policies and procedures within 30 days. The company had undergone significant personnel turnover, including individuals who were familiar with the unclaimed property process. Per the notice, if the holder did not adequately respond to the request, they would be subject to state enforcement remedies such as penalties and interest and/or involuntary review. The company engaged the Sovos team shortly after receiving the notice. After conferring with various subject matter experts for exposure areas unique to the company, Sovos was able to compile the policies and procedures and document them to demonstrate the company’s controls effectively limited exposure. Shortly after submitting the policies and procedures to Delaware, the company received notification that the verification was concluded and no further action was needed. Example #2: DE Compliance Review Notice A mid-sized, upstream energy company received a Compliance Review notice from the Delaware Department of Finance, demanding the supporting documentation for its 2020 filing. The supporting documentation request included, but was not limited to, documents such as trial balance, outstanding check registers, aging reports, policies and procedures and other documents that would normally be requested for an audit. The state requested the data be provided for years 2015 through 2020 within 30 days. The company engaged Sovos to assist in this matter. Sovos reduced the number of documents that needed to be provided to the state and submitted the documents essential for the review. Audit Landscape The energy sector is constantly evolving, and with so many nuances and accounting applications that are unique to this industry, unclaimed property compliance sits as one of the primary topics of discussion amongst those that work in this space. Division order analysts, land administrators and other personnel with unclaimed property or escheat responsibilities can attest to the importance of obtaining and maintaining compliance with state laws. Those who have never filed an unclaimed
property report, as well as those who have not consistently complied with the laws, can find themselves on the receiving end of substantial penalty and interest assessments when attempting to come into compliance. Historically, we have seen Colorado, Delaware, New Mexico, North Dakota, Oklahoma, and Texas being the most aggressive states participating in the energy (i.e., oil and gas) audits. No matter if you are upstream, midstream or downstream, there is a need to comply with each state’s unclaimed property laws. As states continue the initiative of expanding holder education and compliance, more and more companies are being audited by third-party audit firms authorized by the states. A few of the more active audit firms targeting this industry are Discovery Audit Services (“DAS”), Innovative Advocates Group (“IAG”) and Treasury Services Group (“TSG”). Audit firms take different approaches about how they conduct their review. Some auditors focus on specific property types while others generally include all property types specific to the industry. Sovos’ consulting team has a track record of successfully supporting many companies across a variety of industries throughout the audit process. During the first half of 2021 alone, Sovos successfully helped several clients close audits in less than two years, which reduced multi-million dollar audit findings to an immaterial fraction of the initial discovery, and negotiated the abatement of penalty and interest with states that have not historically done so. Here are some examples of how our team assisted clients in the reduction of audit timelines and, more importantly, reduced material liabilities: Example #1: A Sovos consultant spoke with a holder at a conference following an audit support presentation. The holder had recently been notified of an audit and was attempting to manage the audit internally without assistance due to constrained budgets and assumption that the audit would be simple and low effort. After some general discussion and high-level guidance
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