Delaware, like most states, requires that certain types of unclaimed property be reported and turned over to the State. Delaware's unclaimed property administrator, as in other states, has the power to "examine the records" of businesses—either directly, or through the use of private-sector audit firms—to ensure compliance. This audit process has engendered controversy in recent years, and the Delaware Senate has been working on significant reforms. Although geographically small, Delaware is a heavyweight in forming policy in this area for one simple reason: Delaware is the state of incorporation for a large majority of American companies, and when the rightful owner's address is unknown, unclaimed property must be reported to the state where the company holding it is incorporated.
In July 2014, the Delaware Senate created a task force to assess policy shortfalls and propose new legislative goals for identifying unclaimed and abandoned property. The task force met numerous times throughout 2014 and made its recommendations in a final report issued on December 23, 2014. The report identified both specific actions (e.g., amend the statute of limitations relating to unclaimed property audits so that businesses are not liable for unclaimed property after a reasonable period for record retention has expired) and general guidelines (e.g., maintain a broader base of contracted auditors) to be addressed in future legislation.
Last week, the Senate adopted some of those recommendations in Senate Bill 11. The proposed law would implement two key recommendations from the task force final report: it would limit a single private firm to securing no more than 50 percent of the contracts to audit for unclaimed property, and it would prohibit a firm awarded an auditing contract from employing persons who have served as supervisors in the Delaware Division of Revenue or Department of Finance during the prior two years. SB 11 also calls for the Secretary of Finance to create a detailed procedural manual by December 15, 2015, with further input from stakeholders and interested parties.
Passage of SB 11 likely will not resolve all controversy surrounding states' use of outside auditors with a financial stake in the process, but it shows a recognition of businesses' concerns about the fairness of the audit process. Other state unclaimed property offices, and state legislators, are certain to pay attention.
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