Delaware VDA Opportunity Notification Letters

Based on recent correspondence with the State of Delaware and the Holder community, it has come to PEACC’s attention that Delaware’s Secretary of State has recently mailed opportunity letters to participate in the State’s Voluntary Disclosure Agreement (“VDA”) program. These notices were mailed to hundreds of companies throughout the United States who are incorporated in Delaware. As stated in the State’s recently revised laws and regulations, companies receiving the VDA letter have 60 days to respond. Companies not responding to the letter will be referred to the Delaware Department of Finance for an unclaimed property audit. Historically, the State turns to aggressive third-party, contingency fee paid auditors to perform these audits.

With this new letter notification initiative in mind, it is a best practice for any companies incorporated in Delaware, not fully compliant with the State’s unclaimed property rules and regulations, to keep an eye out for these VDA notices so they do not miss this opportunity to participate in the State’s VDA program.  PEACC advises all companies incorporated in Delaware (not just the ones receiving the letter) ensure they are in full compliance with the unclaimed property State laws and requirements as they may again begin to aggressively enforce their reporting requirements through State and State sponsored audits.

PEACC is advising companies to let their mailrooms and other appropriate personnel know to keep an eye out for any correspondence letters from the State of Delaware so this opportunity to report through a VDA does not pass them by. Missing this opportunity will lead to an unclaimed property audit.

For further information about this Delaware VDA letter writing campaign or the State’s VDA program and its benefits, please contact PEACC at 410.303.5510 for a free confidential consultation.

California Anmesty Bill (A.B. 2773) Update

California VDA Program Update –
California A.B. 2773, a bill to establish an unclaimed property voluntary disclosure program in the state has recently been pulled. The California State Controller’s Office has expressed some concerns with the bill’s language. The bill’s author, Assemblyman Dante Acosta, has since decided to pull the bill from consideration.

However, there is hope that the the bill will be reintroduction during the next California legislative session.

California Introduces Bill for Voluntary Compliance

The State of California recently introduced Bill (AB 2773) that, if passed, would create a Holder friendly Voluntary Compliance Program. This Program would allow Holders to report and remit past due property to the State without the threat of interest and penalties being assessed. If the Bill is passed, Holders not fully compliant with California’s unclaimed property regulations would have the opportunity to get compliant with a reduced look-back period and without the threat of interest or penalties being charged for past due property,

It has been almost twenty years (2001) since California last offer a similar amnesty reporting program. This Program was initially offered for one year, but it was so lucrative for the State, they extended it another year through 2002. The State took in millions of dollars as Holders chose to take advantage of it.

As an incentive for Holder compliance, most States currently offer either a formal or informal voluntary compliance program, normally known as a VDA (“Voluntary Disclosure Agreement”).

However, California currently is one State that will automatically assess at 12% per annum interest penalty on all past due property from the date it should have been reported. A Holder may request to appeal this 12% interest penalty, but it must be requested individually after the assessment. However, this request for abatement must be for good cause.

If AB 2773 is passed, it would allow the State to waive interest and penalties for Holders accepted into the Program and participating in good faith. The Program would be open to all Holders who aren’t currently under audit or have been selected for audit by the State or one of their agents. Once accepted into the Program, another benefit is a shortened look-back period of ten previous report years from the date the Holder is accepted into the Program. Currently, audits may go back to the Holder’s inception.

Bill AB 2773 was referred to California’s Judiciary Committee on March 20, 2018. If passed, a Holder would have through January 1, 2024, to enter and participate in this formal VDA amnesty program.

If enacted, this Bill would benefit any Holder conducting business in California, incorporated there, has a large amount of property due to the State or has historically under-reported. The Bill has gained major support from the Holder community and organizations throughout the Country.

PEACC will continue to monitor the progress of AB 2773 and hopefully the passing of it.

