Audit Selection Process - Unclaimed

1 Audit Selection Process Audit Risk Factors: The Unclaimed Property Division analyzes several risk factors within a consistent framework to determine a semi-annual Audit plan. Risk factors include: Type and Size of Business A business that through analysis of the business category shows a significantly lower than average reporting level than other businesses of like size and type. Businesses that have been transformed through sales, mergers, acquisitions, or reorganizations. Industry Compliance Multi-state requests for an Audit of a business, which has holdings in several states. Industries with substantial risk of non-compliance. Periodic cycle emphasis of an industry. Reporting History Negative reports filed when there is likely Unclaimed property to be reported.

2 No reports filed. Gaps in reporting history. Leads Which Indicate Business May Be Non-compliant or Non-reporting Secretary of State Business Entity database. Department of Taxation database. Gaming Control Board recommendation. Public information that an entity is not in compliance. Consumer complaints. Businesses that fail to file an Unclaimed property report significantly increase the possibility of being audited. A business that consistently files negative reports claiming no Unclaimed property is being held also increases the likelihood of being audited. Audit Selection Process : Three methods are used to determine Audit candidates: 1) Unclaimed Property Database An electronic analysis by the Unclaimed Property Database identifies irregularities in businesses that may be out of compliance with the Unclaimed Property Act based on Audit risk factors.

3 2) Analysis of Risk Factors Business entities are selected for Audit based on an analysis of the risk factors. A weighting criterion (described in the next section) is performed using the risk factors to rank the audits. Once ranked, the audits are assigned based on priority. 3) Random Selection Five percent of all audits are randomly selected from the Unclaimed Property Database. Weighting Criteria: Audit Selection is completed semi-annually based on the weighted Selection criteria and geographic location of selected businesses. An assigned priority code will be given to each business determined to be at risk based on risk points. Businesses with the highest number of risk points are audited first. Risk Points: 4 points: Time limitations or delinquency issues: A business that is being closed or relocated out of state.

4 A business that has never filed a positive or negative report. 3 points: Substantial issues of non-compliance: A business that through analysis of the business category shows a significantly lower than average reporting level than other businesses of like size and type. Information received by the Unclaimed Property Division regarding non-compliance by a specific business. Information from other state, local, or multi-state jurisdictions regarding low compliance by the business or industry. A negative report filed when it is likely Unclaimed Property should be reported based on average reported levels of businesses of like size and type. 2 points: The business has never been audited. An industry selected with potential risk for non-compliance or underreporting.

5 A business with substantial reorganization or mergers. 1 point: Gaps in reporting history. Businesses can also receive a reduction in points based on several factors: -3 points The business has reported consistently within the past three years and there are no apparent areas of noncompliance. A prior Audit has been completed within the past five years and the business has consistently reported in recent years. -7 points An Audit would result in diminimus amounts, thereby not justifying the resources required to complete the Audit . A prior Audit performed within the past five years resulted in little or no Unclaimed property owed to the state.