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Delaware Starts Unclaimed Property Compliance Reviews (Different from Audits)

By: Cathleen A. Bucholtz Jim Sadik Robert M. Tucci Steven Swaigenbaum Troy R. Wangen |

By now, many are aware that the State of Delaware is increasing the issuances of unclaimed property voluntary disclosure agreement (“VDA”) invitation letters to companies.  Offering the option of a VDA is a step that the State is required to take prior to issuing an audit notice under Del. Code Ann. tit. 12, § 1172.  Companies that ignore these invitations are receiving audit notices in as few as three days from the expiration of the 60-day time period to respond to the invitation.

However, what many companies may not know is that the Delaware’s State Escheator has also begun to initiate compliance reviews under Del. Code Ann. tit. 12, § 1170(b).  This section, which was part of the sweeping reforms to Delaware’s unclaimed property program when Senate Bill 13 was signed into law in early 2017, authorizes the Delaware Office of Unclaimed Property to perform a compliance review of any company that it believes may have filed an “inaccurate, incomplete, or false report”.

Like an audit, a compliance review can result in a finding of liability.  However, because they are not technically audits, the notification requirements of Del. Code Ann. tit. 12, § 1172 do not apply, so a company is not entitled to opt out of the compliance review by entering into the state’s voluntary disclosure program.

The scope of a compliance review is also limited to “all supporting documents related to such reports”, which may include items supporting the actual calculation of the amount reported, as well as a copy of the company’s unclaimed property policies and procedures.  Therefore, in addition making sure that the correct amount was remitted, it is also important to be able to document that your company has effective policies and procedures in place regarding unclaimed property.

At a minimum, a company’s unclaimed property policies should outline the company’s reporting process, assign responsibility for the compliance tasks, identify where unclaimed property may arise within in the company, and set record retention rules for unclaimed property related records.  In addition, for each policy there should also be procedures detailing how, and by whom, each task is to be performed and documented.

It is impossible to completely eliminate all risk that your company will be selected for a compliance review or an audit.  However, in addition to carefully reviewing your company’s reports for accuracy and keeping relevant workpapers, one thing that your company can do is review its policies and procedures to make sure that they can withstand state scrutiny.

If you are interested in learning more about the Delaware compliance review program, how to review the effectiveness of your company’s existing policies and procedures, or how to create and implement policies and procedures tailored to your organization, contact for more information.