Reasons to enroll in the Delaware unclaimed property VDA program

Delaware’s voluntary disclosure agreement program (VDA) was designed as a more business-friendly and efficient way of complying with a company’s unclaimed property reporting obligations. It was also established to reduce the number of full audits required. There are several compelling reasons to enroll in the VDA program versus facing an audit:

1. Waiver of interest and penalty: Delaware’s unclaimed property audit program levies “failure to pay” and “failure to file” fines of up to 5% per month, as well as 50% interest on amounts owed. The VDA program waives all penalties and interest.

2. Shortened duration: The self-audit via the VDA program is completed in 18-24 months, in contrast to Delaware’s state-administered audit program which often lasts 5 years or longer.

3. Preferable voided check aging criteria: The VDA program vastly reduces potential liability through 90-day aging criteria for researching voided checks in unclaimed property populations. The audit program requires 30-day aging criteria, increasing the amount of research needed.

4. Control the narrative: The VDA program, while following a prescribed plan, is a self-directed review, allowing companies and their advocates to determine the scope, entities and property types, and to present their own liability calculation and narrative. In a DOF audit, the entire process is in the hands of the third-party auditor.

5. The VDA is corporate-friendly: The VDA is administered by Delaware’s SOS - a corporate connection to Delaware’s business friendly government. By contrast, the Delaware DOF’s audit program is conducted by third party audit firms whose primary objective is payment collection.

If a corporation is invited to participate in Delaware Unclaimed Property VDA program but does not enroll, by statute that corporation must be referred to the Department of Finance for audit. Of the two choices available, the VDA program is by far the better option.

How to prepare for enrollment in Delaware’s unclaimed property VDA program

There is a heavy expectation that companies enrolled in the VDA work diligently to complete the program as soon as practicable. Since it is not an audit, it is the company’s responsibility to do a thorough self-review and present the conclusions consistent with the process. Below are several recommended steps to prepare:

1. Determine if your company has previously enrolled in the VDA or audit program: Delaware’s unclaimed property VDA and audit programs have existed in various formats for many years. If your company has previously completed a Delaware VDA or audit, and the scope has expired or the terms were not met, then it may be advantageous to enroll in the latest version of the Delaware VDA program to avoid the risk of audit.

2. Review merger & acquisition activity: For merged or acquired entities incorporated in Delaware that are non-compliant, the Delaware VDA program is a great option to comply with your unclaimed property obligations and eliminate interest and penalties.

3. Consult your records: Determine your company’s sources of unclaimed property, and the availability of researchable records.

4. Review your company’s policies and procedures: Get an understanding of the company’s policy and procedure for the treatment of aged liabilities and obligations.

5. Gather historical filings: If possible, gather all your company’s prior escheat filings for the last 10 years or as far back as available.

6. Assemble a response team: The Delaware VDA program has rules that require input and data from many departments, including accounting, finance, treasury, human resources/benefits and legal. External advisors/advocates familiar with navigating the program requirements can expedite the process and ensure the best results for your firm.

Benefits of expert assistance

While the Delaware VDA program is vastly preferable to an audit, it is a substantial undertaking, and can be disruptive to even the most prepared firm. Experts can act as a liaison between your company and the State. They can anticipate and validate the State’s request for documentation and know when and how to proactively approach.

Unclaimed property experts can accurately quantify property by entity and property type, select the most favorable and appropriate strata for estimation periods, and ensure that only reportable property is identified.