Delaware, through legislative action taken in Senate Concurrent Resolution 59 (2014), created an Unclaimed Property Task Force (“Task Force”) designed to discuss unclaimed property compliance generally, identify ways to improve the fairness of the existing system, and make recommendations to senior governmental officials in Delaware, presumably so that recommendations could be implemented via legislation in the Delaware 2015 Legislative Session. The Task Force has had several meetings and has considered a variety of matters. As reported in a Delaware News Journal Article of December 4, 2014, by Michael Houghton, Esq., a Task Force member and Partner with the law firm of Morris, Nichols, Arsht & Tunnell LLP, the draft recommendations that are likely to be made by the Task Force include the following. These draft recommendations are likely to be refined in the next several weeks and then issued in final form.
Preliminary Task Force Recommendations
- Holder Audit Manual - The Delaware Department of Finance should develop a “best practice” manual to assist holders and update its regulations accordingly, to ensure greater transparency and predictability as to what should be expected by holders during an unclaimed property audit. The manual should be published on its webpage, and Delaware should take steps to ensure that the contract auditors it retains comply with the manual.
- Administrative Appeals Process - The Delaware General Assembly (“General Assembly”) should modify the administrative appeals process delineated in the Delaware Code, to provide a more central role for an independent third-party review, replacing the Secretary of Finance as the final decision maker in the administrative appeals process.
- Audits and VDAs - The General Assembly should amend the Delaware Code to adjust the “look-back” period in unclaimed property audits, create a new Voluntary Disclosure Agreement (VDA) program in consultation with both the Secretary of State and Department of Finance, and ensure the look-back periods in any new VDA program achieve an effective balance of incentives inherent in the two types of programs (i.e., audits and VDAs).
- Statute of Limitations - The General Assembly should amend the statute of limitations pertaining to unclaimed property, to assist in avoiding an outcome where holders which file annually are then audited after the passage of time, beyond reasonable record retention requirements. Note: Delaware essentially has no current record retention requirements, so such a requirement would be helpful. Furthermore, the General Assembly should amend the statute of limitations to confirm that, for holders which file annually, investigations of fraud allegations are limited to the last six years of filed reports.
- Contract Auditors - The Department of Finance should initiate efforts to renegotiate downward the length of its current contracts with contract auditors, to make them for a more reasonable time period. In addition, the Department of Finance should initiate efforts to achieve more balance among the contract auditors which provide services to its unclaimed property program, such that one firm does not have an inordinate amount of the outstanding contracts. The Department should provide an annual update of this balance to members of the General Assembly. Finally, the General Assembly should revisit the issue of providing a reasonable “cooling off” period before a state employee involved with the unclaimed property program is permitted to accept employment with one of the state’s contract auditors.
- Owners of Unclaimed Property - The Department of Finance should continue its efforts to enhance the process of reuniting missing owners with their property, including the use of online options, as well as more secure forms of reunification for higher-value property. Additionally, the Department should provide periodic updates regarding these efforts to the General Assembly.
- Minimizing Expenditures - The Department of Finance and Secretary of State should enhance efforts to bring audit and VDA processes in-house, to ensure expenditures of Delaware taxpayer funds and to minimize expenditures on higher-cost contractors. Staffing levels should be increased to achieve any of the recommendations made by the Task Force.
In summary, assuming all or a number of these preliminary recommendations are made to senior Delaware officials, and assuming the preliminary recommendations are then enacted, either by legislation or the General Assembly, a number of concerns held by the holder community may be partially remedied. Ryan Abandoned and Unclaimed Property professionals will monitor this area and keep you updated on any future developments.
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