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10/5/17 3:00 PM

Delaware Issues Final Reporting & Examination Manual

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.

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Topics: Delaware, Compliance, Audit, Voluntary Disclosure Agreements

9/29/17 1:53 PM

Delaware Secretary of State to Begin Issuing Notices to Non-Compliant Holders in Mid-October

On Friday September 29th, the Delaware Secretary of State issued an update on their VDA program, indicating that in two weeks they will begin issuing notices to Holders who have been identified as likely being out of compliance with the Delaware escheat laws.  The full update is below:

As an unclaimed property professional who has represented Holders in the Delaware unclaimed property audit and/or SOS VDA Program, you should be aware of an important update about the Delaware SOS VDA Program.

In two weeks, my office will begin mailing notices to Holders who have been identified as likely   being out of compliance with Delaware law as it relates to reporting dormant abandoned or                unclaimed property.  Holders that do not enroll in the SOS VDA Program within 60 days of the          mailing of this notice will be referred to the State Escheator for examination.  If an audit notice         is issued, the Department of State will have no legal ability to accept a Holder into the SOS VDA        Program.  

The SOS VDA Program was put in place to respond to concerns about Delaware’s ongoing audit      program, and to encourage more companies to come into compliance with their legal    responsibilities as they relate to abandoned property.  Through recent changes in the law,               Delaware is providing every company with an opportunity to voluntarily comply prior to being              issued an examination notice.  We urge you, your clients and potential clients to take advantage   of this opportunity to enroll in the SOS VDA Program.

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Topics: Delaware, Audit, Voluntary Disclosure Agreements

7/7/17 2:30 PM

Delaware Governor Signs Legislation Delaying Estimation Regulations

On June 29, 2017, Delaware Governor John Carney signed into law DE Senate Substitution No.1 for Senate Bill 79 (“DE SS1/SB79”), which makes certain technical corrections to the May 5, 2017 original SB 79.  (see previous blog from 6/21/17). These technical corrections mark yet another adjustment to Delaware’s ongoing efforts to overhaul their escheat laws, which began in February 2017 with the passage of Delaware SB13 (see previous blog: Delaware Governor Signs Legislation to Overhaul Their Unclaimed Property Laws), and includes Delaware’s proposed draft estimation regulations from early April (see previous blog: Delaware Releases Draft Estimation Regulations).       

Key Updates of DE SS1/SB79

  • Adoption of Regulations - The date by which the Delaware Department of Finance (“DOF”) must adopt regulations (including those pertaining to estimation) has been pushed back to December 1, 2017 from the original July 1, 2017 date. Holders will still have a 60 day window starting with the date the regulations are finalized to elect whether they would like to convert their existing audit to a VDA or expedited audit.
  • Due Diligence - The requirement for due diligence letters to be sent to owners commences on July 1, 2017. These notices must be sent not more than 120 days nor less than 60 days before filing the report.
  • Interest and Penalties
    • Under the VDA program, the Secretary of State continues to have the authority to waive interest and penalties.
    • For expedited audit conversions, the State Escheator must waive interest, and may waive penalties for good cause. It remains to be seen how interest and penalties will be treated for holders subject to an expedited audit, who are deemed not to have acted in good faith to complete the expedited audit process.
    • For holders who do not elect a VDA or expedited audit conversion and remain in the audit process, up to 50% of interest and 100% of penalties continue to be waivable for good cause.
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Topics: Delaware, Audit, Voluntary Disclosure Agreements, U.P. Law

4/11/17 12:34 PM

Delaware Secretary of State Releases Proposed VDA Conversion Guidelines

Pursuant to Delaware’s recently enacted SB13, any holder currently under examination that received a Notice of Examination from the State Escheator on or before July 22, 2015, except any securities examinations in which estimation is not required, may convert the pending examination into a review under the Secretary of State’s voluntary disclosure program (See 12 Del. C. § 1173.).

As part of a recent communication, the Secretary of State (SOS) provided details explaining the administrative requirements that a holder must use to convert an existing audit to a voluntary disclosure agreement (VDA).  In addition, the SOS provided details regarding (i) the VDA process for holders that convert their examinations, (ii) look-back period for examinations converted to a VDA (ten reporting years), and (iii) the use of estimation as part of a VDA.

