Based on my industry experience, ALTA Assessment Procedures, and Rynoh best practices, I have compiled the following guidelines to help ensure your agency is prepared for its escrow audit. Before diving into the audit, have a detailed checklist in place. This will help you stay organized and cover all necessary items during the audit. Your checklist should include all key areas of escrow operations, such as disbursements, reconciliations, trust account management, and internal controls.
Once you have your checklist in place, review and update it regularly to reflect any changes in processes or regulations. This will help ensure that you are always audit-ready and can easily provide evidence of compliance during the audit.
Escrow Audit Standards of Performance:
Reconcile all bank accounts (escrow and non-escrow) daily—close inactive accounts and escheat stale dated funds.
Ensure all authorized signers, wire initiators, and account approvers are current employees. Upon an employee’s departure from your agency, promptly eliminate their authorization from all accounts.
Restrict access to signatory stamps to authorized signers only. Keep the stamps secured in a locked drawer and limit access to the key.
Before hiring an employee, conduct a comprehensive background check that covers the last five years, including financial and credit history. Store the results of the background check in each individual’s personnel file, ensuring that these records are secure and only accessible to employees who require access.
Provide training to your employees on how to manage escrow funds and escrow trust accounts.
Ensure your auditor can easily access documentation for three-way reconciliation of all escrow/trust accounts, including 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
Please ensure to promptly investigate and resolve any discrepancies found during the reconciliation process. This involves addressing the following items:
Files with negative balances/missing checks/adjustments report and forced cleared items report
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
Disbursed Items before deposits report
Complete all reconciliations within 10 business days after the closing date of the bank statement. To do this, you will need to obtain online banking access to your escrow account(s). It’s recommended that you reconcile accounts daily or weekly to make sure that all reconciling items are resolved and the reconciliation completed within the given time frame of 10 business days.
Have an independent party prepare daily and monthly reconciliations for the receipts and disbursements without associating with the function and any association with the function.
To ensure accuracy and accountability, have a manager or supervisor review and sign off on each reconciliation. This will help to avoid errors and discrepancies.
Ensure that all bank statements and account-related documents pertaining to the escrow trust account are clearly labeled by the bank.
Identify the file number associated with deposit tickets, escrow checks, and other relevant records. This will help ensure the records are properly organized and easily accessible when needed. It is important to avoid spelling, grammar, or punctuation errors to ensure that the information is accurate.
Please ensure that the disbursement of funds from any inactive or dormant accounts is approved by senior management. An account can be considered inactive or dormant if there are no new incoming funds, no disbursements related to closures, and no activity through the account within the last six months.
Explore our resource portal for extra materials such as blogs, articles, checklists, etc. You can also sign up for our newsletter to stay updated on industry trends, compliance regulations, and best practices. With these top SOPs in place and the help of Rynoh and industry expert Lee Swaffield, you can streamline your next escrow audit and ensure a successful outcome. Remember, preparation is key to passing an escrow audit with flying colors!
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