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Solutions Summit 2014 Audit Trends David Tanner & Mark Vogel – Chesapeake Systems.

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Presentation on theme: "Solutions Summit 2014 Audit Trends David Tanner & Mark Vogel – Chesapeake Systems."— Presentation transcript:

1 Solutions Summit 2014 Audit Trends David Tanner & Mark Vogel – Chesapeake Systems

2 Chesapeake System Solutions, Inc. Proprietary and Confidential What you need to know… Compliance is mandatory in every state Unprecedented # of audits (DE and other states). Third-party audit firms (Kelmar, UPCH, SAS, Audit Services, ACS/State Street) are thriving and hiring. Just a matter of time until your company will be audited. Even companies who have a robust filing history are being targeted. Enforcement is increasing and penalty assessments are becoming more common

3 Chesapeake System Solutions, Inc. Proprietary and Confidential Current lay of the land… States are facing significant budget constraints Consumer protection vs. revenue generating Predominant use of contract auditors New companies/audit firms surfacing Use of estimates Calculations that include suggested liabilities not defined by statute Enforcement focus on new property types Due diligence enforcement Penalty and interest assessments Foreign jurisdictions Economic crisis has generated an increase in mergers and acquisitions

4 Chesapeake System Solutions, Inc. Proprietary and Confidential Types of Audits Comprehensive/all inclusive audits General Ledger Audit vs. Equity Audit State auditors vs. contract auditors Local accounting firms are getting involved Multi-state third party audit firms

5 Chesapeake System Solutions, Inc. Proprietary and Confidential Audit Triggers Non-reporting Owners contacting the state to claim funds Negative reports Missing property types Comparison to like-companies Spikes and dips in reporting Company in the news Industry under audit

6 Chesapeake System Solutions, Inc. Proprietary and Confidential Self audit / Voluntary disclosure Waiver of interest and penalty Reduced look-back period Control of the review Opportunity to correct issues Company-specific facts and circumstances applied throughout the process

7 Chesapeake System Solutions, Inc. Proprietary and Confidential Fines and Penalties A holder can be assessed penalties and/or interest for: Failure to report/remit the property Failure to comply with the statute Interest generally applied at 10%–25% of property value Civil/Criminal penalties for failure to report/remit/deliver OR filing a fraudulent report may include $100 – $200 per day ($10,000 maximum) Varies from $1000 – $25,000 fine plus some states access an additional 25% of the value of the property Some States – Class B misdemeanor

8 Chesapeake System Solutions, Inc. Proprietary and Confidential Audit notice received. Now what??? Timely response to the state to confirm receipt of the audit notice Reinforce message that you intend to cooperate with the auditors Enlist legal counsel to negotiate a confidentiality agreement (if conducted by a third- party auditor) Try to limit # participating states Assign one point of contact to lead and respond to all requests. Form an audit management team (Accounting, Treasury, HR, PR, AP, AR, Risk, Internal Audit). Interview and retain experienced outside consultants and legal counsel as soon as practical.

9 Chesapeake System Solutions, Inc. Proprietary and Confidential Audit Process Confirm state authorization and years in scope Opening conference Understanding of the company’s structure, filing and audit history Review of subsidiaries, types and availability of complete records Acquisitions, reviewing contracts, filing and audit history Reviewing basic financial data Prior reporting history/compliance Identifying other accounts for audit Tracing Accts Receivable credits Auditing potential “write off” accounts

10 Chesapeake System Solutions, Inc. Proprietary and Confidential Audit Process (cont.) Conduct regular team status calls/meetings. Be organized! Closely track documents requested/provided (monitor Task Management Report closely). Thoroughly research auditors’ requests to confirm legitimacy. Negotiate deadlines for delivery of documents. Enlist temporary staff for routine tasks, such as scanning documents (provide clear direction and inspect work). Establish a virtual file room, used for document review by outside advisor and delivery to auditor. If auditors on site, restrict access to employees and other areas of the office.

11 Chesapeake System Solutions, Inc. Proprietary and Confidential The Role of External Consultants and Legal Counsel Incredibly valuable, but need to maximize efficiency and control costs. Discuss and confirm roles and responsibilities at the outset. Be specific on the extent of their involvement (e.g. how often status calls; need for being copied on emails, memo’s etc.). Legal counsel not needed for routine calls/discussions, only ones involving legal issues. Where litigation is possible, strongly recommend use of “Privileged and Confidential Prepared at the Request of Legal Counsel” on emails, memos, and work products. Explore with legal counsel reliance on B2B and other exemptions that can mitigate liability.

12 Chesapeake System Solutions, Inc. Proprietary and Confidential Keep Senior Management Informed Consider forming a Steering Committee of executives (CFO, Controller, Treasurer, VP Tax, Legal). Have quarterly meetings; include consultant by phone or in person. Provide interim updates as audit milestones are reached. Auditor may require a call or meeting with a company officer on a disputed matter. Bring new senior level leaders up to speed on the audit as roles change or retirements occur.

13 Chesapeake System Solutions, Inc. Proprietary and Confidential Common areas of weakness Writing off credit balances Not reviewing all open and closed bank accounts for stale dated checks Not documenting voids, stops and reissues Incorrectly aging items for reporting (dormancy periods do change) Missing property types (AR, benefit plans, workers comp, rebates, gift certificates) Assessing inactivity fees incorrectly or where prohibited Not reporting property post-merger/acquisition Third-party agent related liability (e.g. PR, Transportation, Utility

14 Chesapeake System Solutions, Inc. Proprietary and Confidential Estimation of Liability Depends on audit look back period and years of complete records. Auditor establishes base year escheat % by account/property type. Uses revenue or other factor to extrapolate liability for years with no records. Consider requesting consultants to do alternate calculations. Make sure only in scope entities are included. Confirm that reported items are netted against calculated liability. Double check the auditor’s calculation! Involve counsel to preserve any legal arguments or positions.

15 Chesapeake System Solutions, Inc. Proprietary and Confidential Finalizing the Audit Negotiation with state of final assessment by Holder C level officer and legal counsel Extensive preparation is essential – factual summaries, assumptions and alternate liability calculations based on legal arguments Critical to nail down the period that is being closed by the audit settlement Agree on payment terms and method Written Closing Agreement to be signed by state and holder Preserve all audit work papers and final settlement documentation

16 Chesapeake System Solutions, Inc. Proprietary and Confidential It’s over. What now??? Must be vigilant and learn from mistakes! If not done already, draft and implement policy and procedures for managing potential liability. Stay abreast of legislative and regulatory changes. Join Unclaimed Property Professionals Organization (www.uppo.org) and be active.www.uppo.org Network with other Holders and attend conferences and webinars. Enlist senior management to hold areas within company responsible for maintaining compliance. Pursue Voluntary Compliance filings in non-audit states to clean up liability.

17 Chesapeake System Solutions, Inc. Proprietary and Confidential Questions???

18 Thank you!


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