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10 Tips to Prevent Fraud and Theft on Your Escrow/Trust Accounts

March 21, 2013

By Jonathan Yasko

We have moved from an industry concerned with the issuance of title insurance, to an industry focused on compliance and potential financial loss from the settlement agent. Each day I am asked by agents, attorneys and underwriters, “what procedures can we put in place to prevent fraud and theft from happening to us?” While absolute prevention may be impossible, you can make it so difficult for a fraudster that they will seek other opportunities.

So, what can you do? First and foremost, reconcile your escrow/trust account in a timely fashion. There is a reason why underwriters want to see your reconciliations by the 15th of the month for the previous month’s transactions. Escrow reconciliations are the best business tool you have as an owner, manager or escrow agent. You can tell where your business comes from, how healthy your company is as a whole, what areas you need improvement and what work still needs to be done for a closing file. Run a Trial Balance Report each day to see what files need immediate attention.

Second, find a bank that you can have a good business relationship with. Banks will tell you whatever you want to hear because they know of the high balances title agents and real estate attorneys maintain. Try to find a bank that doesn’t charge you for wire fees or large-account analysis fees. A good bank will have ACH blocks on the escrow account and have the ability to offer you Positive Pay. They should also alert you to incoming and outgoing wire reminders for no charge. Remember, a good bank will work with you in good times and bad.

Other high-level points of interest:

• Utilize a good software program. Many different vendors are out there. Find one that suits you best.
• Limit who can send electronic wires. Try to set up one person to initiate and another person to review and confirms the wire. Two eyes are better than one.
• Timely review your outstanding check/wire report. If you have checks outstanding for recordings, taxes or payoffs, you need to follow up immediately.
• Review your outstanding deposits report. Even if your file has a zero balance and the earnest money deposit or cash to close doesn’t show up, that file is short.
• Require the use of dual signatures on escrow checks.
• Segregate office duties. If someone cuts checks, make it so they don’t reconcile. If someone posts deposits, make it so they can’t sign checks.
• If your office size doesn’t permit the use of good segregation rules, use an outside third party to reconcile your escrow/trust account.
• Run periodic credit checks on account signatories. Believe it or not, underwriters are now doing the same.

Jonathan Yasko is a managing member of Entrust Solutions. He can be reached at jyasko@goentrust.com.