Many organizations have recently received a notice from the Delaware Department of Finance Office of Unclaimed Property requesting a sworn verification of the completeness and accuracy of their unclaimed property reporting.

Delaware sent a large batch of these inquiries in November, in what appears to be an expansion of Delaware’s use of the verified report process as a regulatory tool to enforce compliance. The notice requests key information about a company’s unclaimed property reporting, including the list of legal entities included, copies of policies and procedures, and, most significantly, sworn verification by a corporate officer that the report and enclosures are true, correct, and complete. Companies must acknowledge receipt within 30 days, and must provide the requested information within 180 days. Completing the verification will likely require review of the company’s unclaimed property reporting processes, and the company’s submission will be reviewed by one of the state’s third-party examination firms, such as Kelmar Associates. If there are gaps in reporting, the company would either need to report past due amounts or enroll in the Voluntary Disclosure Agreement (VDA) program, which requires the company to perform a broader self-review looking back 15 years.

Delaware’s broad distribution of verified report inquiries appears to be new, even though the verified report process has been in place for a number of years. Delaware uses a range of mechanisms to enforce its unclaimed property laws, and has historically been very assertive in seeking to collect unclaimed funds from businesses incorporated in Delaware. In recent years, the most common method for initiating an inquiry to determine compliance with Delaware unclaimed property laws has been a request to enter into an unclaimed property VDA. The Delaware Secretary of State administers the VDA program and sends the VDA invitations. The VDA requires a comprehensive review of all company books and records; the process is extensive and can take multiple years to complete. Companies that do not enroll in the VDA program after receiving an invitation are immediately referred to examination, which is also an intensive, multi-year process.

The verified report request is generally designed as a more streamlined inquiry, but can expand if there are gaps in compliance or failure to adequately respond. If Delaware determines the company has not completed or responded to a verified report request, the notice indicates that the company would receive an invitation to complete a full VDA. The Delaware statute also suggests, however, that in some circumstances the state may be able to authorize a full-scale examination of the company’s records immediately, without offering the option to enroll in the VDA program.

Unlike the VDA program, which is run by the Secretary of State, the verified report process is run by the Department of Finance, which also conducts examinations and compliance reviews.
Examinations are burdensome and typically performed by third-party audit firms. Compliance Reviews are designed to be a review of a one-year period, and in theory are simpler than a full examination, but compliance reviews still require providing extensive information to the state.

Takeaways

• This recent series of requests for verified reports of unclaimed property appears to be a new approach by Delaware and suggests an expansion of Delaware’s use of this enforcement process.
• The process seems designed to try to identify companies with compliance gaps that may require deeper review, either through the VDA program or examination.
• Companies receiving the notice should respond promptly to avoid escalation, by acknowledging receipt within 30 days and then conducting the necessary inquiries to respond appropriately.