Delaware continues to be a driving force in unclaimed property compliance enforcement. The state announced that it will mail its next round of VDA program invitations on July 14, 2023. It mailed previous rounds of VDA invitations this past February and last summer. Companies that receive the invitation will have 90 days to enroll in Delaware’s unclaimed property VDA program. Invitees that do not enroll in the program will be referred to Delaware’s Department of Finance for audit. Companies should be on the lookout for any official correspondence from the state relating to unclaimed property and know that urgent action might be required.
Background
All 50 states have unclaimed property statutes, and reporting requirements can vary by state. The main purpose behind these statutes is to reunite owners with lost or abandoned funds. State unclaimed property law requires companies to regularly review their books and records to determine if they are holding any funds unresolved with vendors, customers, or employees.
Unclaimed property is reportable to the state of the owner’s last known address after a dormancy period of one to five years, depending on the state and property type. The most common examples of unclaimed property include uncashed accounts payable and payroll checks, unresolved customer credit balances, abandoned bank accounts, and unused gift cards. Failure to comply with a state’s unclaimed property law can result in penalty and interest assessments and can trigger state audits conducted by third-party firms.
Voluntary compliance and program invitation letters
To encourage compliance with state unclaimed property laws, many states offer voluntary disclosure programs that allow holders to proactively address past-due unclaimed property reporting obligations. Under a typical voluntary disclosure program, a state will abate otherwise applicable penalties and interest, limit the lookback period subject to reporting, and agree to not audit prior years.
Delaware’s latest invitation gives companies 90 days from the date of the invitation to enroll in the VDA program. If this deadline is not met, companies will be automatically referred to Delaware’s Department of Finance for an unclaimed property audit administered by a third-party audit firm.
Crowe observation
Delaware typically sends these program invitations to companies legally domiciled in Delaware and addresses the invitations to the company’s CFO.
Companies that receive an invitation should consider enrolling in Delaware’s VDA program to prevent an unclaimed property audit. In an audit, Delaware assesses a minimum of 20% interest on all past-due unclaimed property identified. The VDA program often is more appealing than an audit because of the following benefits:
- It is a self-directed review completed by the company.
- It has a two-year time frame for completion.
- It includes a waiver of penalty and interest.
By enrolling in the VDA program, holders agree to conduct a review using Delaware’s prescribed guidelines and estimation methodology and still are subject to a 10-year reporting lookback period.
Any company that receives a VDA program invitation should be prepared to quickly evaluate and respond. Companies evaluating their situation for participation should review their unclaimed property filing footprint and compliance history. Invitees also should consider the benefits of entering the VDA program and consult their advisers to help weigh the pros and cons.
