Michigan Sets the Standard for Fairness in Unclaimed Property Audits

by Reed Smith

A recent Michigan bill (House Bill 4289), delivers a useful example to other states regarding administration of abandoned and unclaimed property ("AUP") audits. House Bill 4289 is in the hands of the Governor, who must sign or veto the bill by November 7, 2013. Notably, the bill mandates the documentation that must be provided to an audited company by the auditor; limits the auditor’s ability to extrapolate if the audited company (the "holder" or "person") has substantially complete records; and requires regulations to be developed regarding the audit procedures. This bill represents a step in the right direction, as it requires transparency in the audit calculation and rewards holders for filing reports and retaining records.

Key provisions in House Bill 4289

The legislation provides that a holder who has been audited shall be given a complete copy in printed or electronic format of the audit report, which shall identify, in detail, the work performed, the property types reviewed, any estimation techniques employed, calculations showing the potential amount of property due, and a statement of findings. Most interesting, the bill requires that an auditor must provide all other correspondence and documentation that formed a basis for the findings. While giving the holder an audit report is nothing new, specifying that the auditor must include the estimation techniques and the calculations used in the report will make it much easier for holders to understand and, if necessary, challenge the auditor’s calculation. This also compares favorably with the current practice of the contingent fee auditors used by other states. These auditors often will provide holders with a report indicating that documentation is insufficient for certain transactions, but rarely will they give holders any guidance regarding what level of documentation would have been sufficient.

The bill also provides that if the person being audited has filed all the required reports and has maintained substantially complete records, then all of the following apply to the audit: (a) the audit shall include a review of the person’s books and records, (b) the audit shall not be based on an estimate, and (c) the administrator or agent shall consider all evidence presented by the holder to remediate the findings. These changes, if enacted, would place severe limits on the ability of auditors to come up with inflated amounts of property due through the use of extrapolation. Such limits are consistent with the actual purpose of Michigan’s AUP law, which is to reunite owners with their property, not to generate revenue for the state’s budget.

However, the bill does not reward non-compliant holders. If a holder does not maintain substantially complete records, then an auditor can still base the holder’s liability on an estimate. The bill defines "substantially complete records" to mean at least 90 percent of the records necessary for unclaimed property examination purposes. The determination of whether a holder’s records are substantially complete depends not only a percentage of the actual individual records, but also on the materiality of the records. The bill also specifies that where a holder’s records for one particular property class are insufficient, this does not provide an auditor with the authority to apply estimation techniques to other property classes for which the holder has filed adequate reports and maintained sufficient records.

What does this mean for holders in Michigan?

File annual reports and retain records! The key provision in the bill limiting the ability of an auditor to use estimation is contingent on the holder having filed unclaimed property reports. In addition to filing reports, holders in Michigan should be retaining the records necessary to support those reports. Specifically, holders should retain transaction-level detail for any reported property. Transaction-level detail means check number, check date, dollar amount, and payee name and address, and if retained, the state will only audit the actual records and not use estimations. Furthermore, if a holder is filing for multiple entities or divisions, the retained records should include an identifier for the entity or division.

Holders should also be keeping a close watch for the new Michigan AUP audit procedure regulations. The bill mandates that these regulations be developed within six months. These regulations should provide holders with the additional framework for the audit procedure and guidance in going through the audit. A subsequent update will be provided when the regulations are released.

Written by:

Reed Smith

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.