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By Scott Regan, Business Development Manager | Laura Carlson, Director | October 13, 2020

Altus Group Unclaimed Property Team’s Conversation with Kim Micha, VDA Administrator Delaware Department of State

 

On October 9th, 2020 Scott Regan and Laura Carlson of Altus Group spoke with Kim Micha, the administrator of Delaware’s unclaimed property voluntary disclosure agreement program. They discussed the program overall, as well as the most recent round of invitations that were mailed to US Corporations on August 21, 2020.

 

Q&A

Altus Group:

Kim – Laura and I appreciate the opportunity to speak with you today.  The Delaware Secretary of State’s Unclaimed Property Voluntary Disclosure Agreement Program (DE SOS VDA) is an important initiative with many benefits for US companies that are incorporated in the state of Delaware.  We appreciate your willingness to promote awareness of this program and explain how it works.

 

Kim Micha:

Thank you both for this opportunity to discuss the Delaware SOS VDA Program in more detail. As you alluded to, more than half of Fortune 500 companies are incorporated in Delaware, and that ratio remains similar among other business sizes as well. While every state has unclaimed property laws, Delaware is one of a few to use a voluntary program as its first means of verifying compliance with those laws. The SOS VDA Program was designed as a business-friendly program to help companies self-review their own books and records to determine their unclaimed property reporting obligations. The state is here as a resource and guide during this review with the end result being a settlement agreed to by both parties. We are very proud of Delaware’s reputation as a business-friendly state and think the SOS VDA Program helps further our goals in this regard.

 

Altus Group:

We know that approximately 200 corporations were mailed invitations to enroll in the DE SOS VDA program on August 21st and that by statute invitees must enroll within 60 days or be subject to audit.  How has the response been so far and how does it compare to the last few years?

 

Kim Micha:

To date, we have had a very strong response rate. We are anticipating an average or slightly above-average response based on what we have seen. The most active time for enrollees is typically right before the deadline so we still have a couple weeks until we know for sure.

We have seen over the past few years that more and more businesses are opting into the SOS VDA Program rather than waiting for an audit notice and are expecting that trend to continue.

 

Altus Group:

What has been the impact of the COVID-19 crisis on the program?

 

Kim Micha:

The SOS VDA Program is normally a mostly remote program. The companies in our program are operating all across the United States, and sometimes the world. We had some advanced practice in working with others while not being able to meet with them in person.

We did send an invitation mailing at the end of February and chose to postpone that normal 60-day deadline to make sure that companies had time to process their mail and respond to the invitation due to COVID-19. After the extension and a second notice from the Delaware Department of Finance’s Office of Unclaimed Property, our VDA Program enrollment rate for the February 2020 mailing went up to the normal response rate.

 

Altus Group:

What are a few of the benefits of the DE SOS VDA program for companies that enroll?

 

Kim Micha:

Companies that complete the VDA program receive a release of liability for all entities and property types included in the VDA. That means that the responsibility to return those items to the rightful owners now falls on the state. It also means that the company cannot later be held liable by the State for the items included in the release (with limited exceptions such as fraud).

Companies that complete the program also benefit from a waiver of interest and penalties on past due unclaimed properties, greater control over the scope of the review, and the ability to conduct the review themselves. The VDA Program tends to be faster and less expensive than an audit and companies that join the program may see even more benefits than the ones I have stated here.

 

Altus Group:

What high level expectations does the Delaware Department of State (DOS) have of companies that enroll in the program?

 

 

Kim Micha:

The main goal of the VDA Program is to increase compliance with Delaware’s unclaimed property laws as defined by Title 12 Delaware Code, Chapter 11, Subchapter II. While every VDA is different, the Delaware DOS expects every enrolled company to conduct a thorough self-review, answer our questions timely, and put policies and procedures in place to continue to comply with unclaimed property laws after their VDA is complete.

 

 

Altus Group:

How long will it take companies to complete the program and what should they expect of the DOS and their two vendors?

 

Kim Micha:

The average VDA takes about two years to complete. For very complex companies with numerous entities and businesses, the time to complete the program may be longer. For simple companies with limited operations, smaller businesses, companies with a strong reporting history and records to support their reporting history, or other less-complex businesses, the time to complete may be shorter.

The key to completing a VDA in as short a time period as possible is good communication and providing the State’s vendors with a quality work product that reduces the need for follow-up questions. Another key to reducing the time spent in the VDA is working with an advocate or dedicating a team of knowledgeable internal staff to handle the VDA review.

 

Altus Group:

What types of records should companies gather in preparation for the DE SOS VDA program?

 

Kim Micha:

Once a company is enrolled, the Delaware DOS will assign them to a vendor. The vendor will start the process by sending out an introductory document request for items such as a list of entities with descriptions of their operations, availability of records, history of unclaimed property reporting in Delaware or elsewhere, and other items that help our vendors understand your business and where unclaimed property liabilities may exist. The better the information received at the beginning of the process, the more the VDA can be tailored to that company’s specific business.

