Navigating Delaware’s VDA Program

As expected, Delaware’s secretary of state (SOS) issued invitations to its unclaimed property voluntary disclosure agreement (VDA) program in mid-August. Managing unclaimed property can be daunting – potentially large liabilities, a significant resource drain, and added responsibilities – but many organizations are being proactive and have elected to enter the VDA program rather than face a third-party auditor-directed examination.

Following the steps below, maintaining focus on day-to-day responsibilities, and collaborating with the state should yield a better outcome for taxpayers than an unclaimed property audit.

Step 1: Initiation. The process begins when a company accepts Delaware’s invitation to enter the VDA program or proactively reaches out to the SOS office. Enrollment is formalized by submitting Form VDA-1, “Disclosure and Notice of Intent To Voluntarily Comply With Abandoned or Unclaimed Property Law Pursuant to 12 Del. C. § 1173,” and being assigned an administrator. Form VDA-1 outlines the terms the company and state agree to, including the waiver of penalty and interest for good faith participation by the holder. Note that it is acceptable practice to leave the “Holder Advocate” and “Attachment A” of the VDA-1 as “to be determined.” A holder may engage an advocate at any time or complete the VDA completely on its own. The list of entities, however, will be vetted in the next step and ultimately will be included in the closing documents of the VDA.

Step 2: Scoping. Scoping sets the foundation for the entire VDA process and is critical to complete via a thorough and thoughtful review before any records are submitted to the state. The holder identifies entities, property types, and the relevant years for review. Both sides should agree in writing on the scope, limiting surprises later in the process. Scoping typically is documented using the state’s “Information Request” and “Scoping Worksheet” forms, though other forms of similar documentation are acceptable. It also is common for holders to provide reasoning and support that might not be immediately obvious to the state’s administrators for including or excluding certain entities. An example would be excluding an entity that formed during the VDA lookback period but ultimately had no operations, which could be supported by trial balances or tax returns showing no transactions.

Step 3: Data collection and quantification. Holders can expect the bulk of their resource commitment to occur during this phase. The company gathers source documents, conducts account-specific testing, and performs transaction-level research. It then uses source records to determine populations of presumed abandoned property using state-prescribed methods, and those populations are used to quantify the starting point for the holder’s potential liability.

While companies commit resources to data collection, they often greatly benefit from the expertise of unclaimed property advocates to assist with quantification. Advocates with experience in the company’s industry and with the state of Delaware generally are better equipped to handle some of the more nuanced pieces of the quantification process. Regular communication during this stage, including emails, calls, and check-ins, allows data nuances, assumptions, and methods to be reviewed collaboratively such that both parties efficiently move toward resolution.

Sampling is a prime example of a nuance that should be agreed upon prior to proceeding with any calculations. State guidelines specifically state that if a holder uses an invalid statistical sampling model and, therefore, incorrectly calculates a liability, the entire estimate might need to be recalculated.

Step 4: Remediation. Similar to data collection, the remediation step can be resource intensive. During remediation, the holder researches exceptions, documents positions taken, and conducts due diligence or outreach to owners. At this stage, the holder can identify facts and circumstances specific to their operations that might impact their quantification or remediation. For example, if the business has a policy of not voiding checks until they are at least one year old and can prove their adherence to such policy, say via sampling, the state could agree to remove voids between 90 days and one year from the starting population. The company should remain engaged with Delaware’s administrators to make sure outcomes are accurate and reasonable and to prevent disputes at the closing stage.

Step 5: Closing and reporting. If the holder, state, and administrator have been communicative and engaged throughout the VDA process, the closing and reporting step should be straightforward. The holder submits a detailed package, including a narrative overview, supporting schedules, and a management representation letter. Once both sides are aligned and the SOS officially has agreed to the results of the review, the company executes Form VDA-2, “Voluntary Self Disclosure Agreement,” and the SOS countersigns it. The VDA-2 provides a release of liability for the covered years, property types, and entities and offers a limited indemnity on future claims. A Delaware unclaimed property report and remittance also are included in this final stage.

Bonus step: Post-compliance review. After the VDA process is completed, the holder can reflect on lessons learned and engage in a post-compliance review to support ongoing adherence to Delaware and other states’ unclaimed property laws. Because of Delaware’s VDA review process, a company typically looks at property addressed to all states – not just within Delaware. Using the data already gathered, a company can determine potential liabilities in other states and implement mitigation strategies with limited additional effort on the data collection front. Also, documenting formal policies and procedures for the treatment of potential unclaimed property throughout the organization is a form of summarizing the efforts of the entire VDA process. These proactive steps help establish and maintain compliance, identify any new potential liabilities early, and foster confidence in future enforcement efforts.

Looking ahead

By maintaining open communication and aligning expectations at each step, holders can resolve unclaimed property matters with confidence and gain a framework for compliance that supports stronger governance well into the future.