(A) The director may, at reasonable times
and upon reasonable notice, examine or cause to be examined by auditors of
supervisory departments or examiners of the divisions of the state, the records
of any holder or person which could be the holder of unclaimed funds, to
determine compliance with Chapter 169. of the Revised Code. The director may
enter into contracts, pursuant to procedures prescribed by the director, with
persons for the sole purpose of examining the records of holders, determining
compliance with Chapter 169. of the Revised Code, and collecting, taking
possession of, and remitting to the department's division of unclaimed
funds, in a timely manner, the amounts found and defined as unclaimed. Said
amounts due to the state will be remitted directly to the state by the holders
subject to an involuntary examination initiated by the state. Said persons,
hereinafter referred to as contract auditors, certify that they are
knowledgeable of Chapter 169. of the Revised Code, relevant United States and
Ohio supreme court rulings, generally accepted accounting principles (GAAP),
generally accepted auditing standards (GAAS), and any relevant
examination/auditing procedures promulgated pursuant to section 169.09 of the
Revised Code, as they relate to the identification and collection of unclaimed
funds from holders. Except as provided herein, a contract auditor conducting a
state-initiated involuntary examination within the borders of the state of Ohio
will not be compensated by the state on a contingency fee basis, but will be
compensated pursuant to a fixed fee arrangement. State may compensate a
contract auditor on a contingency fee basis when the state of Ohio has joined
in an involuntary audit examination initiated by another state, regardless of
whether the holder is incorporated in Ohio, or has its principal place of
business or records within Ohio.
(B) The confidentiality of records and a
confidentiality agreement
(1) Records audited
pursuant to division (G) of section 169.03 of the Revised Code are
confidential, and cannot be disclosed except as stated in section 169.06 of the
Revised Code or as the director considers necessary in the proper
administration of Chapter 169. of the Revised Code. The identity of a holder
approved for an involuntary examination is public record pursuant to Chapter
149. of the Revised Code.
(2) The contract auditor
and division auditor agree that they cannot disclose information obtained
during the involuntary examination to anyone other than a participating state,
unless pursuant to or required by law.
(3) The contract auditor,
upon the written request of the holder, will sign a confidentiality agreement
to which the holder is a signator. The confidentiality agreement will be
entered into in the manner specified in paragraph (H) of this
rule.
(C) Working papers and related
documentation
(1) All working papers
and other documentation prepared by division auditors or contract auditors
during the performance of the involuntary examination will meet, at a minimum,
professional auditing standards. The division auditor and contract auditor will
comply with Rule 202 "Compliance With Standards" of the AICPA's
(American institute of certified public accountants) code of professional
ethics and adhere to generally accepted auditing standards (GAAS) and the
statements on auditing standards issued by the auditing standards board, as
both relate to the identification and collection of unclaimed funds from
holders. These standards include, but are not limited to, general standards,
standards for field work, and standards for reporting.
(2) The documentation of
such funds owing to the state will contain such information as may be needed by
the state to collect the amount discovered by the involuntary examination. Such
information cannot include trade secrets or proprietary data having no
relevancy to the unclaimed funds involuntary examination.
(D) Holders of funds of such a nature as
may potentially become unclaimed funds, are responsible for maintaining these
accounts on the records of the holder in such an identifiable manner that, if
they become unclaimed, they may be identified and reported in conformity with
the law.
(1) The contract auditor
and division auditor are authorized to review records in the course of an
involuntary examination covering the records review period as defined in
paragraph (J) of rule 1301:10-1-01 of the Administrative Code. The records
review period may be extended to include any year subsequent to the years
initially included if the involuntary examination is completed after additional
reporting years have elapsed.
(2) If the holder
consolidates check issuances for sums payable to suppliers, or for services
rendered, with other dormant accounts in the same demand deposit or ledger
account, the holder will have to maintain controls to identify each type of
dormant account.
