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Delaware continues to focus on unclaimed property compliance, with its’ Voluntary Disclosure Agreement (VDA) program at the forefront of this push.  Since the latter part of 2018, Delaware’s Secretary of State has been consistently mailing VDA invitations and continues this practice on an on-going basis. 

Based on correspondence that MarketSphere received on September 24, 2019 from the office of Delaware’s Secretary of State, the latest round of VDA invitations have recently been mailed to a number of Delaware incorporated companies.  Targeted companies now include middle market companies with annual revenues of $50M and above. Click here to see a sample correspondence from September 2019.   

The correspondence notes: 

Pursuant to 12 Del. C. §1173(b), the Delaware Secretary of State (SOS) recently sent out letters inviting companies to enter the Voluntary Disclosure Agreement (VDA) Program. Any company that receives a letter is encouraged to enroll in the SOS VDA Program to facilitate compliance with Delaware’s Abandoned or Unclaimed Property Law.

Invitees have 60 days from the date of the invitation to enroll in the SOS VDA Program by completing, executing and submitting Form VDA-1 Disclosure and Notice of Intent to Voluntarily Comply to the Secretary of State.  If an invitee does not enroll in the SOS VDA Program within 60 days of the invitation mailing, the company will be referred to the State Escheator for examination.

Pursuant 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?

Delaware continues to focus on unclaimed property compliance, with its’ Voluntary Disclosure Agreement (VDA) program at the forefront of this push.  Since the latter part of 2018, Delaware’s Secretary of State has been consistently mailing VDA invitations, and our information is that Delaware intends to continue this practice on an on-going basis.

The latest round of VDA invitations were mailed to a significant number of Delaware incorporated companies on February 15, 2019. Recipient companies had to respond to these notices within 60 days (i.e., by April 15), or they would be referred to the Delaware Department of Finance, which would then have the option to commence an unclaimed property audit.

As the deadline has now passed, notified companies that failed to respond can no longer enter the VDA program. Based on recent history, we would now expect all companies that did not enter the VDA program to receive an audit notice in the very near future.

MarketSphere Unclaimed Property Specialists has learned that the State of Delaware began sending out a significant number of unclaimed property audit notices in early January 2019.

Pursuant 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 that it may enter the Delaware VDA program. 

As we advised in our December blog entitled “Delaware Unclaimed Property Notice Letter”, Delaware had been busy filling companies’ mailboxes with Voluntary Disclosure Agreement (“VDA”) program invitations. Companies had 60 days to respond to the invitation or be referred to the Department of Finance for audit.  Following up on these invitations, the State has now begun mailing unclaimed property audit notices to companies that did not respond timely to these invitations. 

Delaware has been busy filling the mailboxes of companies recently with Voluntary Disclosure Agreement (VDA) program invitations.  If you are a recipient of any letter from Delaware, pay particular attention to the letter content. 

Pursuant 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 that it may enter the Delaware VDA program.  The VDA program allows a company to come into compliance by utilizing the Delaware VDA guidelines to conduct a self-audit of their books and records. 

This is an excerpt which will help in identifying the Delaware VDA program invitation:

On March 19, 2018, the California Assembly introduced a bill, AB 2773, that proposed the creation of a voluntary disclosure program through the introduction of a new section, 1577.6, into California’s Code of Civil Procedures. 

 Under existing law, property held by a person that belongs to another and that is unclaimed for more than specified periods escheats to the state. Existing law requires persons holding unclaimed property to report and deliver it to the Controller within a prescribed time-period, and imposes interest payments, at a 12% statutory rate, and penalties, for a failure to do so.

AB 2773 would require the Controller to create a program for the voluntary disclosure of unclaimed property consistent with specified requirements. The bill would require the Controller to waive interest and penalty charges for holders who are accepted into the program, complete the voluntary disclosures in good faith, and act consistent with program requirements. The program would be open to all holders who aren’t currently under audit, whether they have previously filed or not, and the look-back period would cover 10 prior report years.

Escheat compliance is a challenge in many ways each reporting cycle. Additional issues arise when faced with entering into a VDA program or engaged in an audit. Delaware recently sent notices to all Holders advising them of their option to enter into a VDA program or expedited audit.

If you haven’t taken action yet, or are unsure about what to do, let the MarketSphere Unclaimed Property Specialists go to work on your behalf to guide you through your options and manage the process allowing you and your teams to keep focus in the New Year on your organizations business goals. 

If you’re having difficulty explaining the complexities of determining the best path to take in Delaware, or other unclaimed property concerns to colleagues, we can help you open the conversation with this whitepaper:6 Ways Unclaimed Property Takes A Toll.

As we have previously posted, Delaware has been sending letters to Holders advising of the deadlines to elect to enter either a Voluntary Disclosure Agreement (VDA) or Expedited Audit. If you haven’t taken action yet – time is of the essence.

1. Existing Delaware Audits – Although the December 11^th deadline to convert existing audits into the expedited audit or VDA program has passed, companies that missed the deadline or elected to stay the course in the audit may still be able to realize some benefits. These include but are not limited to: 1. retaining your right to challenge the Delaware process and methodologies and 2. reach a favorable settlement agreement with the state.
2. VDA Program - As we previously reported, during the 2^nd and 3^rd weeks of October, Delaware began issuing VDA invitation letters with a 60-day response window to companies not already subject to a Delaware audit. The deadline for companies to respond to these letters and voluntarily enter the VDA program is now occurring.  Companies that fail to respond to Delaware and enter the VDA program will be referred back to the state for audit, which may subject them to all the statutory interest and penalties of the Delaware audit program.

Delaware has been busy filling the mailboxes of companies recently.  If you are a recipient of a letter from Delaware, pay particular attention to the letter content as there are a two types of letters which require differing actions to be taken in response.  

1. Delaware Informational Letter. This letter references the recent statute updates made by Delaware and the impacts this will have on future holder reporting.
2. Notice to enter the Delaware VDA program

Below is information regarding the two letters, actions for you to consider and examples of the content. 

Delaware Informational Letter

The Delaware informational letter was sent to all holders that are regular reporters of unclaimed property to the state.  The letter updates holders of the changes that have occurred as a result of Senate Bill 13 signed on February 2, 2017 and the later Senate Substitute 1 for Senate Bill 79, which amended and clarified Senate Bill 13.  For complete information regarding these Senate bills, please see blogs Delaware Governor Signs Legislation to Overhaul their Unclaimed Property Laws and Delaware Governor Signs Legislation Delaying Estimation Regulations.

This is an excerpt which will help in identifying the informational letter:

On 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.