Delaware s Department of State Unclaimed Property Voluntary Disclosure Program: Best Practices for SOS VDA Submission

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1 Delaware s Department of State Unclaimed Property Voluntary Disclosure Program: Best Practices for SOS VDA Submission

2 > Introductions AGENDA > Benefits of a Delaware SOS VDA > What to Expect Post Enrollment > VDA Review Process Scoping Detailed Records Review Testing & Remediation Settlement & Payment > FAQs > Additional Resources 2

Process Scoping Detailed Records Review Testing &

3 > Introductions I. Introductions Delaware Secretary of State s Office Alison Iavarone, Unclaimed Property Administrator, Department of State Drinker Biddle & Reath LLP Geoffrey Sawyer, Esq. Jim Doody 3

4 II. Benefits of a Delaware SOS VDA > Self Review Holder reviews records and prepares submission > Efficiency Submissions are expected to be completed within 18 months > Waiver and Release Delaware and Holder enter into Settlement and Release Agreement Holder is protected from audit for the years, entities and property types included within the VDA Holder is required to submit unclaimed property reports for the three years following the execution of the VDA 4

Settlement and Release Agreement Holder is protected from audit for the years, entities and property types included

5 III. What to Expect Post Enrollment > Introductory from Drinker Biddle Drinker Biddle attorney assigned to VDA Non-Disclosure Agreement Due Dates > Scoping Spreadsheet and Initial Questionnaire Entities included in review Company background and financial information > Assistance of Advocate Consulting Firms Law Firms 5

Scoping Spreadsheet and Initial Questionnaire Entities included in review Company

6 > Phase 1 Scoping IV.VDA Review Process > Phase 2 Detailed Records Review > Phase 3 Testing > Phase 4 Settlement and Payment 6

7 > Phase 1 Scoping Entities Included in Review Entities incorporated in Delaware Entities conducting business in Delaware Acquired entities Source Documents include: Legal Entity Organizational Structure; Exhibit 21 from 10-K; Consolidating Income Statement from Federal Form 1120; Purchase Agreements 7

Documents include: Legal Entity Organizational Structure; Exhibit 21 from

8 > Phase 2 Detailed Records Review Determine Property Types Included in Review Disbursement Accounts (AP, Payroll, Rebates, Refunds, etc.) Accounts Receivable Credit Balances Gift Cards/Merchandise Credits Benefits Securities Related Property (e.g., unexchanged shares, uncashed dividend checks) Source Documents include: Trial Balance(s); Check Registers; Bank Statements/Reconciliations with Outstanding and Voided Check Listings; Internal Reconciliations; Accounts Receivable Aging Reports; Gift Card/Certificate Account Detail; Third Party Administrator ( TPA ) Contracts and Supporting Schedules; Shareowner Accounts 8

, unexchanged shares, uncashed dividend checks) Source Documents include: Trial Balance(s); Check Registers; Bank Statements/Reconciliations with

9 > Phase 3 Testing: Disbursement Accounts All cash accounts and underlying disbursement accounts should be scheduled and identified as in/out of review All checks outstanding 90 or more days and voided/stopped/cancelled after 90 or more days outstanding must be included in the review Generally, complete records are contemporaneous records that show a full year s activity and can be reconciled to a trial balance The base period should include at least the oldest two-years of complete records Statistical sampling is permitted; other sampling methods must be presented for approval prior to implementation 9

records are contemporaneous records that show a full year s activity and can be reconciled to a trial balance The base period should include at least

10 > Phase 3 Testing: Accounts Receivable Credits Review should include for all Accounts Receivable general ledger accounts: Dormant credits within customer accounts Credits removed from customer accounts (i.e., credit write-offs) Unidentified remittances/unapplied cash/ dummy customer accounts At least two aging reports should be reviewed to determine credit balances that may have been removed from customer accounts For removed credits, the disposition accounts should be reviewed to identify all credits removed from customer accounts The base period should include at least the oldest two-years of complete records Statistical sampling is permitted; other sampling methods must be presented for approval prior to implementation 10

