Delaware Enacts First Leg of Unclaimed Property Reform Legislation
Earlier today, the Delaware General Assembly passed, and Governor Jack Markell signed into law, Senate Bill No. 11, with Senate Amendment No. 2, which implements, in part, the recommendations of a Legislative Task Force established by the Delaware General Assembly last year to review and suggest reforms to Delaware’s Unclaimed Property Program.
Morris Nichols partner Michael Houghton is a member of the Task Force and assisted in drafting the legislation.
The legislation addresses issues raised with the Task Force concerning the use of outside contract auditors by the State. The legislation limits the total number of audits any one outside contractor can be assigned to no more than 50% of examinations undertaken subsequent to January 1, 2015. It also provides that no outside audit firm can have a contract with Delaware lasting more than five years, and prohibits any contract auditor from hiring State employees in a “senior supervisory role” – such as the State Escheator or Audit Manager – for a period of two years from the date such employee leaves the employment of the State.
The legislation also amends the administrative appeal process regarding assessments of unclaimed property to eliminate the Secretary of Finance’s ability to overturn recommendations made by the “independent reviewer” who considers the assessment dispute, and provides for the direct appeal of the independent reviewer’s determination to the Delaware Court of Chancery.
Finally, the legislation directs the Secretary of Finance, with input from stakeholders and other interested parties, to develop by December 31, 2015, a detailed manual containing procedural guidelines for the conduct of unclaimed property examinations, and to update the State’s administrative regulations to ensure greater transparency and predictability in the audit process. This provision was the result of much discussion by the Task Force concerning what some see as arbitrary, unpredictable and inconsistent decisions made by contract auditors in the course of their examination of Delaware companies.
This legislation does not address several other Task Force recommendations including, most notably, the recommendation that the “look-back” or review period for Delaware unclaimed property audits and Voluntary Disclosure Agreements – which currently extend as far back as 34 years – be examined and modified. Task Force members will be working with the State in the coming weeks to try and reach consensus regarding shortening to the “look-back” period with the hope and expectation that legislation addressing that change can be introduced for consideration, and enacted, prior to the end of the current legislative session on June 30, 2015.