Delaware Senate Bill 104 (S.B. 104), enacted into law on June 30, makes several changes to Delaware’s unclaimed property law and audit program. Delaware last overhauled its unclaimed property statute in 2017.
S.B. 104 addresses specific criticism of the state’s unclaimed property audit program. A number of companies have challenged the constitutionality of Delaware’s unclaimed property program, alleging the state’s methodology for estimating audit liabilities and use of third parties to audit companies on behalf of the state (third-party audit firms) violate due process.
Highlights of the new law include:
- An expedited examination program with options for certain companies currently under audit to transition with a two-year timeline for completion and interest capped at 1%.
- Codification of Delaware’s practice of issuing extensive records requests and reviewing property related to all jurisdictions to determine whether a company complied with Delaware’s unclaimed property law. This practice typically leads to substantial estimated audit liabilities and has come under heavy scrutiny in recent years. The state escheator may examine a company’s records, including information to verify the completeness or accuracy of the records provided, even if such records might not identify property reportable to Delaware.
- Authority for the Delaware escheator to mail owner due diligence letters during examinations. As a result, Delaware has the authority to send letters to a company’s customers, vendors, or employees offering an opportunity to claim funds at any time during an audit.
- A limit on contingent fee arrangements and an hourly compensation requirement for third-party audit firms except in the case of examinations of customer accounts, insurance policies, or securities. While this provision restricts controversial payment arrangements with third-party audit firms, it also could create a financial incentive for a third-party audit firm to extend the duration of an audit.
- Indemnification limits for companies reporting property to Delaware. For example, the state will not indemnify companies from penalties imposed by other jurisdictions that claim property from Delaware.
- A requirement for third-party audit firms to comply with certain nondisclosure and confidentiality provisions, such as prohibiting the use of records from a Delaware examination in multistate examinations without consent of the company. Delaware responded favorably to concerns from the business community and incorporated this provision to limit exposure of company data in the case of third-party audit firms that have contracts with multiple states.