11 > Phase 3 Testing: Benefits Accounts > ERISA Preemption ERISA preemption requires: Plan documents to support ERISA qualification; AND Analysis tying particular unclaimed amounts to legal test for preemption: State UP law preempted if the UP Law mandates an aspect of law with which ERISA is concerned, such as the administration of the plan itself; or (2) interferes with the relationship between ERISA-covered entities. See, e.g., Self-Insurance Institute of America, Inc. v. Snyder, et al., U.S. Ct. App., 6th Cir., Dkt. No (August 4, 2014) If unclaimed amounts do not qualify for ERISA preemption and plan is self-insured, then: Review outstanding and voided/stopped/cancelled checks that meet required aging criteria (90 days) If a TPA is used, review reports from the TPA showing all activity within a period, schedule and review checks that meet aging criteria. 11

between ERISA-covered entities. See, e.g., Self-Insurance Institute of America, Inc. v. Snyder, et al., U.S. Ct. App., 6th Cir., Dkt. No.

12 > Phase 3 Testing: Securities Related Property > Shareowner Accounts Review should include: Delaware incorporated entities - list of all shareowner accounts with Delaware, foreign and unknown addresses; list of outstanding, voided/stopped/cancelled dividend checks Non-Delaware incorporated entities list of all shareowner accounts with Delaware addresses; list of outstanding, voided/stopped/cancelled dividend checks Remediation documents should adhere to Delaware s inactivity standards > TPA for both Debt and Equity 12

checks Non-Delaware incorporated entities list of all shareowner accounts with Delaware addresses; list of outstanding,

13 > Phase 3 Testing: Remediation and Due Diligence Disbursements: Remediation documents should prove the resolution of a particular check; examples include: If subsequently cashed, copy of cleared check. If voided and reissued, copy of cleared reissued check. If voided and not due, documentation to support the conclusion. Customer Credits: Remediation documents should prove the resolution of a particular credit balance. Securities: Remediation documents should adhere to Delaware s inactivity standards and due diligence requirements. 13

If voided and not due, documentation to support the conclusion.

14 > Phase 4 Settlement and Payment Submission Packet should include: Narrative a report that provides an overview of the business, a description of the holder s policies and procedures for each property type, a detailed description of the VDA review process for all property types, including identification of source documents used in the review Schedules of UP Liability schedules showing the calculation of any UP liability due to Delaware Source Documents provided in electronic format via portal or data storage device Remediation Support provided in electronic format via portal or data storage device 14

identification of source documents used in the review Schedules of UP Liability schedules showing the calculation of any UP liability due to Delaware

15 > Phase 4 Settlement and Payment Completed Closing Package includes: Management Representation Letter representation from management that all available, complete and researchable records were reviewed as part of VDA Complete list of entities (Excel preferred), including FEINs, to be included in VDA-2 VDA-2 management representation letter and list of entities will be included as exhibits to VDA-2 AP-1 and AP-2 NAUPA Formatted File Final Schedules schedules must reconcile to amount listed on the VDA-2 Summary Report 15

preferred), including FEINs, to be included in VDA-2 VDA-2 management representation letter and list of entities will be included

16 V. Frequently Asked Questions When is estimation appropriate? Generally, estimation is used to determine a liability for periods with incomplete records. What constitutes complete records for a given year? Generally, complete records are contemporaneous records that show a full year s activity and can be reconciled to a trial balance Are acquisitions expected to be included in the review? Generally, yes, acquisitions are expected to be included and their records reviewed. Often times, estimation is required for preacquisition periods. We use a TPA for payroll, how do we review payroll for purposes of the VDA? Generally, TPAs will provide stale dated check reports or provide a credit on monthly invoices for stale dated/voided checks. 16

Generally, complete records are contemporaneous records that show a full year s activity and can be reconciled to a trial balance Are acquisitions expected to be included in the review?

17 > Delaware VDA Website Links to required forms VI. Additional Resources Implementing Guidelines that provide more detail on the expected review process and other property types > Contacts Alison J. Iavarone Unclaimed Property Administrator Department of State O: C: Geoffrey A. Sawyer, III, Esq. Partner Drinker Biddle & Reath, LLP O: C:

property types > Contacts Alison J. Iavarone Unclaimed Property Administrator Department of State alison.

SECRETARY OF STATE IMPLEMENTING GUIDELINES 1 Abandoned or Unclaimed Property Voluntary Disclosure Agreement Program

Revised February 11, 2014 SECRETARY OF STATE IMPLEMENTING GUIDELINES 1 Abandoned or Unclaimed Property Voluntary Disclosure Agreement Program I. Overview The Secretary of State is committed to administering