Industry Specific Breakout: Oil and Gas Audit Issues Adrian Sadler -BP Pam Wentz -Keane UPPO Presentation Disclaimer Use of the Unclaimed Property Professionals Organization, Inc., (UPPO) name or copyrighted materials in this presentation does not constitute an endorsement by UPPO of a member, vendor, product or service. The content represents the opinions of the author and not necessarily those of UPPO. This information is not intended as legal advice and should not be used to replace the advice of legal counsel. UPPO Antitrust UPPO has a policy of strict compliance with federal antitrust laws. UPPO members and/or meeting attendees cannot come to understandings, make agreements, or otherwise concur on positions or activities that in any way tend to raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing models, methods, systems, and applications, as well as certain cost matters that do not lead to an agreement or consensus on prices or fees to be charged. However, there can be no discussion as to what constitutes a reasonable, fair or appropriate price or fee to charge for any service or product. Information may be presented with regard to historical pricing activities so long as such information is general in nature and does not include data on current prices or fees being charged in any trade area. Any discussion of current or future prices, fees, discounting, and other terms and conditions of sale, which may lead to an agreement or consensus on prices or fees to be charged, is strictly prohibited. 1
CPE Credit CPE credit is available at this conference. However, NASBArules require proof you attended the sessions. For UPPO to provide verification of attendance, you MUSTbe scanned in ANDout of each session to be eligible to receive credit(s). Please see the room monitor(s) at the back of room to have your name badge scanned. Different Types of Audits Comprehensive or target one property type Conducted by a state or states Conducted by a third party on behalf of multiple states Conducted by a third party on behalf of one state Not unusual for companies to be under audit by multiple third party auditors Third Party Auditors Kelmar Xerox Unclaimed Property Clearinghouse (UPCH) Verus Discovery Audit Services Treasury Services Group Hertz, Herson & Company Audit Services IA Group Total Asset Recovery Services 2
Unclaimed Property Audit Triggers Failure to File Filing only negative or zero reports Filing incomplete reports (e.g. only reporting royalties) Merger and acquisition activity Refund requests In the news Large revenues/increased production Assumption of non-compliance Traditional Property Types Royalties/mineral proceeds Payroll Accounts payable Accounts receivable credit balances Branded credit card credit balances Gift cards/gift certificates Unapplied cash Benefits/worker s compensation Equity and debt Typical Audit Steps Notification of Audit Should come directly from each state Initial Data Request Usually focused on the scope of the audit Kick off meeting Set audit expectations Financial Records Request Identify property types/accounts of potential exposure Source Data Request Used to identify potential unclaimed property 3
Typical Audit Steps Transaction Level Research Remediation of items that are potentially unclaimed Can include internal research and/or external confirmations Initial Report of Examination Continued remediation and outreach Continued discussions with auditors Final Report of Examination State Demand for Payment Remediation of address property if not included above Establish Dedicated Audit Team Include members from all areas that generate potential unclaimed property Designate single point of contact for auditor Notify department leaders Consider legal counsel with unclaimed property audit experience Develop Protocols for all Communications Internal communications Communications with auditors Assess Exposure and Potential Liability Analyze corporate structure States and dates of incorporation Centralized or decentralized Mergers and Acquisitions Document current and historical practices Policies and Procedures (written and unwritten) Reporting History Records Retention 4
Assess Exposure and Potential Liability Has the company filed unclaimed property reports? If yes, for how long? Did the reports include all relevant property types? Did the reports include all relevant legal entities? Do you have copies of all reports files, including those from entities acquired? Identify potential unreported unclaimed property Review policies and procedures/identify gaps Review source documents Select items for testing to determine final disposition and records availability Manage the Audit Develop Strategies to Mitigate Liability Identify legal entities, processes or property types that might be excluded (e.g., type of acquisition, changes in state of incorporation/formation, bankruptcy filings) Be aware of transactions that might appear to represent unclaimed property but do not (e.g., true ups v. write offs, accruals v. fixed and certain obligations) Identify potential legal defenses May need to educate the auditors about your industry Raise arguments frequently and in writing with auditors Be responsive to the audit requests, but do not over-provide information or detail Hold frequent update meetings both internally and with the auditor Closing the Audit Review Auditor s Findings Dedicate resources to be very involved in the remediation process Track the status of remediation and ask for sign off or written updates from the auditor Confirm classification of support Review and test estimation calculations Quantify agree to disagree items Negotiate Liability Assessment with State 5