Published in Finance
Tricia Kinley of the Michigan Chamber of Commerce Tricia Kinley of the Michigan Chamber of Commerce

Business group welcomes changes to ‘insidious’ unclaimed property process

BY Sunday, January 24, 2016 10:05pm

Business advocates in Michigan are applauding the Legislature and Gov. Rick Snyder over changes made late last year to the state’s abandoned and unclaimed property process.

In what supporters call a continued trend for “holder-friendly” legislation, lawmakers sought to make it easier and quicker for companies to go through unclaimed property audits.

Last fiscal year, the state Department of Treasury was the custodian of $220 million worth of unclaimed property, with over $100 million being returned to property owners. Abandoned or unclaimed property can come in the form of lost or forgotten assets such as old bank accounts, uncashed checks or valuables left in safe deposit boxes.

Groups like the Michigan Chamber of Commerce also see the changes as a victory in the ongoing fight against what companies call cumbersome third-party auditors.

The changes — approved unanimously by both chambers of the Legislature and signed by Snyder on Dec. 22 — create a “streamlined audit process” with a goal to be completed within 18 months.

Jeremy Sampson, spokesman with the state Department of Treasury, said it’s “common practice in the industry” to use third-party auditors and the department does not intend to change its practice.

A spokesperson for Kelmar Associates LLC, the company that performs the most audits for Michigan, said the company is aware of the policy changes but declined to comment on specific criticisms against third-party auditors.

Sampson said the department is “generally supportive” of the changes, particularly for audit times potentially being reduced.

“The time that it was taking to complete these audits was lengthy for both a business and for an auditor,” Sampson said in an email. “These changes will make the process easier for businesses to comply and for us to administer.”

Tricia Kinley, senior director of tax and regulatory reform at the Michigan Chamber, said some companies have been through audits that took as long as five years to complete. She spoke with MiBiz about the details of what’s included in S.B. 538.

How will the new streamlined audit process work?

The bill actually lays out that the goal is to complete these expedited audits in approximately 18 months. Granted, usually in statutes, you don’t see the word ‘goal.’ You need hard, fast, concrete deadlines. But businesses involved in these types of audits indicated it’s not always easy for them to collect all of the records on this obscure hypothetical property. At the same time, if you have disagreements between a business, an auditor and the state, that might take two, three, four or more months. That would be agreed upon.

Why are these changes important?

In the realm of unclaimed property audits, there really was no time limit prior to this bill passing. Our members were telling us of audits taking four to five years. That means closing out the books as a business and having unresolved audits.
A lot of businesses involved in these audits did not feel there was a lot of motivation, if you will, on the part of auditors to get these wrapped up and completed. In contrast of taking four to five years, it’s important to have this new reform that at least sets an expectation that it will be done in one and a half years.

Has there been effort to make these audits done by the state rather than third parties?

In the case of unclaimed property audits in Michigan and in many states, these are third-party, outsourced auditors doing work on behalf of the state. This is something the Michigan Chamber has opposed for many, many years. These audits are outsourced to firms that are not actually state civil servants — we have a big problem with that.

That was the original impetus behind this bill. We’ve always wanted to ban the use of third-party auditors. The real issue behind this is that auditors are paid an incentive for these audits. We find that very problematic and we think this is insidious. The reason S.B. 538 was actually put together was as a middle ground between banning those types of audits outright and not doing anything.

This is a huge, huge issue for us. For companies across the country, if you think about the fact that you have an auditor coming in and doing an unclaimed property audit and there are incentives to making more money through more properties on a roll, (it) can often present a conflict of interest. This is a nationwide problem. However, we would not be operating in good faith if we tried to ban them legislatively this year. In fairness to Treasury and this new law, we need to allow this time to work and see how Michigan businesses respond.

The bill also has a provision that property worth $25 or less is not subject to state custody if it goes unclaimed. Why is that important?

This is pretty significant. You have a lot of employers that have an unclaimed property reporting obligation and all sorts of small little property — they may not even totally realize the state is considering it unclaimed. Because it’s such an obscure law, our fear is that just by accident, people are unknowingly not in compliance. That kind of stuff becomes a nuisance and a burden and — equally so — the state has to take that property in. It’s probably more trouble than it’s worth for everyone involved.

We think $25 is pretty low. The original bill limit was for $50, which we thought was better and more appropriate. Still, it’s an important milestone that something is in there.

A common criticism of this process is that states use unclaimed property as a way to generate revenue. Was that happening in Michigan?

I don’t want to speak for the state, but the reality is: Treasury was hearing from a lot of Michigan companies that unclaimed property audits and auditors were getting out of control. Historically, the state has been opposed to unclaimed property reforms. This whole system was archaic. It gets very controversial and it’s really annoying to job providers.

What will be the overarching benefits of these changes?

Some of this is that the state needs the audit process to wrap up sooner. It also needs to engender goodwill with businesses because this has gone on out of control for too long. We’re really pleased the governor signed this important bill and we are very appreciative of the state treasurer’s effort to prioritize this bill.

Read 4288 times Last modified on Sunday, 31 January 2016 21:54