Before considering if you should enroll in a VDA program, you must first fully understand what it is. A voluntary disclosure agreement program, also referred to as a VDA, is a program through which a holder can report its overdue unclaimed property voluntarily. While their specific terms vary, VDA programs typically enable companies to achieve compliance with their unclaimed property reporting obligations, all while avoiding the imposition of interest and penalties. One exception is New Jersey. that assesses a nominal amount of interest on the past due amounts reported through the VDA. Additionally, those who participate in a VDA program typically benefit from a shorter look-back period than audits, potentially reducing liability.
How VDA Programs Can Differ From One Another
It’s important to note that all states have some type of VDA program — except for California — and some of which only allow VDAs for first-time reporters. While states reserve the right to audit after the successful completion of the VDA process, they very rarely do unless the state has reason to question the thoroughness and accuracy of the business’s efforts. VDAs are generally a matter of policy, not statute, which means they can be changed or withdrawn at any time.
Formal and Informal VDA Programs
VDA programs can be either formal or informal. A “formal” program requires a signed agreement and may include a fixed due date for the past-due property to be reported, the completion of multi-page worksheets detailing the methodology used to identify the past-due accounts, conference calls with the state, and the business’s unclaimed property policies and procedures. An “informal” program entails only reporting the past-due property.
Both program types involve the execution of a form of voluntary disclosure agreement by the company and the state, in which the company agrees to conduct a self-audit.
Voluntary Compliance: What to Consider
While VDAs can be a huge benefit, it is not always advantageous to enter into one. Factors to consider when deciding if a VDA is the best option for handling past-due property include:
What is the amount of past-due property? Small amounts that are past due may be able to be included in the annual report.
Does the state assess penalties and interest on the past-due property? Calculate the potential interest and penalties to assess if the cost of participating in the VDA exceeds the penalties and interest due.
Are you willing to examine your records and report all applicable property types, and not just those already identified as past due? VDAs generally require a full review of your books and records to identify reportable property.
Is a VDA Program Right for You?
While there’s no blanket answer to whether a VDA program is optimal for any given organization, it’s necessary for any company to review and understand its options if it wishes to avoid an audit.
Since the VDA process can be complicated and time-consuming, engaging a holder advocate experienced in state VDAs will provide the most favorable result. For more information about how to reduce the risk of an unclaimed property audit or our consulting and advisory services, reach out to our team today.
