The Truth About State Auditors

National Association of Unclaimed Property Administrators

The Truth About State Auditors Unclaimed Property Clearinghouse Jeremy Katz, Chief Operating Officer Xerox State Business Process Solutions

The Foremost Authority on Unclaimed Property


Myths About State Contract Auditors • Holders are already in compliance • Auditors are free to audit any company they want • Auditors only use estimation to perform audits • Holders are bound to pay what an auditor identifies • Holders have no recourse throughout the process • Contingency fee audits produce unfair results 2013 National Holder Workshop


Rationale for a State Audit Program • Protection of individual and commercial property rights • Improve awareness of the obligation to report • Ensure that report filings are complete and accurate • Leverage available resources • Create a more equitable reporting environment • Benefit citizens in the absence of the rightful owner 2013 National Holder Workshop


Why Audits are Needed Sample Analysis Data Non-Reporters No reporting history No report within previous 5 years Probable Under-Reporters

Finding 44 % 6% Finding

Reported < $1,000 of general ledger property each year

37 %

Reported only securities-related property (public cos.)

23 %

Reported no securities-related property (public cos.)

45 %

Gaps in report years

76 %

Expected property types not reported

42 %

2013 National Holder Workshop


Audit Candidate Selection Process Audit candidates are selected in the following ways: • Research of a particular industry • Research of holder activity in states with less active programs • Advanced Compliance Enforcement System (ACES) • Networking and on-line research • State requests 2013 National Holder Workshop


Audit Selection Process Data Compilation In general, a detailed company profile is created by combining data from publicly available sources, in addition to information that is extracted from a state’s holder database. A company profile consists of the following elements: •

Company name and address

•

State and date of incorporation

•

Contact information

•

Federal identification number

•

Number of employees, shareholders, annual revenue and subsidiaries

•

Third-party administrators, including: payroll, accounts payable and stock transfer

•

Corporate action activity, including: mergers/acquisitions, name changes, stock history, dividend details

•

Unclaimed property reporting history, including: – Years property reported, categories of property reported, dollar amounts reported – Number of records reported, reporting under different or prior names, subsidiary reporting history

•

Bankruptcy history



Audit Process Audit Steps • Authorization • Notification • Opening conference and review of scope and procedures • Audit commencement • Audit findings and reporting 2013 National Holder Workshop


How are Holders Protected What steps are taken to ensure that the audit process is conducted appropriately: • Experienced audit firms selected • Procedures established by statute and contract • Holders always able to express concerns directly to states • Holders are able to engage advocates • Holders are free to appeal findings 2013 National Holder Workshop


THE AUDIT PROCESS Presented by

Samuel LaRosa Vice President, Kelmar Associates, LLC The Foremost Authority on Unclaimed Property




Maturity of Industry – Advocates------------->Kelmar – Kelmar----------------->Advocates – Holder----------------->Kelmar – Kelmar----------------->Holder – State ------------------->Kelmar – Competitors---------->Kelmar



Just Here to Paint the Wall



Kelmar Associates, LLC What shape represents the structure of an UP exam?

DIAMOND SHAPE



Diamond Components Public Information

Organizational Chart Federal Tax Return 1120 G/L Accounts (By In-Scope Entity) Source Data (Bank Reconciliations, A/R Aging Reports, Etc.) Transaction Level (Select Aged & O/S Items)

Actuals Presented to Holder (Provided to Holder by Property Category)

Remediation (Errors, Filed, DDL’s, Refunds & Addresses)

Reports (Mandate State & Participating States)



Where do we start the audit?



Audit Direction is Top - Down SEC

Transaction Level Detail



Widest Point of Diamond is the Presumed UP

Presumption of Abandonment at Transaction Level Holder gets populations of presumptively due transactions Holder remediates transactions Report of Examination Findings Final Assessment & Payment 2013 National Holder Workshop


Samuel LaRosa Vice President – Kelmar Associates

[email protected]



Verus Financial LLC Caroline Marshall, General Counsel





Verus Financial received its first contract to perform unclaimed property examinations in 2008.



We work closely with the states we are contracted with to identify unclaimed property so that that property can be returned to its rightful owner.



During the course of our examinations we spend try to work with holders to ensure that the examination is conducted efficiently with as much communication as possible and as little disruption as possible.





As a result of examinations that have been resolved to date over 1,000,000 properties have been either reported to the states or returned to their rightful owners.



While performing the processing and reconciliation process set forth by these agreements, there have been no disputes with holders over the properties identified as unclaimed.



Over a billion dollars has been returned to beneficiaries or reunited with their rightful owners through the due diligence process related to the resolution agreements as well as outreach conducted by companies who have signed Global Resolution Agreements.
