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11/16/20 7:27 AM

Holder Alert: Delaware Expected to Mail Unclaimed Property Audit Notices in the Near Future

by Heather Gabell

delawareMarketSphere Unclaimed Property Specialists has learned that the state of Delaware will soon be mailing unclaimed property audit notices to those companies who did not respond to the latest round of invitations sent by the state on August 21, 2020 to enroll in the Secretary of State’s Unclaimed Property Voluntary Disclosure Program (VDA program). Approximately 200 holders received these letters, which notify the holder that it is “likely out of compliance” with Delaware’s unclaimed property law and inviting them to participate in the VDA program. Any company can receive a VDA invitation, including public or private corporations, large Fortune 500 companies and smaller companies.

In accordance with Delaware law, the state cannot initiate a new unclaimed property examination (audit) without first notifying the company that it may enter into the Secretary of State’s VDA program (12 Del. C. Ch. 11, section §1172).   These letters put the company on notice that if the holder does not enroll in the VDA program, the Secretary of State’s Office will refer the company to the Delaware Department of Finance, who will issue an unclaimed property audit notice upon the expiration of the 60-day notice period.The average VDA takes about two years to complete. Holders are permitted to perform their own self-review of their records, which means the holder has greater control over the scope of the review, and will obtain a release of liability for the entities and property types included in the VDA, and interest and penalties are waived on past due property.

By contrast, a Delaware audit is often run by a third-party auditor. Often, these auditors have contracts with other states, which could expose the holder to a multistate audit. The average audit also takes significantly longer to complete than a typical VDA and can result in interest and penalties.

Both VDAs and audits in Delaware have a look back period of 10 years plus dormancy, which is 5 years for most property types, meaning a look back period of 15 years. Securities have a 13-year lookback, because they have a 3-year dormancy period. If a holder does not keep “complete and researchable records,” Delaware can use estimation to calculate a holder’s unclaimed property liability.

In general, notifications from Delaware are addressed to senior corporate executives.  With respect to the VDA invitation, they often do not reach the person or group responsible for unclaimed property compliance in time to meet the 60-day deadline and prevent an audit.

Our recommendation for companies incorporated in Delaware, or companies with significant operations in Delaware, is for the person responsible for unclaimed property compliance to make continuous inquiries to determine if any unclaimed property letter has been received from either the Delaware Secretary of State or the Delaware Department of Finance.

Any corporation that receives a notice letter from Delaware may want to consider contacting an unclaimed property advisor who has the experience to assist holders in understanding the options that may be available and determine the course of action that may need to be taken. 

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*Content contained in this article is considered accurate as of the publish date.

Topics: Delaware, Audit, Best Practices, Voluntary Disclosure Agreements