As the duration and complexity of the Delaware unclaimed property audits have increased over the years, so too have holder demands for additional clarity and fairness in how the unclaimed program is administered. Accordingly, SCR 59 was approved by Delaware’s Governor Jack Markell on June 17, 2014, to establish a legislative task force to study and make findings and recommendations to improve the fairness and compliance in Delaware’s unclaimed property program. In December 2014, a number of recommendations were made by the Delaware Unclaimed Property Task Force. Shortly thereafter, Senate Bill 11 was introduced and, with amendments, was passed by the Delaware General Assembly and signed into law by Governor Jack Markell on January 29, 2015. Highlights of the Bill, as well as a review of the Bill’s Synopsis follow.
- Contract Audit Limits - The Bill limits the total percentage of audits that can be assigned to any outside contractor by the State Escheator. The Bill’s language provides that the State Escheator may contract with a person to conduct an examination, but that person (or audit firm) cannot be assigned more than 50% of all such exams commenced after January 1, 2015. It also provides that no outside contract audit firm can have a contract with Delaware lasting more than five years. It directs the Delaware Department of Finance to renegotiate downward the length of its current contracts with outside auditors so that no contract with such auditors is for a longer time period than five years per initial or renewed term.
- Hiring - The Bill provides that all contracts with unclaimed property contract auditors must provide that they will not employ or compensate senior officials from the Delaware Division of Revenue or Department of Finance involved with unclaimed property for two years after such officials leave state employment. Note: The Bill states that this includes, without limitation, the Secretary of Finance, any Deputy Secretary of Finance, the State Escheator, or Audit Manager.
- Administrative Appeal Change - The administrative appeal process is amended to provide that the determination of the independent reviewer will be binding on the Secretary of Finance, unless properly appealed to the Delaware Court of Chancery. The Bill states that either the holder or the Secretary of Finance may appeal the determination of the independent reviewer. Note: Previous Delaware law had allowed the Secretary of Finance to overturn recommendations made by the “independent reviewer” involved with an assessment dispute.
- Unclaimed Property Examination Manual - Finally, a provision in the Bill directs the Secretary of Finance, with input from stakeholders and other interested parties, to prepare a detailed audit manual by December 31, 2015 containing procedural guidelines for the conduct of Delaware unclaimed property examinations, and to update the state’s administrative regulations to ensure greater transparency and predictability in the audit process. The Bill directs the Secretary of Finance to take steps to ensure that Delaware’s contract auditors comply with such manual.
In summary, the Bill is a step in the right direction for holders seeking additional clarity and fairness in Delaware’s unclaimed property compliance program. However, the Bill does not address some of the other Task Force recommendations. Notably, the recommendation that look-back periods for Delaware unclaimed property audits, as well as periods for unclaimed property Voluntary Disclosure Agreements, be reviewed and shortened has not yet been addressed. The understanding is that Task Force members are continuing to work with state officials in an attempt to reach consensus on that issue and then seek to have legislation enacted later in the 2015 Legislative Session to potentially address these issues. Holders seeking additional clarification on how these changes may affect their factual situation may contact their designated Abandoned and Unclaimed Property (AUP) representative or one of the following Ryan contacts.
TECHNICAL INFORMATION CONTACTS:
Mark A. Paolillo
Principal
Ryan
857.288.1976
mark.paolillo@ryan.com
Susan Han
Principal
Ryan
442.244.2447
susan.han@ryan.com