Issuers advised on tackling unclaimed property audit

Issuers, brokerage firms and transfer agents face an array of headaches – and potentially very large bills – when they are targeted in an unclaimed property audit. The issue was a key theme at the Shareholder Services Association’s annual conference in Bonita Springs, Florida last week, where Tim McDonald, director of the search and location practice at Ryan, outlined a series of ‘survival strategies’ for dealing with such scrutiny.

State governments have in recent years stepped up their enforcement of unclaimed property laws, which cover items such as savings or checking accounts, stocks, uncashed dividends, unredeemed money orders or gift certificates and insurance payments, and their use of third-party auditors to carry them out.

An initial step when facing an audit is to organize a team that will deal with the various emerging demands and create a strategy, McDonald told attendees. That should include members of departments including investor relations, HR, legal and transfer agency. Next, companies should develop an awareness of any other potential obligations and open a line of communication with the auditors leading the process for the state, McDonald said.

Companies also need to be mindful of their property owner outreach tactics, including the results of SEC Rule 17Ad-17 efforts, statutory due diligence obligations and ad hoc outreach steps. McDonald urged companies to take a proactive approach to shareholder outreach and not to rely solely on a transfer agent. He also advised companies to take actions such as:

• Securing a non-disclosure agreement at the start of the audit
• Making sure they have updated policies and procedures outlining the roles and responsibilities of those within the organization who deal with unclaimed property matters
• Considering bringing a law firm into the process to act as another form of protection
• Conducting their own internal audit to understand their securities and general ledger exposure.

McDonald warned companies that failing to co-operate with a securities audit – which can be narrower and less burdensome – could result in the state deciding to pursue a general ledger audit, which can take a number of years to resolve. But he said companies should not be afraid to challenge an auditor – for example, by refusing to disclose property owners’ social security numbers.