Bulletin: AL000002

Date:
January 09, 1995
To:
All Alabama Agents
RE:
Audits

Dear Associates:

Defalcations (a polite word for stealing money) remain with us in the title business. Recently, in Virginia, a receptionist obtained access to escrow and operating account checks and forged the signature of the only person authorized to sign checks. In addition the receptionist discarded two months of bank statements to conceal the fraudulent activity. The escrow and operating accounts of this agency were not being reconciled monthly and checks were not being examined for proper payees or amounts, nor were checks secured. This defalcation resulted in a large monetary loss and closing of the agency.

The care and custody of escrow funds is the primary fiduciary duty of an agent. The agent also has the duty to safeguard title premiums that are due to Stewart Title for issued policies. The following is a summation of the minimum requirements regarding bank accounts for Stewart Title Agents in Alabama.

Complete bank account reconciliation each month;

The complete reconciliation includes constructing a separate list of outstanding checks and outstanding deposits (checks and deposits not yet posted by the bank on the bank statement);

An "Open File" list must be available; (this is a listing of all cases where funds are being held, even short term);

Management must investigate immediately negative balances, as well as checks returned for insufficient funds;

In the very near future I will be contacting each of you to schedule a "Mini-Audit". As part of the Stewart Title "Mini-Audit" I will need photocopies of the last two months bank reconciliations, outstanding check and deposits lists, and "open file" list along with a photocopy of the bank statement(s).

In addition to the above we will be auditing "Safeguard Requirements":

Checks are to be kept locked in a secure location of the agency;

Larger checks should require two signatures

No check should be pre-signed, that is , signed before the check is made out completely;

All checks are to be pre-numbered when printed, issued numerically, and contain the current file reference.

Reconciliations are to be performed by a person who does not have check signing authority such as the bookkeeper or outside accountant.

In the instances where theft had occurred the owners of the companies did not believe they were at risk and were embarrassed by the Criminal acts committed under their noses.

Monthly reconciliations and a through review of your bank accounts is imperative to safeguarding your clients funds, protecting your agency, and Stewart Title's Interest.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
5.16 Escrow Closings
Exceptions Manual:
None
Forms:
None