The Little Notice with a Big Audit Impact – That Might Arrive on Your Desk

Be on the lookout for this letter coming across your desk [Sample Delaware VDA Invitation].

On February 23rd, the Delaware Secretary of State (SOS) sent out another round of invitations to join their unclaimed property Voluntary Disclosure Agreement (VDA) program.

The key concepts on the Delaware SOS Unclaimed Property Voluntary Disclosure Agreement Invitation Notice are as follows:

• Offers VDA program for holders of unclaimed property.
• Requires holders to proactively contact the Delaware Secretary of State to participate by submitting the Form VDA-1 (Notice of Intent to Voluntarily Comply with Abandoned or Unclaimed Property Law).
• A response is required within 90 days, or the company can be turned over to the Delaware Department of Finance (DOF) for audit.
• Allows holders to assess their liability and report it without facing penalties or interest.
• Participants must review their records and report any unclaimed property owed to Delaware.
• It aims to create a cooperative environment between holders and the state.
• Allows for a more favorable review criteria with a 90-day void review versus a 30-day void review in an audit.

Who should pay particular attention to these notices, companies that have:

• Any entities incorporated in Delaware;
• Any entities that have significant Delaware activity; and
• Acquired Delaware domiciled entities during the look-back period.

What is your risk if your company is incorporated or formed in Delaware but it has minimal, if any, Delaware activity?

• The lookback for a Delaware VDA or audit is 15 transaction years for most property types.
• If companies do not have 15 years of accounting records to review, Delaware has the right to estimate for the years where records do not exist.
• Any estimation calculated would be due to Delaware since the entity is incorporated in Delaware.

As with most things related to unclaimed property, the true exposure risk may not be what is on your balance sheet but what has been written off over the years. Some sample areas to review would be:

• Uncashed or stale-dated payroll checks;
• Uncashed or stale-dated accounts payable checks;
• Unapplied cash;
• Unapplied customer credits or deposits; and
• Unredeemed gift cards.

The documentation gathering and testing expectations can be quite complex in a VDA or audit scenario. If your company receives this Delaware notice or any other unclaimed property notice from a state, it is important to act quickly to determine the best course of action. Our Marcum specialists are available to answer your questions and assist if your company needs assistance in addressing a notice, quantifying potential exposure, or filing the necessary annual compliance reports.

If you have any questions about unclaimed property, ask Marcum today.

Important Note: Delaware has a second round of mailings for the VDA invitation notice scheduled for July 26, 2024 as well.

If you want to learn more about Delaware’s Unclaimed Property notices, read our previous article.