Audits

Causes for Audit
Following are five possible ways companies may be targeted for an unclaimed property audit:
- Non-compliance on the part of the company
- The state believes under-reporting by the company
- There is an inconsistency in the reports by the company
- The company is identified as a target industry by the state
- Random selection

Audit Scope
Depending upon the state and the filing history of the holder, an unclaimed property audit may range from a few years back to the date of the company’s incorporation. Generally, states tend to use a ten-year look back for Voluntary Disclosure Agreements and a twenty-year look back for audits. This period takes into account both the dormancy period and the years subsequent to presumed abandonment of the property.

Audit Expectations
The first step in an unclaimed property audit is the initial contact. The initial contact will involve communication from the state’s unclaimed property division and involves conversation with the controller, chief accountant, accounting manager, and/or the chief financial officer. The communications will involve an explanation of the state’s unclaimed property law and also an explanation of the state’s audit procedures. The contact will also be used to gain information about the company, including the state of domicile, date of incorporation, the location of records, and the number of employees. Also, discussion would include the nature of the audit and any time restrictions, in order to avoid interruptions of the audit. The last step in the initial contact phase of an unclaimed property audit is to schedule an appointment. The appointment will most likely need to be made within 30 days from the initial contact, with an opening conference and at least three consecutive working days.

During the record request phase of an audit the first document received will most likely be a confirmation letter, which shows the scheduled appointment date, a list of records requested, and the location where the record review will take place. During the record request, it will be necessary to explain the record retention policy. Questions regarding what records are maintained and for how many years, as well as what records are available will be part of the record request phase. Also records may need to be provided to the auditor. These records should be provided along with an inventory of the records and an explanation.

The next step of an unclaimed property audit is the review of records. For this phase of the audit, a contact person, specific to each type of property, should be identified to the auditors, including a name, title, and phone number. The person should be familiar with older records. Another part of the record review process is the workpapers. The workpapers list all items suspected to be unclaimed property, and include payee name, address, check number, check amount, date, bank account number, general ledger account number and related journal entries. The record review process will also include some research to prepare the workpapers, such as providing payee names and addresses as well as some additional information.

The closing conference will involve documentation, adjustments and expectations. Documentation includes signed affidavits, original checks, copy of reissued checks, proof of paid checks, and payee identification. Adjustments include deletions, additions, and adjusted workpapers.

AICPA Audit Standards of Reasonableness
Under Section 342.09 of the AICPA Professional Standards, auditors are required to consider various factors in performing an estimate. These standards are the significance to the accounting estimate, sensitivity to variation, deviations from historical patterns, subjectivity and susceptibility to misstatement and bias.

- Michael J. Giannettino & Loredana C. Pfannenbecker