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The Steps in a Voluntary Disclosure Agreement Program

Posted By UPPO, Thursday, October 15, 2020

Many states offer voluntary disclosure agreement (VDA) programs as an olive branch, providing businesses the opportunity to come into compliance with unclaimed property laws without the burden of interest and penalties. Before entering into a VDA, holders should understand the steps involved. Depending on the specific VDA program, not all holders will complete all of these steps, nor will they necessarily complete the steps in the same order.

 

Scoping and Data Gathering

The scoping and data gathering step can be a valuable process not only when considering a VDA but also as a periodic verification that your compliance procedures are effective.

 

Scoping and data gathering includes understanding the company’s organizational structure during the period covered by the VDA, which is typically 10 years following dormancy (for a total of 15 years). Analyze the organizational history, including mergers, acquisitions and divestitures to determine entities where unclaimed property liability may occur. Identify bankruptcies, which have the potential to reduce liability for some legal entities. Ensure changes to the state of incorporation have been documented because that location determines where some property will be reported.

 

Once you have established the structure, analyze the trial balances for each legal entity. This will help identify which entities have operations and the types of potential unclaimed property they may be generating.

 

Gather source records, including bank statements, accounts receivables aging reports and any additional reports that are likely to reflect unclaimed property.

 

Quantification and Research

After validating the completeness and reliability of source records, choose your base period. This time period should be complete and researchable so you can examine the population of records to determine whether the property is indeed unclaimed.

 

Determine whether estimations are necessary. Not all states use estimation, so understanding requirements is critical. If you determine estimations are needed, establish the base period for error rate testing.

 

Research and remediate transactions, retaining detailed supporting documentation. For example, if you’re looking at voided checks, examine whether they were issued in error, issued but not needed and/or reissued.

 

Once you’ve identified the items that are truly unclaimed property, perform owner outreach in an attempt to locate the owners and return the property. Most states require due diligence, and completing this process can reduce liability.

 

After completing due diligence, you will have quantified your exposure on a state-by-state basis. Use this information to determine whether a VDA will be beneficial.

 

Enrollment and Acceptance

If you choose to proceed with a VDA, ensure you understand the program requirements and timeframe for completion, which may be only a few months. Consider whether the VDA program is formal or informal, whether it requires prior approval, what type of documentation you’ll need to submit to the state and how much time to build in for state review. If the requirements are onerous, there may be no benefit to participating.

 

Evaluate the benefits of VDA participation against the risk of triggering an audit. Entering into a VDA may help avoid an audit because the state becomes aware of your commitment to complying and knows you’ve completed a thorough self-audit. In some cases, however, participation could trigger an audit if the state believes the VDA was not performed adequately or completely.  

 

When the final decision is made to enroll in the VDA program, complete the necessary forms provided by the state. Upon acceptance, confirm deadlines and reporting requirements.

 

Submission and Negotiations

Submit the VDA settlement proposal with documented exposure quantification and work papers to support the testing performed. Depending on the state and property types involved, the process will vary. There may be gray areas that require negotiation and compromise between the holder and the state. Address state questions and requests for supporting documentation and source records in a timely manner.

 

Reporting and Closing

Prepare and submit the state reports in the required NAUPA format. Remit property using the method specified by the state. Obtain the closing agreement, which addresses the entities, property types and years included within the scope of the VDA. After reporting is complete, retain records and documents supporting the amount escheated to the state as a result of the VDA program.

 

To learn more about VDAs, UPPO members can access the Advantages and Disadvantages of VDA vs. Audit recording and slide deck in the On-Demand Webinar library.  

 

 

 

Tags:  VDAs  Voluntary Disclosure Agreements 

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