Delaware Compliance Advisory: Risks and Best Practices for Unclaimed Property Notices

Time is of the essence for countless businesses as Delaware has issued the “Notice Requiring Verified Report for Report Year 2022,” prompting a swift 30-day response period. The clock is already ticking if you’re one of the many companies with this notice on your desk. Understanding the specifics of this notice is crucial, as it dictates the deadlines for response, the extent of review necessary, the scope of documentation needed, and the potential financial implications at stake. Immediate attention is imperative to ensure compliance and mitigate potential exposure.

Here are the essential factors to understand about the verified report notice:

• There is a 30-day response window.
• A 3rd party audit firm is assigned to the notice to assist the State with the review.
• The company must provide the following:
  • A completed verified report form detailing unclaimed property held;
  • A listing of the legal entities covered in the verified report and
  • If available, a copy of the company’s written policy and procedures on unclaimed property.
• If the company fails to respond to the notice or the response is deemed insufficient, the State can initiate a “compliance review” that requests all supporting documentation relating to the verified report.
• If the State determines a deficiency during the compliance review, it will notify the company and demand payment within 90 days.
• If the company fails to pay the deficiency demand or comply with the verified notice request, the Department of Finance (DOF) can initiate an audit without an invitation to participate in the Secretary of State’s (SOS) Voluntary Disclosure Agreement (VDA).
• A DOF audit will result in a 15-year lookback with the potential for penalties and interest and will be conducted by a third-party auditing firm.

If a company receives a verified report notice, time is of the essence. The following should happen immediately:

• Acknowledge receipt of the notice within 30 days or as soon as possible if the deadline has passed;
• Determine if the company can sufficiently respond to the request and
• If there are any concerns, evaluate whether the company should enter the SOS VDA program.

The other types of Delaware notices to be on the lookout for would be the:

• Delaware’s Secretary of State’s invitation to enter into their Voluntary Disclosure Agreement program
• Delaware’s Department of Finance Audit notice with a 3rd party auditor assigned

If you receive one of these notices, it is important to understand how they differ. The highlights of these other Delaware notices are as follows:

The Delaware SOS Unclaimed Property Voluntary Disclosure Agreement Invitation Notice

• Offers a voluntary disclosure agreement (VDA) program for holders of unclaimed property.
• Requires holders to proactively contact the Delaware Secretary of State to participate.
• A response is required within 90 days, or the company can be turned over to DOF for audit.
• Allows holders to assess their liability and report it without facing penalties or interest.
• Participants must review their records and report any unclaimed property owed to Delaware.
• It aims to create a cooperative environment between holders and the state.

The Delaware Department of Finance Third Party Audit Notice

• Informs the entity they have been selected for an audit that an independent third party will conduct.
• Involves a comprehensive review of the entity’s unclaimed property records and reporting.
• Mandates full cooperation with the audit process.
• Assesses penalties and interest at the end of the audit.

Best Practices for Responding to the Notices

• Act quickly upon receiving any notices to ensure compliance and meet deadlines.
• Engage with professionals experienced in unclaimed property laws and regulations.
• Thoroughly review financial records and internal systems to accurately identify unclaimed property.
• Document every step taken in response to the notices, including all communication with authorities.
• Train relevant personnel on unclaimed property laws to enhance ongoing compliance efforts.
• Implement systematic procedures for regularly reviewing and reporting unclaimed property to prevent future issues.

Given the potential complexity and risks, if you have received any unclaimed property notices, it is essential to begin having discussions now with the accounting process owners as well as engage an unclaimed property specialist to help identify any hidden risks and to strategize on how best to proceed. A proactive game plan and a quick call to action to address an unclaimed property notice can help your company ensure all appropriate steps are taken to mitigate potential risks and avoid pitfalls.

Reach out to Angela Gebert at [email protected] or 212.842.7002 for any additional information or questions that you may have.