Expediting a Delaware Audit Into a Voluntary Disclosure

For Holder/Companies currently under a Delaware unclaimed property audit, below is a link to the form required to be completed and submitted in order to convert the audit into a Voluntary Disclosure Agreement (“VDA”):

(Please cut and paste link into your browser)

https://finance.delaware.gov/unprop/Notice%20of%20Intent%20to%20Convert%2010-3-2017.pdf

Please note: there are time constraints for converting a Delaware audit into a VDA.

Update on Puerto Rico 2017 Fall/Winter Reporting

With all the devastation and destruction that has taken place as a result of the hurricane that hit Puerto Rico {‘PR”) recently, there has been some question as to whether or not PR will be able to accept unclaimed property reports in the near term. Salva Doris Valentin, PR’s Unclaimed Property Supervisor, recently announced that their Office will continue to accept unclaimed property reposts and remittances as usual. No disruption has occurred.  If you have any questions or need further information please email Salva Doris Valentin at SALVAD@ocif.pr.gov

Important Update to Delaware Unclaimed Property Reporting

On September 29, 2017, the Delaware Secretary of State (“SOS”) announced an important update regarding the State’s Voluntary Disclosure Agreement (“VDA”) Program.

In two weeks (mid-October), the Delaware Secretary of State office will begin mailing notices to companies who have been identified as likely being out of compliance with Delaware law as it relates to reporting dormant, abandoned or unclaimed property. Companies that do not enroll in the Delaware SOS VDA Program within 60 days of the mailing of this notice WILL BE referred to the Delaware State Escheator for an unclaimed property examination.  If an audit notice is issued, the Department of State will have no legal ability to accept a company into the SOS VDA Program.

The SOS VDA Program was put in place to respond to concerns about
Delaware’s ongoing audit program, and to encourage more companies to
come into compliance with their legal responsibilities as they relate to
abandoned and unclaimed property property.  Through recent changes in the law, Delaware is providing every company with an opportunity to voluntarily comply prior to being issued an examination notice.  Delaware’s SOS is urging all companies to take advantage of this opportunity to enroll in the SOS VDA Program.

For further information or questions on this new initiative Delaware is offering, along with the benefits that accompany it, please contact PEACC at 410.303.5510.

Delaware Voluntary Disclosure Agreement (VDA) Outline

DELAWARE VDA PROCESS OUTLINE
I) Enroll in Delaware VDA
A. Sign and submit Delaware Form VDA-1
II) Compile Delaware Information Request
A. Company history
B. Entities included in VDA
C. Mergers and acquisitions
D. Reporting history
E. Records availability
F. Property types included in VDA
i. Payroll
ii. Accounts Payables
iii. Accounts Receivables
iv. Refunds/rebates
v. Others
III) Scoping
A. Each entity included in VDA
i. Property types
1. Record availability
a. Trial balances
b. Bank recs
c. Outstanding check lists
d. Voided check lists
e. A/R aging reports
f. Other(s)
2. How far back do records exist?
a. Ideally to YEAR 1996
3. Lack of records
a. Estimation used
IV) Review of Records in Detail
A. Detailed review of each property type
B. For each entity
C. Estimation where records do not exist
V) Submit results to Delaware for review
A. Draft report submitted to Delaware
B. Delaware may select a sample to test to support findings
VI) Settlement and Payment
A. Delaware agrees to VDA findings
i. State Form VDA-2 completed and submitted to Delaware
ii. Remittance payment submitted
VII) Other State VDA’s
A. Final exposure for all other applicable States determined

Dissecting Due Diligence

You’ve finally got all your outstanding checks in order and have ensured you are not remitting more than you need to the various States to comply with their unclaimed property reporting requirements. As you perform a double check to make sure your company is totally compliant, you come across the State due diligence requirements. Unclaimed property due diligence – what is it and what does your company need to do in order to comply.

One State defines due diligence as a “written notice sent by a Holder, after the appropriate dormancy period has elapsed, that informs the Owner that his/her property will be turned over to the State as abandoned property unless the Owner contacts the Holder”. While another’s definition is “the use of reasonable and prudent methods under particular circumstances to locate apparent Owners of inactive or dormant accounts”.

