ALTA Members Implement Many Procedures and Controls to Thwart Escrow Theft
|August 14, 2012
With regulators focused heavily on protecting consumers, it is important ALTA members explain the various tools that are used and processes that are followed to protect escrow funds. The following is an abbreviated list of various procedures and controls ALTA members follow to detect and mitigate escrow theft.
Escrow Documents and Files: Maintain filing and file storage systems that adequately safeguard escrow/closing files and escrow records. Implement a document retention program that complies with applicable federal and state law, as well as underwriter guidelines.
Information Technology: Limit access to computers or software modules used to generate escrow receipts and disbursements. Use stand-alone computers for online banking and wire transfers. Protect IT equipment from computer hacking and cybercrime.
Financial Statements: Maintain up-to-date financial statements and immediately provide to underwriter(s) upon request.
Accounting Processes: Ensure the appropriate level of internal controls and management oversight including segregation of duties and accounts.
- Require closing files to have an accounting ledger/disbursement sheet that lists all receipts and disbursements with adequate level of detail including an ending balance.
- Ensure signed settlement statements agree with receipts and disbursements in each closing file.
Ensure that receipts and disbursements are properly entered into the accounting system and that bank records and accounting records reconcile.
- Post deposits and disbursements to the individual closing file during the work day.
- Prepare a monthly escrow trial balance for each escrow account listing all open escrows.
- Perform a monthly three-way reconciliation of bank balance, book balance (journal, checkbook register) and escrow trial balance for each escrow bank account within 45 days from the closing date of the bank statement.
- Research and immediately resolve any outstanding deposits and checks.
- Require reimbursement of any escrow receivable or shortage by the appropriate party or from the escrow agent’s operating account within 45 days from the date of the bank statement reflecting the transaction creating the receivable or shortage.
- Require management approval for the voiding and reissue of any outstanding checks.
- Submit monthly reconciliations to underwriter(s) upon request, as required by statute or by agency agreement.
Design accounting processes with the appropriate level of internal controls and management oversight, including business processes to segregate duties.
- Utilize effective internal controls over all incoming and outgoing funds, including wire transfers.
- Ensure that bank accounts used for closings be “escrow” or “trust” accounts, with “escrow account” or “trust account” appearing in the signed bank agreement, on the bank statement and on disbursement checks and deposit slips.
- Require written management approval for transfers of funds between escrow/closing files and between escrow accounts.
- Allow disbursements to be made only after “good funds” (according to the state law or regulation) have been established.
- When available, use positive pay, reverse pay or other authentication process or system to verify checks before payment by the escrow bank.
- Ensure that funds held after closing are held and disbursed in accordance with a written escrow agreement executed by the appropriate parties, and that underwriter approval is obtained if funds are being held in connection with an outstanding title matter.
- Require authorization from two persons to transmit funds by wire, one to initiate the wire and another to authorize and validate the transfer.
- Ensure the recording of documents related to escrow/closing transactions in a timely manner.
For more, check out ALTA’s “Standards Procedures and Controls”
. Compile a list of steps you follow. Share with regulators, customers and consumers.