(E) The factors considered by the
director in determining whether reasonable cause exists to believe that a
holder has failed to comply with Chapter 169. of the Revised Code and,
therefore, may be subject to an involuntary examination, include, but are not
limited to the following:
(1) The asset size and/or
the annual sales volume of the holder;
(2) The types and amounts
of accounts reported by the holder to the director in the last five
years;
(3) The past reporting
history of the holder, relative to other entities of the same size or
industry;
(4) Mergers, take-overs,
and stock splits which the holder has incurred;
(5) Evidence or
complaints of failure by holder to conduct due diligence pursuant to division
(E) of section 169.03 of the Revised Code;
(6) Evidence of failure
by the holder to report complete owner information pursuant to division (A) of
section 169.03 of the Revised Code;
(7) Filing by holder of
"none" reports in consecutive reporting years;
(8) The holder has never
been subject to an involuntary examination by the state of Ohio or its contract
auditors.
Holders will be selected for a state-initiated
involuntary examination, conducted by a contract auditor or a division auditor,
on a random basis and subsequent application of the above listed factors. Said
random selection process shall be based on generally accepted auditing
standards (GAAS). Holders may be subject to a state-initiated involuntary
examination on a non-random basis solely if they are part of an examination
initiated by another state in which the state of Ohio joins; the director
initiates an investigation of a holder after receiving a complaint of its
non-compliance with Chapter 169. of the Revised Code; or a holder has records
that are subject to the records review period, as defined in this chapter, and
located outside the physical borders of the state of Ohio.
An auditor will be assigned a state-initiated
involuntary examination of a holder selected by the above process. Should the
auditor be a contract auditor that believes that it cannot conduct an assigned
state-initiated involuntary examination due to a conflict of interest or other
such reason, the contract auditor will notify the state of such. The state will
then determine whether recusal of the contract auditor from the assignment is
appropriate or necessary. If the contract auditor is recused from conducting
the state-initiated involuntary examination of holder, another contract auditor
will be assigned. If the subsequently assigned contract auditor is also
recused, a division auditor may conduct the state-initiated involuntary
examination.
(F) After selection of a holder for an
involuntary examination, an examination entrance letter signed by the state
administrator or the administrator's representative will be sent to the
holder. The letter will contain the following:
(1) Notification that an
involuntary examination has been authorized;
(2) Identification of the
division auditor or contract auditor authorized to conduct the involuntary
examination;
(3) Identification of the
scope of the involuntary examination including the examination
period;
(4) The identity of all
participating states pursuant to division (G)(6) of section 169.03 of the
Revised Code;
(5) Disclosure that
involuntary examination findings may be appealed in accordance with paragraph
(K) of this rule;
(6) The name and
telephone number of the compliance supervisor who is available to answer
questions and address concerns of holders under an involuntary examination;
and
(7) Notification that a
copy of the contract between the state and the contract auditor is available
upon request.
(G) The initial records
request
(1) Following the
notification referenced in paragraph (F) of this rule, the division auditor or
contract auditor will supply the holder with an examination records request
prior to or at the examination entrance conference for a state-initiated
involuntary examination.
(2) The initial records
request should identify records that the division auditor or contract auditor
needs to review to determine compliance with Chapter 169. of the Revised
Code.
(3) The requested records
to be made available for review by the division auditor or contract auditor
within sixty calendar days of the date of the request. If the holder is unable
to compile and make available for review the requested records within the
sixty-calendar day period, it is necessary the holder contact the division
auditor or contract auditor prior to the expiration of the sixty calendar day
period to schedule a mutually agreeable time in which to make available the
requested records. Said extension of time is not to exceed an additional thirty
calendar days except at the discretion of the director. Holders that fail to
provide the requested records within sixty calendar days of the date requested,
or within the agreed upon extension of time, may be subject to penalties and
interest as provided for in Chapter 169. of the Revised Code on any unclaimed
funds identified as reportable during the examination. The penalties and
interest will be applied from the date of expiration of the sixty-calendar day
period or extension of time until the records are received by the division
auditor or contract auditor.
(4) Attorney and law
firm holders are permitted to redact, and should redact, from all records
provided to auditors for review, the client name, address, tax identification
numbers and other information that would identify the attorney's client in
order to protect attorney-client confidentiality.
