Select holders currently under audit will have until December 11, 2017 to elect to convert to either the VDA or the Expedited Audit Program.
The final Delaware unclaimed property reporting and examination regulations follow on the heels of an announcement by the Secretary of State on September 29, 2017, that the office will be mailing letters in the next two weeks to holders identified as “likely being out of compliance with Delaware law.” Such holders have 60 days from the date of the letter to enroll in the Secretary of State’s VDA program or they will be referred to the State Escheator for examination.
The final regulations do not differ in substance from those proposed in August. The clock now begins ticking for holders currently under audit by the Department of Finance, who have until December 11, 2017 (60 days from the promulgation of the regulations) to elect to convert their audit to a VDA or an expedited audit and submit their conversion documents to the Secretary of State. Only holders who received audit notices prior to July 22, 2015 have the option to continue the existing audit, elect an expedited audit, or convert the audit to a VDA.
Additional information can be found on the Secretary of State’s Unclaimed Property VDA Program website.
Delaware Unclaimed Property Reporting & Examination Regulation Highlights
The following provisions of the regulations are of particular importance to holders, whether or not under audit:
- Section 2.2.3: Delaware has jurisdiction over the escheatment of property where the last known address of the owner is not located in any jurisdiction in the United States, or any territory or possession of the United States where the holder is incorporated or formed under Delaware law.
- Section 2.8: A sufficient address to establish priority may include two of the following three data points: city, state or foreign code, and postal code.
- Sections 2.9 and 2.18.1: Holders are required to retain records for 10 years, plus dormancy, after the report is filed, which must include the date, place and nature of the circumstances giving rise to each property right. Records may include: tax returns, organization charts, charts of accounts, unclaimed property filing history for all states (if the holder is incorporated or formed in Delaware), prior and accepted VDAs and examinations, bank statements, bank reconciliations outstanding checklists, detail general ledgers, aged accounts payable and accounts receivable reports, policies and procedures related to record retention, accounting and unclaimed property, and if applicable, information surrounding gift cards
- Section 2.12.3: Effective July 1, 2015, the State Escheator may not initiate new examinations unless the holder was first notified in writing by the Secretary of State that the holder may enter into a VDA, except in the following circumstances: 1) pursuant to information received regarding false or fraudulent claims, or 2) as a joint examination initiated by another state after consultation with the Secretary of State
- Section 2.13.4: The State shall conduct periodic reviews of the third party auditors’ conduct, processes and procedures to ensure compliance with applicable laws, security protocols, record retention and destruction policies.
- Section 2.14.1: Holders under examination may enter into a Confidentiality and Non-Disclosure Agreement (“NDA”) with the auditor and although holders are not required to use a form approved by the State, if the auditor and the holder cannot agree on the terms of the NDA, the parties shall instead rely on the confidentiality provisions in Section 1189 of the unclaimed property law. The sample NDA requires that an auditor obtain written consent from the holder to add a state to the examination. Auditors are also prohibited from informing other states or jurisdictions that they have authorized an examination to solicit such states to investigate, initiate or conduct their own examination of the holder. This restriction does not, however, prohibit the auditor from disclosing its involvement to another state once that state issues a notice of examination to the holder.
- Section 2.16.3: Once entity scoping is determined by the State, no additional entities may be scoped into the examination without the holder’s consent.
- Sections 2.17.7 and 2.22.1: Holders have the opportunity to remediate and perform due diligence on items identified as potentially unclaimed property, but the form of the outreach letter must be approved by the State, and all letters must be submitted to the auditor for review and approval prior to being sent out.
- Section 18.104.22.168: With respect to estimation, base periods shall consist of complete and researchable records, defined under Section 2.20.2 to consist of those records to which the holder may research the resolution of an item, and which, at a minimum, shall include those items that contain a last known address of the owners of property
- Section 22.214.171.124: For purposes of representing periods where records do not exist: 1) funds returned in the normal course of business will not be included in the population; and 2) funds returned outside of the normal course of business (i.e. change in process) will be included.
The full Delaware Unclaimed Property Reporting and Examination regulations can be viewed in their entirety by clicking here.
Keane will continue to ensure that you are aware of any unclaimed property developments in Delaware and in all other jurisdictions. If your company is facing an unclaimed property audit by one or multiple states, please contact us for assistance. Our expert team works in collaboration with you and your counsel to manage all aspects of the unclaimed property audit process, as well as the Voluntary Disclosure Agreement offered by the DE Secretary of State.