November 2023 saw a sharp increase in the number of Notices Requesting Verified Reports for Report Year 2022 being issued by Delaware. After further research, Sovos learned that Delaware recently contracted four third-party audit firms (Kelmar, Specialty Audit Services, Discovery Audit Services, and Escheatment Experts Consulting Services) to perform the review functions related to the Verified Report process. This is a significant change since such reviews were historically handled by a team of individuals who worked directly for the state. The introduction of third-party audit firms raises concerns surrounding the underlying motive of the Verified Report process and should put companies on high alert if they receive one.
Sovos also noted that having a strong compliance record with Delaware does not protect companies from receiving the Notice, as companies that have been reporting to Delaware for many years are receiving the Verified Report notice. This is also true for companies participating in the Delaware VDA program. In general, if a company reported property to Delaware in the past, they could receive the Verified Report request.
Pursuant to the guidelines provided by the state, companies must confirm receipt of the notice within 30 days. Failure to do so will result in follow-up communication from the third-party audit firm assigned to the case. There is a strong likelihood that failure to respond to the second notice will result in an invitation to participate in the Delaware VDA program or audit.
Companies must do the following to complete the Verified Report process:
- Verified Report for report year 2022 (which was due to Delaware on March 10, 2023, for properties meeting dormancy as of December 31, 2022) requiring corporate officer signature and notarization.
- Attachment A – List of Legal Entities included with the Verified Report for report year 2022 (including all subsidiaries and related entities considered within the scope of Verified Report).
- A response regarding the existence of written policies and procedures. If policies and procedures exist, inclusion of the policies and procedures.
Completion of the Verified Report includes a certification to the following:
- a) The company did not have any property to report to Delaware.
- b) The company had property to report and submitted the report on _____ (including copy of Holder Summary Demonstrating Report Successfully Submitted for Processing and Proof of Payment). *Please note, Sovos recommends including the Holder Summary and Proof of Payment rather than the detail report to protect property owner information.
- c) Reported property to state for 2022 but has additional property to report at this time.
- d) Did not report to Delaware for report year 2022 but has property to report.
No matter which response applies to your organization, it is important to acknowledge receipt within 30 days of the date of the letter. If you don’t have the information needed within the 30 days, the reviewers will grant an extension. If you discover that property should have been reported and was missed, additional time can be provided to conduct a thorough review and send due diligence to the property owners. In any event, payment of property due to Delaware must be submitted to the state within one year of the original notice letter.
Due to the confidential nature of the information being provided, companies may also want to consider the establishment of a non-disclosure agreement between the company and the third-party audit firm assigned to your case. While personal identification information does not have to be provided (as noted above in b.) the list of legal entities and policies and procedures could include information that is not considered to be public information.
Going forward, companies can expect the new Verified Report process to be conducted on an annual basis, with notices going out between June and July. Companies that receive a notice in one year can also expect a follow-up request four to five years after the first notice. As such, it is extremely important to maintain ongoing compliance every year. It is equally important to document policies and procedures related to the identification, tracking and reporting of unclaimed property to help ensure that compliance efforts continue in the event of a change in personnel.
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Reach out to our team to learn more about keeping your unclaimed property reporting procedures up to date.
