The North Carolina legislature is considering HB 462 which would prohibit the state treasurer from contracting unclaimed property auditors on a contingent fee basis. Specifically, the bill language states that the treasurer, who is the state official responsible for the North Carolina unclaimed property program, can not contract with any person to conduct an audit that would be performed “on a contingent fee basis or any other similar method that may impair an auditor's independence or the perception of the auditor's independence by the public.”  Such a ban would be entirely consistent with holdings by the United States Supreme Court, such as that in Marshall v. Jerrico, Inc., in which Justice Marshall opined that neutrality preserves both the appearance and reality of fairness by insuring that no person is deprived of his interest due to a proceeding in which the arbiter appears predisposed to find against him.   446 U.S. 238, 242 (1980).

As states revenues have declined in recent years, states have implemented hiring freezes to stem costs while seeking new sources of revenue. Most states have turned to hiring third party unclaimed property auditors to examine businesses on a contingent fee basis whereby the auditors are paid a percentage of any past due unclaimed property they find and any associated penalties and interest imposed. This practice, however, has created a perception by some that these auditors' assessments with regard to the amount and types of unclaimed property actually due could be influenced by pressure to increase their fees. The contingency fee prohibition is recognition of this perception and the possibility of compromised assessments.

HB 462 has passed the North Carolina Senate and awaits ratification by the House due to Senate amendments.

For more information about this bill, go to NC HB 462.