The Carrot and the Stick: Delaware Unclaimed Property Voluntary Disclosure Agreement Program and Increasing Unclaimed Property Audits

March 26, 2013 11:06 AM

As discussed in the June 26, 2012 True Alert, every company generates unclaimed property, which is any intangible property that is owed by the company and has gone unclaimed for a specific period of time by the rightful owner.  The company in possession of the unclaimed property, also known as a “holder” has a legal responsibility to report and remit that property to the appropriate state.  There is generally no statute of limitations on a holder’s unclaimed property liability.  Therefore, a holder’s state of incorporation can estimate a holder’s potential liability for periods where actual records are not available.  Because many companies are incorporated in Delaware (“State”), the new Delaware Voluntary Disclosure Agreement (“VDA”) program enacted on July 11, 2012, with the passage of Delaware Senate Bill 258 is potentially significant to a number of companies that are not in full compliance with the state’s unclaimed property laws.

Senate Bill 258 created an entirely new VDA process overseen by the Secretary of State (“Secretary”) by amending Chapter 11, Title 12 of the Delaware Code.  Specifically, the new Section 1177 provides that:
  • Holders notifying the State of their intent to participate in the new VDA program before June 30, 2013, and who complete their VDA, including payment, by June 30, 2014 (subsequently extended to June 30, 2015), receive a reduced look-back period from 1996 to present, a reduction of five years from the terms offered under the prior VDA program.  
  • Holders notifying the State regarding participating in a VDA after June 30, 2014, and complete the VDA, including payment, by June 30, 2015, receive a reduced look-back period from 1993 to present, representing a two-year reduction from terms offered under the prior VDA program.  
Under the provision of the current law, the Secretary will not have the authority to accept a Notice of Intent to enter into a VDA after June 30, 2014.  In addition, Section 1177 has a sunset provision which will take effect on July 1, 2015, and the Secretary will not be authorized to continue any VDAs that have not been finalized by that date.  Companies entering into a VDA after Section 1177’s sunset provision becomes effective must then work with the Delaware Department of Finance, State Escheator (“Escheator”), under the terms of the prior VDA program, including the 1991 look-back period.
In a move which expanded the benefits of the new VDA program to additional holders, on January 30, 2013, Delaware Governor Markel signed House Bill 2, providing that holders who elect to participate in the VDA program prior to June 30, 2013, will have up to one additional year (until June 30, 2015) to enter into a final agreement and make payment or enter into a payment plan.  In addition, House Bill 2 also stated that a holder that has previously entered into a VDA with the state prior to June 30, 2012, may enter into the new VDA program with respect to any related entity that was not included in an earlier VDA or with respect to property types and/or periods that were not included in its prior VDA.
Delaware Unclaimed Property Audits on the Rise
After the launch of the new VDA program, the Escheator, which still oversees unclaimed property audits in the State, continued to suspend issuing new audit notices for several months, allowing holders that wanted to take advantage of Delaware’s new VDA program an opportunity to do so.  However, beginning in February 2013, the Escheator began to issue audit notices to companies that had not yet signed up to enter into a VDA with the State.  While an unwelcome development for many holders, it is not unusual for states to follow the announcement of a new VDA program with increased audit notices, a pattern that seems to hearken back to the idea of “the carrot and the stick," an idiom that refers to a policy offering a combination of rewards and punishment to induce the desired behavior, i.e., holder compliance.  However, in the short time since it began issuing audit notices, many observers have commented that it is as if the Escheator had been saving up audit notices and now the floodgates have been opened.  
Who does this impact?
The new VDA program can still be of maximum benefit for any company that has not yet received an audit notice and taken advantage of it before June 30, 2013.  Companies likely to benefit most from the limited look-back period are those that may not be in full compliance with Delaware’s unclaimed property laws, and those companies that were incorporated in Delaware prior to 1996.  The program is available to companies that have:  (1) never reported unclaimed property to the State, (2) have omitted reporting dormant property on earlier reports or in earlier VDAs, or (3) believe they are in substantial compliance but have received an outreach letter and wish to prevent an audit.  The program is NOT available to:  (1) companies that have an open VDA with the Department of Finance or, (2) companies undergoing or have recently been contacted for a Delaware unclaimed property examination.  Finally, all companies desiring to enter into a VDA with Delaware will benefit from an expedited VDA process.
What This Means to Your Company
The enactment of Senate Bill 258 and House Bill 2 provide holders with a unique, and limited, opportunity to voluntarily report unclaimed property to Delaware with a reduced “look-back,” thereby potentially reducing reportable amounts.  However, in order to take advantage of the program, holders must contact the State to participate in the VDA program before the State contacts them with an audit notice.  All companies that may be holding unclaimed property reportable to Delaware should consider taking advantage of this limited opportunity to get into compliance for all past-due property before the window of opportunity closes.
Our Expertise
True Partners Consulting’s Unclaimed Property Management Solutions Team is comprised of a national group of professionals with diverse backgrounds, including industry and government.  Based on our proven track record, we have grown to be one of the top five service providers in the country.  We believe we possess the best combination of experience, expertise, and resources to address all of your unclaimed property needs across all industries.  We encourage you to contact one of our professionals to discuss any questions or concerns that you may have regarding unclaimed property and what these recent developments may mean to your company.


Cathleen A. Bucholtz 
Managing Director 
(213) 417-2501
Robert M. Tucci 
Managing Director 
(214) 438-3766
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