Recent Delaware legislation significantly revised the administration of the state’s unclaimed property laws by placing several limitations on audits performed by outside contractors and amending the administrative appeals process.
“As the Task Force’s own recommendations make clear, there have been a lot of room for improvement to the Delaware unclaimed property program and particularly to safeguards for holders that are subject to Delaware’s audit jurisdiction,” said Kendall Houghton, partner and co-leader of Alston & Bird’s Unclaimed Property Group. “The changes wrought by S.B. 11 are a good start, but as many unclaimed property professionals have observed, the senate pared back changes contained in the original version of S.B. 11 and the bill, as enacted, essentially adopts the least ‘controversial’ – or, as I think of it, the least revenue-disruptive – of the Task Forces’ recommendations. Hence, there continues to be an appetite for change and improvement on the part of the holder community.”
S.B. 11 includes a number of provisions addressing several issues brought up in recent litigation.
“This legislation is, according to my understanding, in response to specific recommendations made by Delaware’s special Unclaimed Property Task Force that was formed pursuant to a legislative resolution last year,” said Houghton. “The Unclaimed Property Task Force presented its recommendations in December 2014, which included: establishing an independent third-party review process for administrative appeals; creating a best practices manual for holders; scheduling a new Voluntary Disclosure Agreement (VDA) program; and adjusting (shortening) the look-back period.”
The legislation also institutes a “cool down” period for former Department of Finance employees joining private firms that perform audit services for the state.
“It mirrors similar types of provisions adopted with respect to certain senior federal government officials and employees. I do find this to be an important and positive development,” added Houghton.
While the amendments to the appeals process were made in response to the task force’s recommendations, it remains to be seen how the revisions will play out, said Houghton.
“The appeals process has not been used very frequently to date, though holders have expressed concern with the level of independence of the arbiter, as well as the Department of Finance’s position (articulated in the Temple-Inland pleadings) that a holder must exhaust the administrative appeals process before bringing action in the courts.”
The appeals process in Delaware takes a different approach than other states, noted Houghton.
“Michigan’s recently enacted appeals procedure makes an administrative appeal available to any holder, but at that holder’s election (in the alternative, the holder may proceed directly to court).”
“It would be wonderful to see Delaware assume a leadership role in this respect, especially in terms of other states’ implementation of a meaningful and fair administrative appeals process and an effective VDA program.”