KeepUP™ Blog

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 from the office of Delaware’s Secretary of State, the latest round of VDA invitations will be mailed on February 20, 2020 to a number of Delaware incorporated companies.   

The correspondence states: 

On February 20, 2020, the Delaware Secretary of State’s Office will be mailing over 100 letters to various companies (individually referred to as “Holder”) that have been identified as likely being out of compliance with Delaware law, 12 Del. C. ch. 11, as it relates to reporting dormant, abandoned, or unclaimed property.  Pursuant to our state laws, Delaware cannot initiate new abandoned or unclaimed property examinations (audits) unless a company has first been notified in writing by the Secretary of State that it may enter into the SOS VDA Program.  The letter serves as such a notice to the Holder and strongly encourages participation in the SOS VDA Program, as an audit notice will be issued by the Delaware Department of Finance 60 days after the date of the mailing

As the correspondence notes, recipient companies must respond to these notices within 60 days or they will be referred to the Delaware Department of Finance, which would then have the option to commence an unclaimed property audit.

In a recent communication from Drinker Biddle & Reath (“DBR”), one of the state agents for the Delaware Secretary of State’s Unclaimed Property Voluntary Disclosure Agreement Program, we were informed that the states of Missouri and North Dakota have now engaged DBR to serve in a similar capacity as they currently serve for Delaware.

Agreements for the Missouri Voluntary Examination and North Dakota Contractor Assisted Self-Audit were provided by DBR for holder consideration. Similar to the Delaware Voluntary Disclosure Program, these agreements include the following holder requirements:

• File a final report within two years of agreement execution
• Disclose the entities reviewed
• Perform due diligence prior to reporting
• Assert as to the completeness of records
• Report past due property for the last 10 report years
• File annual reports prospectively

On December 6, 2019, AT&T sued the state of Delaware alleging that Delaware’s Department of Finance is violating several clauses of the U.S. Constitution as part of an unclaimed property audit. 

The audit commenced in 2012 and was assigned to Kelmar Associates LLC.  In 2017, Delaware made significant changes to its unclaimed property statute, including the creation of an expedited audit process for existing audits.  AT&T entered the expedited audit process, hoping to finish the audit within the program’s two-year window.

However, just short of the two-year mark, Delaware terminated AT&T's participation in the expedited audit and issued a subpoena to request documents due last week.

In its suit, (AT&T Capital Services Inc. et al v. Richard Geisenberger et al, case number 1:19-cv-02238, in the U.S. District Court for the District of Delaware), AT&T claimed that Delaware has contravened the Fourth, Fifth and Fourteenth Amendments.

According to AT&T, the state has demanded AT&T provide records related to “approximately 60 million transactions reflecting almost $100 billion of spend”, and claims the overall audit process violates its rights against unreasonable searches and seizures as well as its due process rights.

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.