form before the deadline should take care of things.

 

Not so fast. Before rushing to complete that form, take a deep breath and ask a few more questions.

 

“No company should ignore unclaimed property,” said Jamie Ryan, member with Bailey Cavalieri LLC, a Columbus, Ohio based law firm, and co-chair of UPPO’s Government Relations and Advocacy Committee. “Those parties receiving this letter should call their accountant or call their lawyer to find out what it’s really about. Do a little digging, research Verus and understand what you’re really getting yourself into if you decide to go forward with Verus.”

 

Verus Analytics is a third-party auditor that works on behalf of some states to identify unclaimed property liabilities. Many unclaimed property professionals have taken issue with states’ use of third-party auditors for a variety of reasons, including a contingency fee payment structure that could provide an incentive to create the largest possible unclaimed property liability for businesses.

 

“Forgive me if I’m cynical about it, but it seems unlikely that a self-audit guided by an auditor would be helpful to clients who aren’t familiar with unclaimed property reporting and compliance,” Ryan said. “Many of us who have dealt with unclaimed property auditors are very skeptical about these auditors helping. Auditors often try to create unclaimed property. They mislead people about what the law actually says and what property actually unclaimed property.”

 

So how should a company react when receiving a letter from a state government urging them to participate in a self-audit with the assistance of their third-party auditor?

  • Take it seriously. Unclaimed property compliance is a legitimate requirement in all 50 states.
  • Research options. Many states offer voluntary disclosure agreement programs to help companies come into compliance without penalties. This option may offer the ability to work directly with the state rather than outside auditors.
  • Ask questions about the self-audit and the auditor’s role. Does Verus have the right to turn you into the state if you disagree with a position the company takes? What is the auditor’s legal authority? What is the scope of the contract? Is the auditor being paid on a contingency basis that encourages creating unclaimed property? How does the self-audit process end? Can companies opt out later if they no longer want to participate or are they locked in?
  • Involve trusted advisors. Ask your banker, accountant and legal counsel for guidance.
  • Understand the scope of Verus’s authority – is it only Washington? Do you only send over the Washington addressed property?
  • Be careful about providing information to a third party such as Verus. Can you get a non-disclosure agreement with Verus? Are there Freedom of Information Act issues?

“You have to comply with unclaimed property laws,” Ryan said. “Don’t ignore the letter, but definitely don’t just jump in thinking Verus is your friend either.”

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