Menu

KeepUP™ Blog

8/7/17 9:06 AM

Delaware Releases Updated Draft to Reporting and Examination Manual

by Clive Cohen

delaware-unclaimed-property-law-udpates.jpgEXECUTIVE SUMMARY

 On 8/1/17, Delaware issued an updated version of proposed DE Unclaimed Property regulations, originally issued on 4/1/17

The updated proposed regulations make changes to various areas, including stored value cards/gift cards, indication of owner interest, record retention, notice of examination, confidentiality and non-disclosure agreements, audit opening conference, examination and remediation

Of significant note to holders, no changes were made to areas dealing with estimation, projection and complete and researchable records.

The public comment period for the updated regulations ends on 8/31/17.                                                                                                                              

On August 1, 2017, the Delaware Department of Finance released updated proposed regulations relating to its’ Abandoned or Unclaimed Property Law.  These proposed regulations can be found at http://regulations.delaware.gov/register/august2017/proposed/21%20DE%20Reg%20123%2008-01-17.pdf

These proposed regulations are an update of draft regulations issued on April 1, 2017.   For an analysis of these earlier proposed regulations, please see our prior blog Delaware Releases Draft Estimation Regulations. 

The public comment period for these updated proposed regulations will end on August 31st .It is anticipated that Delaware will issue final regulations shortly thereafter.

The updated draft regulations include changes in various sections dealing with the following:

Stored Value Cards/Gift Cards - Language has been added that permits a holder to propose a “reasonable alternative calculation” when determining “the maximum cost” of a stored value card or gift card.

Indication of Owner Interest – Language has been added as follows: “Proof to the satisfaction of the State Escheator that an Owner has had contact with a designated representative of the Holder in the period of dormancy may be considered an indication of owner interest in the property.”

Retention of Records – Significant language has been added to clarify the type of records that must be retained.  Specifically, the section states “Records to be retained by the Holder include the date, place, and nature of the circumstances that gave rise to the property right. These records may include the following: tax returns (including consolidated and affiliation schedules), organization charts, charts of accounts, unclaimed property filing history (for all states if the Holder is incorporated or formed in the State of Delaware), prior completed and accepted voluntary disclosure agreements (VDAs) and examinations, bank statements, bank reconciliations, outstanding check lists, detail general ledgers, aged accounts receivable reports, aged accounts payable reports, policies and procedures related to record retention, accounting, and unclaimed property, and if applicable, information surrounding gift card issuances and redemptions.”

Notice of Examination – Language has been added that clarifies the State may audit a holder without the necessity of the holder first being invited to participate in the Secretary of State’s (SOS) Voluntary Disclosure program when (i) the State joins an examination initiated by a another state, and (ii) the holder fails to comply with the provisions of the SOS’ voluntary disclosure program.

Confidentiality and Non-Disclosure Agreement (“NDA”) – Under the adjusted regulations, there is now a 60 day window for the holder and the State’s third-party auditor (“Auditor”) to reach an agreement on the terms within 60 days of the date of the Notice of Examination letter.  If this does not happen, the parties shall rely on the confidentiality provisions of 12. Del. C. section 1189.

In addition, the draft regulations add language to the State’s sample NDA (i) dealing with provision of the Auditor’s security provisions to the holder and (ii) stating that the Auditor may not inform another state not currently participating in an audit, that Delaware is participating.

Audit Opening Conference – Language has been added that upon request by the Holder, the State must provide all records of prior unclaimed property reports filed previously in the State.  In addition, language has been added that indicates what constitutes “good cause” in circumstances where the State considers abating interest and penalties.  The new language states “the State Escheator may consider, if applicable and without limitation, the following factors: whether the Holder has a significant history of filing unclaimed property reports; the responsiveness of a Holder during the examination; and whether the Holder used ordinary business care in its compliance efforts.”

Examination – Language has been added that requires the Auditor to provide the holder a reasonable timeframe for responding and reviewing records produced by the holder.

Estimation – No substantive changes have been made to this section, which includes sub-section dealing with Base Periods and Sampling.

Projection - No substantive changes have been made to this section.

Complete and Researchable Records - No substantive changes have been made to this section.

Remediation - A form of outreach/due diligence letter approved by the State that may be used for property subject to the custody of the State has been added to this section.  This letter is in addition  to the existing letter that has now been repurposed to address remediation for property utilized as part of the sampling or estimation process.

It is important to note that these are proposed regulations, which by statute, have a filing deadline of December 1st.  However, it is likely that finalization will occur before that date.  Notwithstanding this timeline, a review of these updated, proposed regulations shows the direction that Delaware is taking with respect to estimation and other related areas.

Additionally, Delaware is permitted to examine a holder for any reason.   All holders, especially those incorporated in Delaware, should determine whether they have a potential exposure.  We recommend the best way to do this is to perform a risk assessment focusing on such things as:

  • gaps in existing policies and procedures
  • inconsistent prior filings
  • results of prior non-Delaware audits

We's also like to point out that for holders currently under audit by Delaware, the finalized regulations will be vital as they consider the various options detailed in Delaware’s SB13 - whether to continue with the current audit process, elect to convert to an expedited audit or join the Secretary of State’s VDA program.  In accordance with the requirements of SB13, this election must be made within 60 days of the adoption of these regulations.

Holders under audit should immediately start performing the necessary modeling and analysis so that they are armed with all the necessary information to make an informed decision within the legislated timeframe.

If you have any questions about these pending regulations and how they will impact you and your business, contact one of our experts today at MarketSphere Unclaimed Property Specialists.

 

Topics: Delaware, Compliance, Audit, Best Practices