Regarding estimation, the SOS has proposed estimation regulations that can be found at: "Delaware Proposed VDA Conversion Guidelines".

The public comment period for these proposed regulations end on May 3rd . It is anticipated that Delaware will issue final regulations shortly thereafter.

These proposed estimation regulations include sections dealing with their effective date, the scope of the VDA, permissible base periods, items to be excluded from the estimation calculation, aging criteria for outstanding and voided checks, and accounts receivable.  In addition, there are sections dealing with projection and complete and researchable records.

It should be noted that as a requirement of SB13, Delaware’s Department of Finance (DOF) recently proposed regulations regarding its’ abandoned or unclaimed property reporting and examination manual.  Click here to see our recent blog post for more information

 

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Topics: Delaware, Compliance, Reporting, Voluntary Disclosure Agreements

4/6/17 9:47 AM

The Changing Dimensions of Unclaimed Property Audits

There were many educational sessions at this year’s UPPO Annual Conference held in March in beautiful Austin, Texas. This year, MarketSphere had the privilege to co-present three sessions including “The Changing Dimensions of Unclaimed Property Audits”.  The session discussed how the multi-state audit process has changed over time and what organizations, either under audit or possibly exposed, can do to avoid being caught flat-footed.

The following are some of the takeaways from the session that can assist holders with their planning and decision making.

  • The likelihood of an audit has increased in recent years due to several factors, including the proliferation of new third-party auditors, realization by states that significant amounts are involved, and the widespread reporting of unclaimed property litigation.
  • Most state statutes permit the use of third-party auditors and allow for contingent fee arrangements. Certain states (e.g., IL, OH and VA) ban the use of contingent fee examiners for in-state businesses.  Additionally, NC has completely banned the use of contingent fee auditors.
  • In the last several years, many states including, DE, MI and AZ, have provided statutory guidance for the conduct of audits, thereby allowing holders to better understand the states’ audit policies and procedures.
  • Estimation is permitted by the various Uniform Acts and certain state laws, with some states (e.g., TX and MI) now including in their statues the permitted use of “reasonable” estimation methods. However, it should be noted that there is a lack of statutory interpretation as to what is meant by “reasonable”.  Also, Delaware has recently introduced draft regulations specifically focused on estimation.  See our blog for more information on this topic.
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Topics: Compliance, Reporting, Audit, Voluntary Disclosure Agreements

2/3/17 9:51 AM

Delaware Signs Legislation to Overhaul Their Unclaimed Property Laws

On February 2, 2017, Delaware Governor John Carney signed into law Delaware Senate Bill 13 (“S.B. 13”), which represents Delaware’s effort to overhaul the state’s unclaimed property laws.  Although S.B. 13 addresses many of the areas on which corporations and unclaimed property practitioners have been seeking guidance (see previous blog: DE Approves Legislation to Overhaul Their UP Laws) a few key issues in the current Delaware act have yet to be addressed.

Among these is how Delaware will ultimately address its current extrapolation practices.  As included in S.B 13, the Delaware State Escheator must promulgate regulations regarding the method of estimation to create consistency in any examination or Voluntary Disclosure Agreement.  These regulations are due to be finalized by July 1, 2017. 

For holders currently under audit, these regulations will be a critical piece of information as they consider whether to either continue with the current audit process, elect to convert to an expedited audit or join the Secretary of State’s VDA program.  As per the requirements of the bill, this election must be made within 60 days of the adoption of the estimation regulations.  Accordingly, it is critical that holders perform the necessary modeling and analysis of their unclaimed property situation ahead of time so that they are armed with all the necessary information to make an informed decision.

Organizations need to be mindful of changing legislation and the impact it can have on their escheat compliance program. If you have any questions about the legislation or assessing your current position, we encourage you to contact us for expert guidance. 

