Type: Client Alerts
Delaware Secretary of State Bullock recently appealed to businesses to convert their unclaimed property audits to VDAs pursuant to 12 Del. § 1176(b), stating that it is “an excellent opportunity for many companies under audit.”1 The Secretary lauded his program as “less expensive and less time-consuming,” “procedurally fair, efficient and business-friendly,” and as being “in the best interest of holders. He asserted that the VDA is “cheaper, faster and better,” and contended that a conversion to a VDA “makes the most business sense” for holders. He finished his pitch with the assertion that “every holder that is eligible to convert their unclaimed property examination into a VDA should absolutely do so.”
Each company must consider its own circumstances to determine whether the VDA is “less expensive and less time-consuming,” taking various factors into account. Among the other considerations that Secretary Bullock omitted to mention in his email, are the following:
(1) You will still be under audit
Contingent-fee audit firms that conduct Delaware audits usually do so on behalf of several states at once. The Delaware VDA program applies only to the Delaware portion of the audit. Consequently, electing a Delaware VDA will not make the auditors go away – they still represent the other states participating in the audit. Therefore, the auditors will likely still request much of the same documentation as when Delaware was a participating state. Further, because the auditors are compensated based on their recovery for the participating states, holders may see auditors begin to emphasize positions benefitting the remaining participating states more so than when Delaware was the auditors’ main focus.
For Delaware-incorporated holders, one positive aspect of removing Delaware from the audit is that research on transactions identified through the review process will be limited to those transactions with an address in the remaining participating states. For some companies, that change may make a significant audit difference. However, the remaining transactions will still be subject to review, but they will be reviewed through the Delaware VDA. Delaware stated that where the auditors have identified the scope of review for the audit, the scope upon conversion to a VDA is not negotiable and must include all entities and property types identified.2 The VDA look-back period is the same as the look-back period for a Delaware audit.