Whatever State definition you look at, due diligence is an unclaimed property compliance function that requires Holders to reach out, normally through a first class mailing, to Owners of unclaimed property to try and re-establish contact. It’s the beast inside the beast of unclaimed property compliance reporting!

The object of Holder due diligence is to: 1) establish contact with the true Owner; 2) return unclaimed property to the rightful Owner; 3) and to find Owners of unclaimed property that has remained dormant on the Holder’s books and records for a specific period of time.

The Holder benefits achieved through the due diligence process include: Owner communication may be re-established. It may prevent current, past and future unclaimed property reporting obligations. Successful due diligence provides positive customer service. Positive Owner contact from due diligence may decrease workload (item is no longer unclaimed). It may even increase business by the Owner re-depositing the lost funds in to another account with the organization. More recently, performing due diligence alleviates possible fines or penalties for non-compliance.

What are the requirements of State due diligence? Although Statutes do not normally prescribe the steps/letter specifics, some type of due diligence is required by the majority of State statutes. In general, a search letter, sent first class mail, is required to be mailed 60 to 120 days before the report due date which means it should be mailed between July 1 and September 1 for most Holders. However, for Insurance Companies and Holders with spring reports, this mailing should be done between January 1 and March 1, as a rule of thumb. In most cases this mailing is required to be a first class mailing. In most States, the costs of these mailings cannot be deducted as the States consider it a “cost of doing business”.

Three States, Delaware, New York and Puerto Rico also require certain Holder types to advertise in local newspapers. Although for Puerto Rico its only applies to companies incorporated or physically located there, where for New York and Delaware it’s mostly for Financial Institutions and Insurance Companies. Please check with each State’s individual law for further instruction/information/requirements on this advertising function.

The basic components of a due diligence letter include a statement that the unclaimed property will be reported to the State if the Owner does not respond; a statement of property type; a statement that the Owner can always reclaim the property from the State; a statement of the date by which the owner must respond back to the Holder in order to claim the property; and the name, address, email and phone number of the Holder contact person on the letter.

A typical State due diligence statute includes the following: The Holder has an address in their records for the apparent Owner and the records do not indicate that the address is bad or inaccurate. (some State statutes say an address where “mail can be delivered”). The claim of the apparent Owner is not barred by any other law of this State (child support/delinquent taxes). The value of the property is at least ____ dollars [$____]. In most States the due diligence amount corresponds with the State’s aggregate amount. So if a State has an aggregate amount of $50.00, then the Holder would only need to perform due diligence on property items valued over $50.00.

There are about a dozen or so States that require certification that the due diligence was done. This is normally fulfilled when an Officer of the company signs the State affidavit/verification & checklist.

There are a few States, where under certain situations, require the Holder to send out their search letters Certified Mail, and in some cases this mailing cost is deductible. These States include Iowa, New York, New Jersey and Ohio. Please refer to each State’s individual statutes for further information.

Although most States do not allow the cost of the search letter mailings to be deducted (it is considered the “cost of doing business”), California, Illinois and Nevada are three States where the Holder may deduct the cost of these mailings. Please refer to each State’s individual statutes for further information.

The Holder checklist for due diligence should include the following prior to any mailing. Has the Owner increase or decreased the account? Has the Owner contacted the Holder about the account? Has the Owner indicated an interest in property? Does the Owner have any other accounts with the Holder? Is the Owner a current employee of the Holder’s? Is the Owner a well-known individual business or government entity?

How long should the Owner have to respond to the search letter? Some States prescribe a specific time period. Some States say 30 days, where others say 60. Some States say until October 1 before a November 1 report due date. Others actually suggest to “allow enough time for the Owner to respond”.

Are there audit concerns for non-compliant due diligence? Yes. All Holders need to keep documentation to verify due diligence was performed and also keep a copy of what the actual letter looks like and says. Some State statutes now allow for penalties for due diligence non-compliance.