 

Altus Group:

What is the “look back period”?  If a company does not have complete researchable records during the look back period, will estimation techniques be utilized?

 

Kim Micha:

The look back period is ten years as defined by § 1172 of the unclaimed property code. For a company enrolling in the VDA program in 2020, the look back for all property types, except securities, would be 2005-2015, because the look back period includes a five-year dormancy period (three years for securities).

Estimation is used in computing unclaimed property liability when complete and researchable records are not available for the entire look back period.

 

Altus Group:

At a high level, what is the DOS’ stance on remediation testing?

 

Kim Micha:

The DOS uses a practical approach to remediation testing. When necessary, especially for small population sizes or for actual amounts due, the State may require remediation on every item. In other cases, we will use sampling for remediation testing. We do not have to sample or test to the level that an audit would require, which is another benefit to the VDA Program.

 

Altus Group:

How does the closing process work?

 

Kim Micha:

The closing process occurs once a participating company and the State’s vendor agree on a liability amount. The unclaimed property liability can be $0 or any greater amount, which will then be due to the State. The vendor then presents to the State a closing package to be reviewed. Since the vendor brings material issues to the State during the process, there are usually no major hurdles to overcome at that time, but there may be some follow-up questions from the State. Once the State is in agreement with the materials and the ending liability number, the State then signs off on the final settlement agreement and issues a demand letter to the company to remit any payment(s) to the State.

 

Altus Group:

How does the DE SOS VDA program differ from the unclaimed property audit process, run by the Delaware Department of Finance?

 

Kim Micha:

A lot of the differences between our programs are shown in the benefits we discussed earlier. The Delaware Department of Finance will request a lot of company records in order to perform their audit, and then typically tell a company what they owe. The Department of State’s VDA Program is more collaborative and allows for the company to perform their own review and does not require submitting as many records as the audit process.

The VDA Program does not assess interest or penalties on past-due property and is typically less expensive and faster than an audit. There are many benefits to the VDA Program over an audit and we see that most companies, given the choice, will choose the VDA Program over an audit.

 

Altus Group:

Typically, in an audit, a holder has less recourse on the way a review is conducted. However, one of the advantages of the VDA program is that a company can gain alignment with the state (and their vendors) when there may be ambiguity on the best approach for identifying unclaimed property. Can you shed light on this unique benefit to the VDA program?

 

Kim Micha:

Absolutely! The VDA Program aims to be collaborative and to work with companies to customize each VDA to a company’s unique business. While the VDA does have specific goals and steps, how we get there may be different with each VDA.

For example, if a company has multiple different entities in 3 completely different types of businesses, they may decide to do each type of business in a separate review. For example, manufacturing entities first, then retailer entities, then energy entities. Or maybe their accounting is centralized, and they instead want to do all entities accounts receivable, then accounts payable, then customer rebates, etc. These are simple examples of ways we try to customize each VDA to make the process more efficient. There are many other ways we will work with companies to try to ensure that the VDA and resulting liability due to the State, if any, makes sense for their business(es).

 

Altus Group:

Are there benefits to companies to hire an advocate to assist them in this process?

 

Kim Micha:

We see that companies with experienced advocates typically get through the VDA process in less time and with less stress than those without. Some companies working through the VDA process have limited unclaimed property experience and having an advocate makes the review they need to undertake much more straight forward. Even for companies with robust unclaimed property experience and reporting history, having an advocate saves their internal staff a lot of time. Hiring an advocate or even multiple advocates is entirely at a company’s own discretion and is not required by the Delaware SOS VDA Program.

 

Altus Group:

Kim – Laura and I really appreciate your willingness to speak with us and help educate corporations on this topic.  Do have any final thoughts on the program you’d like to share or advice to offer?

 

Kim Micha:

Thank you both for talking with me today. It is great to connect and to share more thoughts on the Delaware SOS VDA Program. Before we say goodbye, I would like to address VDA invitations and joining the VDA Program in a bit more detail. The SOS VDA Program sends multiple rounds of invitations out every year. These invitations allow a company 60 days to enroll in the VDA Program. If they do not enroll, they will be referred to the Department of Finance for an audit.

Any type of business can receive a VDA invitation, including public corporations, private corporations, LLCs, partnerships, small business, Fortune 500 companies, etc. Also, once an invitation is received, it cannot be rescinded. We send invitations out via certified mail and send a copy to each company’s registered agent. I encourage anyone who thinks they may have unclaimed property obligations that have not yet been reported to either join the VDA Program, or at least discuss their options with an advocate. Do not wait for an invitation to take action.

Again, thank you Scott and Laura for reaching out to me to discuss Delaware’s Secretary of State Voluntary Disclosure Agreement Program. I am available for follow-up questions at any time at Kim.Micha@Delaware.gov.

 

 

 

 

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