A new voluntary Disclosure Agreement (VDA) initiative established by Delaware Governor Jack Markell has been a hot topic for companies with unclaimed property reporting obligations to the state of Delaware. Senate Bill 258 (SB 258) was signed into law by the governor on July 11, 2012, and gives organizations the opportunity to report any past-due property without the threat of an audit.
Administered by the Delaware Secretary of State (SOS), the new program provides significant benefits to those who wish to come into compliance and avoid long and contentious audits with the State and third-party audit firms. The legislation will offer holders a unique opportunity to decrease their unclaimed property exposure. “The incentive is temporary”, said Valerie Jundt, Managing Director of Keane’s Consulting and Advisory Group. “The law requires that participants wanting to take advantage of the new program must enroll by the June 30, 2014 deadline. Their final report and submission must be completed by June 30, 2015, in order to take advantage of the shortened “look-back” periods.
Valerie continued, “This is a great opportunity with several advantages. We are suggesting that companies carefully consider whether they should participate and jump in early because of the narrow window to capitalize on the reduced look- back periods, in some cases, by as much as 15 years.” Keane, a leading provider of unclaimed property communications, compliance, and consulting services, is signing up companies that need help in navigating through the process. Carl Hagberg, the editor and publisher of “The Shareholder Service Optimizer” had a chance to sit down with Valerie to discuss some basic details of the Delaware VDA program and how Keane can help:
Carl: How do companies sign up for the program and how difficult is the process?
Valerie: Companies that wish to participate must first complete and submit an application (SOS DE-1). Once approved and enrolled in the program, there are a series of steps and action items required by the State. The state is requiring that the work be completed within nine months and it is important to note that the company will be expected to provide documentation and evidence that will help to reinforce the fact that a thorough and comprehensive review was completed. This isn’t similar to a tax amnesty program where a company comes forward and simply delivers a check in exchange for a penalty waiver.
Carl: What advantages do the shortened look-back periods represent for holders of unclaimed property?
Valerie: Those holders that enter into the unclaimed property voluntary disclosure agreement on or before June 30, 2013, and make payment in full or enter into a payment plan on or before June 30, 2014, will be subject to a favorable “look-back” period to 1996. Those companies that enter into an unclaimed property voluntary disclosure agreement on or before June 30, 2014, and make payment in full or enter into a payment plan on or before June 30, 2015 will be subject to a “look-back” period to 1993. In either case, holders accepted into the VDA program are getting a reprieve from a state audit where the reachback period includes all years back to 1981. There are not many companies who would be able to retrieve and provide records that go back over 30 years. In those situations, an estimated liability is created and extrapolated over time. It can lead to a significant liability and when you include calculations with the added penalties and interest assessments it can be stifling.
Carl: Who should consider taking advantage of this program?
Valerie: Any company that is incorporated in Delaware (especially if they are publically traded) should seriously consider this program. Under the sourcing rules, unclaimed property liabilities are reportable to the state of the owner’s last known address. Where there is no address of record, the property is reportable to the company’s “state of incorporation.” Unclaimed property is the third largest source of income for the state of Delaware (exceeding their state lottery).
Carl: What about the promise of no audits, and how about fines for filing property late?
Valerie: After the Secretary of State enters into a voluntary disclosure agreement with a holder, the State agrees that they will not reconsider and select the company for an audit; unless it can establish evidence of fraud or willful misrepresentation in the voluntary disclosure. This is a significant advantage of the new law and historically had been one of the greatest concerns holders were facing when considering the pros and cons of entering into a VDA program with the State of Delaware.
Carl: How can Keane help companies take advantage of this unique opportunity?
Valerie: Keane is unique in that we are the only company that offers comprehensive unclaimed property services staffed with a team of professionals whose expertise is unparalleled in this industry. With over 200 years of collective experience, our team consists of former state auditors, CPAs, CFEs, CIAs and industry professionals. We have the knowledge, relationships and expertise to navigate you through this process efficiently and with confidence.
Carl: Can you give us an example of how the benefits might outweigh the costs?
Valerie: Absolutely; and there are several. In one situation after being hired to file a VDA, Keane learned that a client had unreported obligations in 49 other states. The analysis identified more than $7 million in past-due property that carried a potential interest penalty of $17.4 million. Our consultants helped the firm structure and file multiple VDAs to limit the reachback and avoid the assessment of additional fines and penalties. The initial obligation was reduced by 83 percent. Even more valuable, was that the company avoided 81 percent of the potential interest and penalties, came into full compliance and was thrilled with the added bonus of customer retention and satisfaction results. We can leverage this same expertise to help companies successfully file under the new Delaware VDA guidelines to ensure that all their processes are comprehensive and compliance initiatives are up to date.
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