What are some best practices suggestions for Holder due diligence? States due diligence requirements are mandatory as a final step prior to escheat reporting and remittance. Holders can perform their own internal due diligence prior to the mandatory requirements. Holders may decide to send first class mailings 6-12 months prior to the dormancy to reduce certified mail candidates, or elect to send an easy to respond due diligence mailing 6-12 months prior to the dormancy period ending.

How can Holders increase positive due diligence responses? Make sure outgoing envelopes do not look like junk mail. Print key words on the envelope itself such as: “Time Sensitive – Open Immediately”; “Mandatory Response Required”; or “Unclaimed Funds/Money”. Keep the due date time short to force a quick response, such as 30 or 45 days to respond to letter. Give options on how to respond such as by fax, mail, telephone, or email. Lastly, use understandable words, not “Escheat”.

All in all, fulfilling the State required due diligence requirements can be a burden. But with a thought out process, practice and good in house procedures, after the first couple of times it can become an afterthought incorporated into your in-house unclaimed property policies and procedures.

Unclaimed Property – Whats All The Fuss About

Although unclaimed property has been around for years, it is a fairly new issue for most companies throughout the United States. Unclaimed property, also known as “escheat”, evolved during the days of English Common Law. When an event disrupted the natural descent of property, such as no heirs, the property was “escheated” to the Lord of the Manor. Escheated property then became the sole property of the Lord of the Manor, and rightful heirs lost all claim to the property indefinitely.

Evolution of Modern Day Unclaimed Property
Unclaimed property has come a long way from the days of English Common Law. In those days all unclaimed property was tangible, normally made up of land and stray animals, including  horses and cattle. Today unclaimed property consists of intangible property, such as dormant bank accounts, uncashed checks,  unreturned deposits and credit balances. Unclaimed property normally falls under two separate categories, either general ledger property types, or securities related property. Unclaimed property laws require reporting to the appropriate State jurisdiction, where each State has their own unclaimed property laws and regulations. Each State has specific due date(s) that unclaimed property must be reported by. The due dates are determined by dormancy period and type of property. Depending on the property type, the dormancy period, on average, ranges between one to five years. Each State requires companies to perform this reporting process on an annual basis, along with the State mandated due diligence/search letter requirements. Generally, and as a rule of thumb, most corporations, banks, and financial institutions are required to submit their reports and remittance by October 31 of each year. Reports and remittance for most insurance companies are due by April 30 of each year. There are a few States where the reporting due dates may differ. All States now act as custodians of this reported property and will turn the property back over to the rightful owner or heirs with true claims to it. The goal on most State Unclaimed Property Offices is to get this unclaimed property back to the rightful owner’s hands.  Although, history has it, on average maybe only 25% to 28% of this property is actually ever reclaimed and paid out by the States to the rightful owner.

Unclaimed Property – The “Dirty Dozen”

Ask yourself the following twelve questions to determine if your company is a candidate for the dreaded “Unclaimed Property Audit” by either a state or state sponsored (third-party) unclaimed property auditor:

1) Has the company been in business 10 years or more? 
2) Is the company aware of all its unclaimed property reporting responsibilities?
3) Has the company reported unclaimed property in the past, or only sporadically reported, or only filed negative reports?
4) Does the company currently have unclaimed property reporting policies and procedures in place?
5) Does the company issue a large number of checks or drafts?
6) Does the company have a large number of employees and high employee turnover?
7) Does the company do business with multiple vendors and change them frequently?
8) Does the company accept customer deposits as prepayments including gift certificates and layaways?
9) Does the company’s books reflect any type of over payments, credit balances, unapplied cash, refunds due to customers, or numerous voided checks?
10) Does the company have unrecorded liabilities including old uncashed/outstanding checks that may have been written off to income in prior years?
11) Does the company issue securities and have a large number of shareholders?
12) Is the company in an industry group that has been targeted for unclaimed property audits in the past, such as Fortune 500, Fortune 1000, Health care, Insurance, Manufacturing, Banking and Finance, Securities, Utilities, College/University, or Retail?

If you answered “yes” to any of the basic questions, you could be a target for an unclaimed property audit. To find out how to help protect your company please contact or call us direct at (410) 303-5510.

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