(H) The division auditor or contract
auditor will conduct an examination entrance conference with the holder prior
to the commencement of a state-initiated involuntary examination at which the
division auditor or contract auditor will identify the examination period and
describe the general examination methods, including estimation techniques that
may be utilized during the state-initiated involuntary examination. The
selection of the estimation technique to be utilized will be made prior to the
closing review.
The contract auditor also will inform the holder
that, pursuant to paragraph (B)(3) of this rule and at the option of, and upon
the written request of, the holder, the contract auditor will enter into an
additional confidentiality agreement for a state-initiated involuntary
examination. The contract auditor and holder will be given thirty calendar days
from the date of the examination entrance conference to reach and enter into a
mutually agreeable confidentiality agreement, a copy of which will be provided
to the state. However, if the contract auditor and holder fail to reach and
enter into a mutually agreeable confidentiality agreement within the allotted
time, and holder still wishes the contract auditor to enter into an additional
confidentiality agreement, the contract auditor and holder will enter into the
confidentiality agreement prepared by the state and to which the state will
also be a signatory. Said confidentiality agreement will be entered into within
ten calendar days of expiration of the original thirty calendar days given for
the contract auditor and holder to reach a mutually agreeable confidentiality
agreement. Upon written request, the contract auditor shall provide the holder
with the state-prepared confidentiality agreement which will first be signed by
the contract auditor. If the holder intends to enter into the confidentiality
agreement, it is the responsibility of the holder to sign the confidentiality
agreement and forward the original to the state administrator within ten
calendar days of expiration of the original thirty calendar day period. The
state administrator will then need to sign the confidentiality agreement and
distribute copies of the confidentiality agreement to the signatories. The
aforementioned thirty-calendar day period for submission of a mutually
agreeable confidentiality agreement and ten-calendar day period for submission
of the state-prepared confidentiality agreement shall run concurrently with the
sixty-calendar day requirement, or extension thereof, for production of records
as specified in paragraph (G)(3) of this rule.
(I) After the compilation of the
preliminary findings from the state-initiated involuntary examination, the
division auditor or contract auditor will conduct a presentation of, and
provide a copy of, said findings with the holder at which the division auditor
or contract auditor will do the following:
(1) Obtain the
holder's signature on the receipt for the delivery of working papers to
holder identifying the preliminary findings of dormant accounts. The
holder's signature will not constitute agreement with the findings and if
the holder refuses to sign, said refusal will be noted;
(2) Explain the due
diligence requirement as set forth in division (E) of section 169.03 of the
Revised Code;
(3) Advise how the
current annual holder report of unclaimed funds and accompanying forms,
instructions, and information can be obtained;
(4) Notify the holder
that preliminary findings of dormant accounts may be eliminated from actual
annual reportable unclaimed funds by providing documentation at the closing
review that includes one or more of the following:
(a) Documentation of accounting error;
(b) Documentation that the last known owner address is in a
non-participating state or that the owner address is unknown and the holder is
not incorporated or formed in Ohio;
(c) Signed returned notice of unclaimed funds form;
(d) Other signed correspondence from the owner indicating
knowledge of the dormant account and/or that the funds are not owed to the
owner;
(e) Documentation of owner transaction on the
account;
Said documentation is to be provided to the
state auditor or contract auditor conducting the state-initiated involuntary
examination within one hundred twenty calendar days of the presentation of the
preliminary findings of dormant accounts;
(5) Inform the holder
that within thirty, but no more than forty-five calendar days of the expiration
of the one hundred twenty calendar day period referred to above in this
paragraph, a closing review will be held between the division auditor or
contract auditor and the holder at which time the total unclaimed funds
reporting liability resulting from the state-initiated involuntary examination
will be calculated;
(6) Inform the holder of
the right to appeal the findings of the examination pursuant to division (G)(7)
of section 169.03 of the Revised Code after the closing review.
