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7/25/19 9:09 AM

Delaware Correspondence - Am I Under Audit or Not?

by Joshua Moldrup

delawarePursuant to 12 Del. C. § 1172(a), the State of Delaware cannot initiate a new abandoned or unclaimed property examination unless the company has first been notified in writing by the Secretary of State (SOS) that it may enter into the DE VDA program.  The VDA program allows a company to come into compliance by utilizing the DE VDA guidelines to conduct a self-audit of their books and records.

Since the latter part of 2018, Delaware’s SOS has been consistently mailing VDA invitations, and our information is that Delaware will continue this practice on an on-going basis. The SOS correspondence notes that recipient companies must respond to these notices within 60 days or they will be referred to the Delaware Department of Finance (DOF), which would then have the option to commence an unclaimed property audit.  

What Should A Company Do If It Receives Correspondence From Delaware?Determine whether the letter is a VDA invitation or an audit notice.

a. If it is a VDA invitation, determine whether your company should enroll in the VDA program.       Factors to consider include:

i. Compliance/reporting history

ii. State(s) of incorporation

iii. Prior Delaware VDA history

iv. DE and foreign (if you are incorporated in DE) customers, vendors, employees

v. Legal entity history, including merger and acquisition activity

b. If it is an audit notice, your company should be proactive as follows:

i. Get a non-disclosure agreement in place with any third-party auditor

1. DE works with third-party auditors, many of which have contracts with a large number of states. Depending on your circumstances, it may be beneficial to get out ahead of the auditors and enroll in VDA programs with other states before the auditors bring additional states on board.

ii. Understand your options to limit the reach of the audit by determining:

1. States in the audit

2. Compliance/reporting history

3. States(s) of incorporation

4. Prior audit and VDA history

5. Legal entity history, including merger and acquisition activity

iii. Assess your exposure across all states (including potential extrapolations for states of incorporation)

If you have received a letter from Delaware or any other reporting jurisdiction, and are uncertain about what steps you should take, engage with an unclaimed property professional. A professional advisor has the expertise and knowledge to help holders understand the purpose of the letter and recommend actions that need to be taken.

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Topics: Delaware, Audit, Voluntary Disclosure Agreements