BEST PRACTICES BLOG # 3

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Procedures and controls for Escrow Trust Accounts allowing for electronic verification of reconciliation.

Purpose: Appropriate and effective escrow controls and staff training help title and settlement companies meet client and legal requirements for the safeguarding of client funds. These procedures ensure accuracy and minimize the exposure to fraud and loss of client funds.

The following procedures and policies will be followed:

1. Escrow funds and operating accounts must be separately maintained.
   • Escrow funds or other funds the Company maintains under a fiduciary duty to another are not commingled with the Company's operating account or an employee or manager's personal account.
2. Escrow Trust Account reconciliation requirements.
   • Daily reconciliation of all receipts and disbursements.
   • Monthly Three Way Reconciliation, listing all open balances.
   • Segregation of duties, reconciliations are conducted by someone other than signers.
   • Results reviewed by management.
3. Escrow Trust Accounts must be properly identified and documented as "escrow" or "trust" accounts.
   • Appropriate identification appears on all account related documentation including bank statements, bank agreements, disbursement checks and deposit slips.
4. Unless directed by the beneficial owner, Escrow Trust Accounts are maintained in Federally Insured Financial Institutions.
5. Outstanding file balances must be documented after all reconciliations.
6. Transactions are to be conducted by authorized employees only
   • Only employees whose authority has been defined to authorize bank transactions may do so. Appropriate authorization levels are set by the Company and reviewed for updates annually. Former employees are immediately removed as signatories on all bank accounts.
7. Positive pay will be utilized on all trust accounts.
8. Checks are completed in the hiring process and regularly conducted for existing employees.
   • At least every three years obtain background checks going back five years for all employees having access to customer funds.
   • At least every three years obtain credit reports for all employees who have access to funds.
9. Ongoing training is conducted for employees in proper management of escrow funds and escrow accounting.

 

- by Douglas D Boulden