(7) Notify attorney and
law firm holders that they will not be compelled to identify their clients or
to provide documentation that would identify their clients to eliminate or
rebut the preliminary findings of dormant accounts. To enable attorneys and law
firms to maintain the confidentiality of their clients prior to the
determination of total unclaimed funds liability and the filing of the
unclaimed funds report pursuant to section 169.03 of the Revised Code,
attorneys and law firms may eliminate or rebut the auditor's preliminary
findings by providing documentation at the closing review that will include one
or more of the following:
(a) Documentation of accounting error;
(b) An original affidavit stating all relevant facts supporting
the attorney's or law firm's request for elimination for each account
included in the preliminary findings of unclaimed funds, signed by the sole
practitioner attorney or managing partner of the law firm, and certifying that
the attorney or law firm is in possession of one or more of the
following:
(i) Documentation that
the last known address of the client-owner is outside Ohio or that the address
is unknown and the holder of the funds is not incorporated or formed in
Ohio;
(ii) A notice of
unclaimed funds form signed by the client-owner and dated after the applicable
dormancy period specified in section 169.02 of the Revised Code;
(iii) Other
correspondence signed by the client-owner indicating knowledge of the dormant
account and/or that the funds are not owed to the client-owner, and dated after
the applicable dormancy period specified in section 169.02 of the Revised
Code;
(iv) Documentation of the
client-owner's transaction on the account, dated after the applicable
dormancy period specified in section 169.02 of the Revised Code.
The affidavit may be submitted by the
attorney or law firm holder in lieu of providing records, with client
identifiers redacted, and is to be provided within the time limitations
otherwise specified in this rule for the submission of documentation at the
closing review.
(J) The closing review and calculation of
unclaimed funds
(1) A closing review
conducted by the division auditor or contract auditor with the holder, at which
time documentation provided by the holder, as outlined in paragraph (I)(4) of
this rule, will be reviewed to eliminate accounts from the preliminary findings
of dormant accounts and to calculate the total unclaimed funds reporting
liability of the holder resulting from the state-initiated involuntary
examination. The closing review may be conducted face-to-face, by telephone,
mail or delivery service, or by electronic means. At the completion of the
closing review, the auditor will inform the holder of its right to appeal the
findings of the examination pursuant to division (G)(7) of section 169.03 of
the Revised Code, and supply the holder with the notice of appeal in a form
prescribed by the state. The holder may file an appeal of the audit findings
only after completion of the closing review.
(2) The calculation of
the holder's total unclaimed funds reporting liability may include the
utilization of estimation techniques. Estimation techniques may be necessary if
the examination of the records review period fails to identify dormant accounts
reported or due in each year of the examination period and a review of the
reporting history of the holder maintained by the state and the holder shows
that the holder failed to report, or underreported, the type(s) of account(s)
in question during the examination period. The selection of the estimation
technique to be utilized will be made prior to the closing review. The division
auditor or contract auditor will use one of the following methods to calculate
the holder's estimated unclaimed funds reporting liability for those years
requiring estimation:
(a) The asset method which utilizes the average of actual annual
reportable unclaimed funds with Ohio addresses as a percentage of the total end
of year assets of the company. The average of actual annual reportable
unclaimed funds with Ohio addresses as a percentage of total end of year assets
will be calculated by adding the actual annual reportable unclaimed funds with
Ohio addresses as a percentage of the total end of year assets for each year
and dividing by the number of years for which actual reportable unclaimed funds
were identified. The total assets at the end of the year(s) corresponding to
the reporting cycle(s) subject to estimation techniques, are then multiplied by
the average of actual annual reportable unclaimed funds with Ohio addresses as
a percentage of the total end of year assets. The sum of the calculated amounts
is the estimated unclaimed funds reporting liability for the examination
period;
(b) The sales method which utilizes the average of actual annual
reportable unclaimed funds with Ohio addresses as a percentage of the gross end
of year sales of the company. The average of actual annual reportable unclaimed
funds with Ohio addresses as a percentage of gross end of year sales will be
calculated by adding the actual annual reportable unclaimed funds with Ohio
addresses as a percentage of gross end of year sales for each year and dividing
by the number of years for which actual reportable unclaimed funds were
identified. The gross sales at the end of the year(s) corresponding to the
reporting cycle(s) subject to estimation techniques, are then multiplied by the
average of actual annual reportable unclaimed funds with Ohio addresses as a
percentage of gross end of year sales. The sum of the calculated amounts is the
estimated unclaimed funds reporting liability for the examination
period;
(c) Other estimation technique that is mutually agreeable to the
holder, the state, and the contract auditor.
