Executive summary:
Recent actions increase unclaimed property compliance enforcement
The Delaware Department of Finance (DOF) recently clarified its efforts to enforce compliance with the state’s unclaimed property laws under Senate Bill 281 enacted in 2022. Under the expanded compliance program (see 12 Del. C. section 1170), the DOF is sending notices to businesses that require completion of its ‘verified report’ or ‘compliance review’ programs for both filers and non-filers of unclaimed property. Delaware, through a request for proposal, awarded contracts in June 2023 to four third-party auditors to assist with the respective reviews. The state estimates 500-700 verified report notices will be sent in fiscal year 2024, many of which were mailed in November in a clear effort to expand the number of holders reviewed. Businesses receiving such a notice must have a plan to timely respond.
Delaware ramping up unclaimed property enforcement actions
Unclaimed property compliance enforcement continues
The state’s compliance and enforcement efforts continue to increase under the legislation authorized last year. Delaware unclaimed property holders should understand the differences between the two programs.
Verified Report requests
In Delaware’s fiscal year 2024 enforcement actions, the verified report efforts request that holders of unclaimed property verify under sworn notary, the completeness and accuracy of their 2022 unclaimed property report and provide a list of legal entities and confirmation of whether the company has written policies and procedures. If formal procedures are applicable, a copy must be provided. Recipients must respond within 30 days from the date of the notice to acknowledge receipt and are given 180 days to provide complete responses to the state.
Failure to respond to the verified report notice or provide all of the requested information may result in a referral for a compliance review, the issuance of a notice of examination, or an invitation to participate in the Voluntary Disclosure Agreement (VDA) program. Businesses that do not have and provide formal written policies and procedures could be deemed to have an incomplete response and be referred for a compliance review
Compliance Review
With the current enforcement actions, the compliance review efforts request that holders of unclaimed property provide voluminous accounting records related to the 2022 report filed. The compliance review, in practice, is more substantial than a desk audit for the requested filing and must be completed within one year. Recipients must also respond within 30 days from the date of the notice to acknowledge receipt. Information requested as part of a compliance review is substantial and includes but is not limited to historical accounting related records such as trial balances, federal tax returns, check registers, bank statements, and aging reports.
Failure to respond to the compliance review notice, identification of a finding of deficiency, or complete it satisfactorily within one year may result in the assessment of interest and penalties, issuance of a notice of examination, or referral to the VDA program.
VDA impact
Adding to the importance of a timely response, the verified report request and compliance review programs create an avenue for the state to initiate an unclaimed property audit of a business without first inviting the business to participate in the Delaware Secretary of State VDA program. Delaware’s VDA enrollment invitations provide a business 90 days to weigh the benefits of participating in an audit in lieu of enrolling in the VDA program. With the recent updates to Delaware’s unclaimed property law, the state use the verified report or compliance review programs to issue an unclaimed property audit without providing the opportunity to enroll in the VDA program first.
Takeaways
Businesses should be aware of the hundreds of verified report and compliance review program notices being mailed and develop a plan to respond accordingly. For both of the enforcement mechanisms, holders must respond within 30 days. Additionally, as was the case previously, holders should also respond to invitations to the state VDA program within 90 days. Failure to respond to any of the unclaimed property notices may result in further escalation effforts including examination.
Businesses that have received either notice should respond timely to avoid additional enforcement. Additionally, holders should take the opportunity to review any inhouse unclaimed property policies and procedures and/or to develop or enhance written procedures.
For more information on unclaimed property, please see RSM’s Abandoned and unclaimed property services or reach out to your unclaimed property professional with questions about the state’s evolving enforcement mechanisms.