Jon D'Amato                                             David Poehler                                                                     T. 404.264.8554                                         T. 404.857.1894               jon.damato@marketsphere.com               david.poehler@marketsphere.com

Clive Cohen                                                                                                                                            T. 917.538.8900                                                                                                                                       clive.cohen@marketsphere.com

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Topics: Delaware, Compliance, Audit, Voluntary Disclosure Agreements, U.P. Law

1/27/17 10:37 AM

Delaware Approves Legislation to Overhaul Their Unclaimed Property Laws

On January 27, 2017, the Delaware House of Representatives passed Delaware Senate Bill 13 (“S.B. 13”), finalizing Delaware’s legislative body’s fast-track effort to overhaul the state’s unclaimed property laws.  The bill will now be sent to Governor John Carney, who has indicated he will sign it. The legislature’s approval of S.B. 13 is a much anticipated development in the unclaimed property world, as Delaware attempts to address the scrutiny it has endured over the last few years, which culminated in July 2016 with the critical decision in the Temple-Inland case.  Although S.B. 13 addresses many of the areas on which corporations and unclaimed property practitioners have been seeking guidance, a few key issues in the current Delaware act have yet to be addressed.  Following are some of the key changes for those areas the Senate Bill has definitively addressed.

Look-Back Periods, Statute of Limitations, and Record Retention

One of the main areas of contention with Delaware’s escheat act has been its audit look-book period and statute of limitation provisions.  As Delaware’s act is currently written, a holder may be subject to a reach-back period of 20+ years, which is especially problematic because such a lengthy audit reach-back period typically far exceeds generally accepted corporate document and data retention policies.  In recognition of this clear misalignment, S.B. 13 stipulates a 10 year look-back period for ongoing and future audits.  The look-back period is based on the calendar year in which the Delaware audit notice was mailed to the holder.  Accordingly, the look-book period for holders already subject to a Delaware audit will vary depending on the age of the specific audit.  To ensure consistency, the look-back for the Voluntary Disclosure Agreement (“VDA”) program will also be amended to 10 years.  We note that this change for VDA’s merely represents a codification of what occurred administratively this past summer following the Temple-Inland decision.

Under S.B. 13, the statute of limitations increases to 10 years from 3 years (or 6 years in cases where a report contained an omission of unclaimed property that was more than 25% of the value disclosed in the report).  This 10-year statute is tolled if a holder is placed under audit or if the Delaware State Escheator determines that the report contained a fraudulent or willful misrepresentation.

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Topics: Delaware, Compliance, Due Diligence, ULC, Reporting, Audit, Recordkeeping, Voluntary Disclosure Agreements, gift cards, U.P. Law

2/18/16 9:22 AM

Unclaimed Property Audit Extrapolation: Is it Fair?

In unclaimed property circles, a popular hard-knocks story to share is the result of a state’s extrapolation of unclaimed property liabilities. Many holder personnel who have gone through the process of estimation during an audit or Voluntary Disclosure Agreement feel that the total assessment of past due amounts using extrapolation formulas has not been fair. Some holders have taken this question to court.

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Topics: Audit, Voluntary Disclosure Agreements

7/23/15 10:00 AM

New Delaware Unclaimed Property Audit Guidelines Set Precedent for Less Ambiguity and Lower Liability

Unclaimed property audits are about as welcome as toothaches in most holder organizations: they are difficult to ignore and can be painful to resolve. Long overdue changes in Delaware unclaimed property law could make things a bit easier.

The new laws provide a more transparent, less punitive process for unclaimed property audits and Voluntary Disclosure Agreements (VDAs). Because Delaware has one of the most robust unclaimed property compliance programs in the U.S., it is expected other states will follow suit with similar changes.

Primary features of the new law and impact to holders

The new Delaware law, S.B. 141, is based on recommendations made by a recently-formed Delaware Unclaimed Property Task Force. The changes serve as an acknowledgement by Delaware that the state’s unclaimed property compliance program needed improved transparency for holders and a reduction of total penalties potentially so high they served as a discouragement to reporting. 

The state has moved very quickly to make changes, which could encourage more holders to come forward after years of noncompliance.

Key provisions of the new law include:

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Topics: Delaware, Compliance, Voluntary Disclosure Agreements