Reform of Michigan’s Unclaimed Property Audit Standards
Michigan’s unclaimed property audit standards have been reformed with the passage of Public Act 148 on Oct. 29, 2013 (House Bill 4289). PA 148 addressed concerns that Michigan’s administration of unclaimed property laws was “becoming more focused on their revenue raising potential than on their true purpose of returning abandoned or unclaimed properties to their rightful owners.” (House Fiscal Agency Legislative Analysis to HB 4289, 5/21/2013.)
The most notable change to Michigan’s Uniform Unclaimed Property Act (MCL 567.221 et seq) is the limitation of the State Treasurer’s (the administrator) and its agents’ use of estimates when conducting unclaimed property examinations. In implementing this reform, Michigan’s Legislature recognized that the unchecked use of estimates in unclaimed property audits gave rise to “potential due process concerns.” (House Fiscal Agency Legislative Analysis to HB 4289, 5/21/2013.) PA 148 provides that if a holder has filed all the required reports and maintains “substantially complete records” (as defined by the PA 148), the following would be required of the unclaimed property examination:
- The auditor must review the holder’s books and records.
- The auditor must not base the examination on an estimate.
- The auditor must consider all the evidence presented by the holder to remediate the examination findings.
If a holder does not have “substantially complete records,” the administrator may use a reasonable method of estimation, consistent with auditing standards, to determine the amount of abandoned or unclaimed property due. PA 148 requires the administrator to employ generally accepted auditing standards to the extent applicable to unclaimed property examinations. The holder is also entitled to a complete copy of the audit report, which must “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 as well as all other correspondence and documentation which formed a basis for the findings.” The administrator is also required to propose promulgated rules on auditing standards by May 2014.
House Bill 4289 was introduced in early 2013 when Michigan’s House and Senate were considering many bills that would reform Treasury’s tax administration practices. [See "Notable Pending Legislation Impacting Michigan Tax Administration," co-authored by Jackie J. Cook, Michigan Tax Lawyer, vol. 39 issue 2 (Summer 2013).] Among the bills still pending are two that would further implement reform of Michigan’s unclaimed property administration. HB 4703 (passed by the House on 9/25/2013) would implement an administrative process for appealing a determination by the unclaimed property administrator that the holder underreported unclaimed or abandoned property. SB 327 (passed by the Senate on 5/29/2013) would prohibit Treasury from using collection goals, budgets, or quotas in conducting unclaimed property audits and issuing assessments. For an overview of Michigan’s unclaimed property administration, see “How the Gold Gets in the Pot at the Rainbow's End: An Attorney’s Guide to Unclaimed Property Compliance in Michigan," co-authored by Jackie J. Cook, Michigan Bar Journal (October 2012).