Best Practice #2: Adopt and maintain appropriate written 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 help ensure accuracy and minimize the exposure to loss of client funds. Settlement companies may engage outside contractors to conduct segregation of trust accounting duties.
Alliance Abstract and Title Policies and Procedures for Implementation and Adherence to Best Practice #2:
In addition to following all applicable laws concerning trust accounting, Alliance Abstract and Title shall follow all of the following policies and procedures regarding Escrow and/or Trust Accounts:
1. Authorized Employees Only
a. Only those employees whose authority has been defined to authorize bank transactions may do so. Transactions are to be conducted by authorized employees only.
b. Appropriate authorization levels are set for employees by Alliance Abstract and Title and reviewed for updates annually.
c. All employees with access to entrusted funds or NPI undergo pre-hire criminal background checks going back a minimum of five years.
d. At least every three years, employees with access to entrusted funds or NPI undergo subsequent criminal background checks going back a minimum of five years.
e. Ongoing annual training is performed for all employees with access to entrusted funds or NPI regarding the proper management of the Escrow and/or Trust Accounts.
f. Former employees are immediately deleted as listed signatories on all bank accounts, including removing all computer access privileges to the Alliance Abstract and Title network and/or any online banking functions.
2. Trust Accounts Maintained At Insured Banks
a. The Company maintains all Escrow and/or Trust accounts at federally insured financial institutions.
Credit Unions: http://researchcu.ncua.gov/views/findcreditunions.aspx
b. If directed in writing by the beneficial owner of certain funds to be held in trust, Alliance Abstract and Title may put those funds (and only those funds) in a separate trust account with an institution designated by the beneficial owner of said funds.
3. Separation of Accounts and Duties
a. Regardless of how many Escrow / Trust Accounts are maintained by Alliance Abstract and Title:
i. Company funds and entrusted funds are NOT commingled.
ii. Operating accounts are separately maintained from all entrusted funds.
iii. Escrow / Trust accounts are separately maintained from all Alliance Abstract and Title funds and properly identified, including, but not limited to, checks, deposit slips, ledgers, statements and all related supporting documentation.
b. Escrow funds or any other funds which Alliance Abstract and Title maintains under a fiduciary duty to another are NOT commingled with an employee’s, manager’s or principal’s personal account.
c. Escrow Trust Accounts are properly identified as “escrow” or “trust” accounts.
d. The Escrow / Trust account reconciliation authority and function is performed by someone who does not possess check signing and wire initiation authority and functions.
4. General Governing Rules
a. International Wire Blocks, to prevent any wires from the Escrow / Trust accounts without additional authorization, are used where available.
b. Automated Clearing House Blocks to prevent any ACH Transactions from the Escrow / Trust Account without additional authorization are used where available.
c. Positive Pay and/or Reverse Positive Pay to verify the issuance of a check at the bank before clearing said check is used where available.
5. Reconciliation of Escrow Trust Accounts
a. Outstanding file balances are documented.
b. Reconciliation standards:
i. All Escrow / Trust Accounts are reconciled daily.
ii. Receipts and disbursements are reconciled every day.
iii. Opening balance for the month matches the ending balance for the prior month’s reconciliation or explanation and documentation accompanies the reconciliation.
iv. On at least a monthly basis, Escrow / Trust Accounts are prepared with Trial Balances (“Three-Way Reconciliation”), listing all open escrow balances.
IMPORTANT: Three Way Reconciliation documentation at a minimum includes bank statement, reconciliation sheet/summary page with book balance, outstanding deposits list/deposits in transit, open escrow file listing or trial balance and outstanding disbursements list all as of the reconciliation date. All amounts should equal between the book balance, reconciled bank balance and trial balance.
v. Within TEN (10) days of the receipt of the bank statement, Alliance Abstract and Title performs the Three-Way Reconciliation.
vi. Within TEN (10) days of the discovery of an open exception, Alliance Abstract and Title resolves any and all open exceptions or documents reasons for the exception remaining open.
vii. Within TEN (10) days of the completion of the Three-Way Reconciliation, Alliance Abstract and Title resolves any and all open exceptions or documents reasons for the exception remaining open.
viii. In no event, shall an exception remain unresolved or unexplained from one Three-Way Reconciliation to the next.
ix. Within TEN (10) days of the completion of the Three-Way Reconciliation, the monthly Reconciliation is reviewed by a manager or supervisor of Alliance Abstract and Title who does not have check signing and wire initiation authority.
c. The results of the Three-Way Reconciliation are available and electronically accessible by the Company’s contracted title underwriter.