(3) The total unclaimed
funds reporting liability of the holder for the examination period will be the
sum of the actual annual reportable unclaimed funds involuntary examination
findings plus the estimated unclaimed funds reporting liability using one of
the methods described in this paragraph, if applicable.
(4) An annual holder
report, reflecting the total unclaimed funds reporting liability or, if any
amount thereof is disputed, the undisputed portion of the total unclaimed funds
reporting liability, will be filed and the amount remitted by the holder or
contract auditor within thirty calendar days.
(K) Pursuant to division (G)(7) of
section 169.03 of the Revised Code, a holder may appeal the disputed findings
of an involuntary examination. The appeals process may only be utilized by the
holder after completion of the closing review. The purpose of the appeals
process is to give the state administrator and the holder the opportunity to
reach mutually agreeable findings. The following process will be used for
appeals.
(1) The holder completes
a notice of appeal in the form prescribed by the division and provided by the
state administrator and submits the form along with all appropriate
documentation to the state administrator; the notice of appeal must be
postmarked or received within thirty calendar days of the closing review.
Failure to file the notice of appeal within the specified time constitutes an
acceptance of the total unclaimed funds reporting liability;
(2) The state
administrator will contact the holder and the division auditor or contract
auditor to schedule an appeal meeting at which the examination findings and
holder's appeal will be reviewed. The appeal meeting will be scheduled at
a mutually agreeable time within thirty calendar days of the receipt of the
notice of appeal. The holder will be prepared at the appeal meeting to discuss
the position of the holder and provide documentation supporting the grounds for
the appeal. The division auditor or contract auditor will also be given the
opportunity to support the examination findings. The state administrator may
question both parties;
(3) The state
administrator, within thirty calendar days of the appeal meeting or receipt of
any additional documentation requested at the meeting, will render a decision
in writing to the holder and the division auditor or contract
auditor;
(4) The holder may appeal
the decision of the state administrator, within thirty calendar days of the
decision, in the manner provided in Chapter 119. of the Revised
Code;
(5) Within thirty
calendar days of the decision of the state administrator, unless the holder
files an appeal of said decision pursuant to Chapter 119. of the Revised Code,
it is necessary for the holder to file an annual holder report reflecting the
unclaimed funds reporting liability as determined by the state administrator
subsequent to the appeal meeting and remit said unclaimed funds;
(6) During the appeals
process, the holder will not be subject to interest on unclaimed funds found to
be due and reportable, until expiration of the thirty calendar days referenced
in this paragraph or thirty calendar days after a final decision has been
rendered pursuant to Chapter 119. of the Revised Code, whichever is
later.
(L) Holder's release from
liability
(1) Upon completion of an
examination and payment of the total unclaimed funds reporting liability to the
director, the holder will be relieved of further responsibility for the
safekeeping thereof and will be held harmless by the state from any and all
liabilities for any claim arising out of the transfer of such funds to the
state.
(2) The state releases
the holder from further liability for reporting and payment of unclaimed funds
of those types of property reviewed during the examination, through and
including the most current reporting cycle. Further, the holder will not be
subject to an involuntary examination of the same types of property by the
state for the reporting cycles covered in a prior involuntary
examination.
(3) Upon receipt of the
annual holder report and remittance of the unclaimed funds resulting from the
involuntary examination, the state shall issue an examination closure letter
informing the holder that the involuntary examination is closed.
(M) At any time before a holder is
selected for an examination, a holder, at the administrator's discretion,
may comply voluntarily with the reporting requirements of section 169.03 of the
Revised Code. Holders participating in the voluntary compliance program will
enter into an agreement with the state to report and remit all past and
currently due unclaimed funds and comply with the reporting requirements of
Chapter 169. of the Revised Code and agree to comply with the annual reporting
requirements imposed by Chapter 169. of the Revised Code going forward. The
administrator will not unreasonably withhold permission for a holder not
selected for examination to participate in the voluntary compliance
program.
