Delaware Bill Would Implement Some Task Force Recommendations

Update January 30, 2015: Sponsoring Senator Bryan Townsend announced last night that SB 11 was passed by the House and signed by Governor Markell on January 29.

Update January 29, 2015: SB 11 moved to the House and was placed in the Economic Development/Banking/Insurance/Commerce Committee on January 27. On January 28, the bill was reported out of committee with a vote of 9-0 on its merits. The committee found that this bill, with the current Senate Amendment Two, would not impact revenues.

Update January 23, 2015: The Senate replaced Amendment One with Amendment Two. In addition to the other changes discussed below, it made one additional change to SB 11 - it removed the requirement that the State Escheator make a specific written determination of fraud before the Statute of Limitations is left open-ended. This provision was a key provision that benefited holders. The bill, with the new amendments, was passed unanimously by the Senate. It now moves on to the House.

Update January 22, 2015: Yesterday, the Senate Banking and Business Committee favorably reported the bill with a vote of 3-1. The Senate then made further amendments to the bill. The amendments relate to the "revolving door" between state senior unclaimed property officials and the state's auditors; requiring the independent reviewer to send decisions to both the state and the holder; and instructions to reduce the term for current contracts. So far, there has been no indication that the state legislature is interested in shortening the look back period, one of the key items that the holder community is advocating for. At present, Delaware audits require companies to provide business records to January 1, 1981.

Originally Posted: January 16, 2015

Yesterday, Delaware Senators introduced Senate Bill 11, which if passed, would implement some of the Delaware Unclaimed Property Task Force recommendations. The bill focuses mainly on auditor selection, auditor conduct and audit appeals.

SB 11 would require that Delaware assign no more than 50% of any new audits to any one auditor. This could be implemented by one of two different ways - either the State has to conduct more audits in-house or the State would have to contract with more auditors, providing more diversity. Currently, the majority of audits are assigned to Kelmar Associates.

The bill also includes provisions to prevent an auditor from hiring any Delaware official in a "senior supervisory role, including without limitation, the Secretary of Finance, any Deputy Secretary of Finance, the State Escheator or Audit Manager" for two years after they leave employment with the state. In 2013, the then head of Delaware's unclaimed property program, Mark Udinski, left the state to join Kelmar, soon after issuing a multitude of audit notices and assigning the audits to Kelmar.

The bill also directs the Secretary of Finance to develop a detailed audit manual by December 31, 2015, and to update administrative regulations to ensure greater transparency in the audit process. The Secretary would be required to take steps to ensure that any contract auditors comply with any manual it develops.

The appeals process would also be modified to make the independent reviewer's decision final. Currently, the Secretary of Finance may adopt or reject the reviewer's decision, in whole or in part. The amendment would make the independent reviewer's decision binding on both the Secretary and the holder, unless either party further appeals the decision. Both sides would have thirty days to appeal to the Delaware Court of Chancery.

Finally, the bill also amends Section 1158 on the statute of limitations. Currently, the statute provides no statute of limitations if no report is filed or if a false or fraudulent report is filed with the intent to evade paying unclaimed property. The new language would read "If no report is filed, or if, after examination of the report pursuant to § 1158(a), the Escheator makes a specific determination in writing that a holder has filed a fraudulent report with the intent to evade the obligation to pay abandoned or unclaimed property, a notice of delinquency in payment may be mailed to the holder at any time."

The bill does not address the task force's recommendations regarding owner reunification efforts, the audit look back period nor a new Voluntary Disclosure Agreement program.

See Also:
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