13 Guidelines to Prepare Agencies for an Escrow Audit

You may already know that the American Land Title Association (ALTA) publishes recommended best practices for all independent title agencies to follow in everyday operations. But did you know they also publish guidelines for assessment procedures and recommendations on when an agency should pass or fail an escrow audit?

Based on the ALTA Assessment Procedures, we’ve put together the following guidelines – a good start to help ensure your agency is prepared for its escrow audit. Refer to ALTA’s Best Practices website for a range of additional resources, including webinars, workbooks, checklists and more.

  1. Reconcile every bank account (escrow and non-escrow, active and inactive). If an account is inactive and you do not plan on using it in the future, it is best to close it.
  2. Make sure that all authorized signers, wire initiators and account approvers are still active employees. When an employee leaves your agency, be sure to remove them as an authorized user on all accounts.
  3. Be sure that only authorized signers have access to signatory stamps, if your company uses them. Store any stamps in a locked drawer, and only allow authorized users to have the key.
  4. Conduct a five-year background check before hiring an employee. Keep the results of the background check stored in each individual’s personnel file. Keep these records secure and available only to those employees who have the “need to know.”
  5. Train your employees on the management of escrow fund and escrow trust accounts.
  6. Perform a three-way reconciliation on all escrow trust accounts and have documentation readily available for your auditor. Include the following as of the reconciliation date:
    • Bank statement
    • Reconciliation sheet/summary page with book balance
    • Outstanding deposits list/deposits-in-transit
    • Open escrow file listing or trial balance
    • Outstanding disbursements list
  7. Research and resolve all reconciling items immediately. This includes:
    • Files with negative balances
    • Deposits in transit over three days old
    • Outstanding wires over three days old
    • Outstanding payoff, tax and insurance checks over 10 days old
    • Banked-not-booked items
  8. Complete all reconciliations within 10 business days of the closing date of the bank statement. This will require that you obtain online banking access to your escrow account(s). It’s recommended to reconcile accounts daily or weekly, to make sure all reconciling items are resolved, and the reconciliation completed, within 10 business days.
  9. Have an independent party not associated with the receipt and disbursement function prepare daily and monthly reconciliations.
  10. Have a manager or supervisor sign off and approve each reconciliation.
  11. Make sure that bank statements and account-related documentation (such as escrow checks, deposit tickets and other records) are clearly labeled by the bank as an escrow trust account.
  12. Clearly identify the file number associated with deposit tickets, escrow checks and other records.
  13. Require senior management approval for disbursement of funds from any inactive/dormant accounts (defined as an account with no new incoming funds into the account, no disbursements related to closings from the account and no activity through the account in the last six months).

For more information about ALTA Best Practices, assessment procedures or escrow accounting in general, contact Dina Taaffe at dtaaffe@stewart.com or (713) 625-8101.

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