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10/5/17 3:00 PM

Delaware Issues Final Reporting & Examination Manual

by Jon D'Amato, David Poehler, Clive Cohen

delaware.pngOn October 1, the Delaware Department of Finance (DOF) published the final version of its Reporting and Examination Manual regulation addressing audit procedures and method of estimation.  See previous blog: DE Secretary of State to Begin Issuing Notices to Non-Compliant Holders in Mid-October. The final regulation is substantially similar to the August 1, 2017 draft. For more information, see our blog post from Aug. 7, 2017.

Per the final Manual:

THEREFORE IT IS ORDERED that the following Regulation 104, Department of Finance Abandoned or Unclaimed Property Reporting and Examination Manual is adopted and shall be final effective October 11, 2017 and shall apply to all reporting and examinations not complete as of that date.

With an adoption date of October 11, 2017, holders currently under a Delaware audit authorized by the State Escheator on or before July 22, 2015, will have until December 10, 2017 (60 days from October 11) to convert to the SOS VDA Program.

Unsurprisingly, the final DOF regulations do not substantially change the basic estimation and extrapolation techniques that a federal judge in last year’s Temple Inland litigation stated results in “significantly misleading results”.  A number of other troubling provisions were retained in the final DOF regulations, such as the inclusion of non-Delaware domiciled subsidiaries and affiliates within the scope of an examination and a requirement that these entities provide any and all records.

In addition to issues with estimation and extrapolation, other areas of the regulation may ultimately give rise to holder concerns including:

  • the scope and breadth of an audit as potentially being contrary to certain constitutional requirements under the Fourth and Fifth Amendments, and under federal common law
  • the aging criteria applied by auditors as invalid burden shifting
  • various definitions in the final regulations including, the definitions of “researchable records” and “address”

Notwithstanding potential problems with the final regulations, given the fact that the conversion deadline is now known, holders currently under audit are encouraged to reach out to the unclaimed property advisors now to discuss whether they are eligible to convert their audits and what their options are in light of the finalized Delaware regulation.

If your company needs assistance facing this, or any aspect of an audit, please feel free to contact any of the following individuals: 

Jon D’Amato T.404-264-8554 jon.damato@marketsphere.com

David Poehler T.404-857-1894 david.poehler@marketsphere,com

Clive Cohen T. 917-538-8900 clive.cohen@marketsphere.com

Topics: Delaware, Compliance, Audit, Voluntary Disclosure Agreements