As part of recent changes to Delaware’s unclaimed property statute, the state must give holders the opportunity to enter into its voluntary disclosure agreement (VDA) program before initiating audits. In addition, holders that were already under examination had the option to convert to a VDA by Dec. 11, 2017. Expectedly, interest in Delaware’s VDA process is high.
To provide UPPO members with insight into Delaware’s VDA process, Delaware Unclaimed Property VDA Administrator Alison Iavarone outlined the program and responded to questions during a recent UPPO webinar.
“The VDA program is not an examination—it’s not an audit—but the holder is expected to conduct a comprehensive and detailed self-review of its books and records to determine whether the holder has past-due abandoned or unclaimed property reportable to Delaware,” she said.
Once enrolled, qualified unclaimed property holders accepted into Delaware’s VDA program will proceed through a four-phase process.
Phase 1: Scoping
During the initial phase of the VDA, the participating holder analyzes its organizational history, accounting functions and records to determine areas of potential unclaimed property exposure and underreporting.
“The review should be customized to the holder,” Iavarone said. “In order to determine how it’s customized, you need to understand the corporate activity, whether companies were acquired during the VDA review period and how they were rolled into the company for accounting purposes, for example. Another big thing to address during the scoping phase is the compliance history—whether they have been filing and what property types they have been filing. This could help minimize the review you need to do.”
The holder determines the entities and property types where unclaimed property exposure exists and submits a Scoping Worksheet and Information Request to the VDA administrator assigned by the secretary of state’s office—either Drinker Biddle or TL2Q.
The administrator reviews the holder’s submission and responds to any questions the holder may have about the process. The Delaware Department of State communicates with the administrator throughout the VDA process and remains available to address holder concerns.
At the conclusion of this phase, the administrator and holder will agree on the scope of the VDA and establish a timeline for completion of the other phases.
Phase 2: Quantification
During the second phase, the holder will review its books and records to quantify past-due unclaimed property reportable to Delaware for the entities and property types established during the scoping phase. The methodology for the quantification of amounts due to Delaware will generally be based on whether an entity is domiciled in Delaware and the records availability for each entity and property type.
The holder and administrator periodically complete status updates to ensure the process is proceeding. The holder provides preliminary quantification schedules or other documentation for the administrator’s review and feedback.
Phase 3: Submission and Validation
During the third phase, the administrator reviews the holder’s work and conclusions with the goal of establishing a settlement agreement, including the amount reportable to Delaware. The holder presents its VDA Submission to the administrator. It should include:
- Entity or company background information (in narrative form).
- Summary of the work performed (in narrative form).
- Summary of findings (in narrative form).
- Supporting schedules.
- Supporting documents.
- Other applicable documentation (e.g., legal opinions, management representation letters, etc.).
“This is the nuts and bolts of the VDA,” Iavarone said. “It should include is a summary of what was done in narrative form and then quantification schedules summarizing how you came up with the numbers, along with supporting documentation.”
Upon receipt and review, the administrator responds with questions and follow-up items needed to proceed. Depending on the request, the holder may respond with supporting documentation and/or edits and updates to calculation spreadsheets. The holder also provides a management representation letter from its chief financial officer, describing what records are available for property types and for which years.
The administrator presents the VDA Submission to the secretary of state’s office for review and approval. The Department of State reviews the VDA Submission and the administrator’s recommendations.
Phase 4: Closing and Documentation
Upon acceptance of the VDA Submission, the holder and secretary of state’s office work together to close the VDA. An officer or authorized representative completes and submits Form VDA-2 – Voluntary Self-Disclosure Agreement, along with several attachments:
- Exhibit A: List of Entities: This attachment includes a list of entities include in the VDA and their federal identification numbers. Dates and states of incorporation are also requested but not required.
- Exhibit B.1: Summary of Amounts Due: This attachment includes a table summarizing reportable amounts by property type.
- Exhibit B.2: Line Item Owner: This attachment, provided in a printable format should include the name, address, property type and amount that will be included in the NAUPA file that will be uploaded by the holder after receiving the VDA Demand Letter.
- Exhibit C: SOS VDA Submission: This attachment may consist of many documents and should include: the narrative summarizing the VDA analysis; a summary and detailed schedules quantifying amounts; copy of VDA-1 and any applicable amendments; management representation/records availability letter; legal opinions/memoranda related to the VDA; and any other relevant documents.
After the holder and secretary of state have signed Form VDA-2, the Department of State will issue a Demand Letter, requesting payment and providing instructions for uploading the necessary NAUPA file. The holder will have 10 days to make payment of the amount due.
Following completion of the VDA process, the holder is required to file unclaimed property reports electronically to the Department of Finance for the next three years.
For additional information regarding Delaware’s VDA program, including forms, sample documents and answers to frequently asked questions, visit http://vda.delaware.gov.