As we turn the page on the new year, several senior financial
executives wonder whether they will ever be able to shake one or
more unclaimed property audits that have stretched the
company's resources for years.
Unclaimed property audits do seem to drag on forever. The
proliferation of third-party multi-state auditors has led to an
exponential increase in the number of audits states initiate and
has dramatically extended the duration of the audits. Many audits
last at least 3-5 years, and in rare instances, some have lasted
close to a decade. While often these audits do extend for valid
reasons, one force driving this trend is that third-party auditors
paid by the state are financially incented to prolong the audit
period.
Compensation arrangements with third-party auditors are typically
based on both hourly and contingent fee arrangements. Effectively,
the auditors are paid the greater at pre-determined hourly rates or
a percentage of the amounts ultimately collected by the states.
Thus, it is a win-win arrangement for the auditors to devote
extensive personnel and time in conducting the audit while holding
out for the big prize at the end in terms of a contingent fee if it
yields a higher result.
Despite these incentives, companies have specific legal and
administrative remedies at their disposal to fairly and expediently
conclude an audit. The key is knowing when and how to deploy these
strategies to reach a favorable resolution.
Duff & Phelps'
Unclaimed Property and Tax Risk Advisory team is highly
experienced at bringing audits to a close. Frequently, we have been
brought into audits that have been going on for years. For audits
lasting years, a change on a Holder's advocacy team is what is
needed to break a logjam and end an audit. We can focus on key
issues and execute a plan with company representatives and the
states to reach final resolution.
Our team has deep relationships with state administrators and
extensive experience dealing with employees at all the major
third-party audit firms. Our knowledge of the states' and the
auditors' tactics as well as internal and external demands and
deadlines provides us the insight needed to push the right buttons
to close an audit quickly.
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