- November 20, 2007
- All Affiliate Offices
- Internal Controls Over Fiduciary Funds
Audit Services would like to remind all offices of the policies and internal controls that should be in place over fiduciary funds. Please see the SISCO Manager’s Manual and the “ALTA Escrow Internal Control Guidelines for Title Insurance Companies, Agencies and Approved Attorneys” for more detailed information.
Management has a fiduciary responsibility for the processing, safeguarding, and accounting for all funds held for the benefit of others. This responsibility requires management to monitor and perform all procedures necessary to ensure the proper disposition of all balances held. The fiduciary responsibility does not end with the disbursement of funds at closing, but also includes appropriate follow-up and review of reconciliations, file balances and unpaid items.
- Disbursements should be made only from collected funds related to the same escrow file.
- All escrow bank accounts should be reconciled monthly. Adjusting items should also be reviewed and cleared monthly.
- Management should review and approve in writing all bank reconciliations and determine the reasonableness of all outstanding checks, files with balances, file shortages, and timeliness of reconciliation preparation.
Debit files are defined as files in which the disbursements are greater than the amount of funds received.
- All shortages should be funded from the operating account immediately upon discovery.
- If the shortage is subsequently recovered, the funds should be deposited to the escrow account before reimbursing the operating account. This procedure will provide an appropriate audit trail of the escrow funds.
Dormant files are defined as files with balances that have had no activity for greater than six months.
- Access to dormant files/funds from dormant files should be controlled and management’s written approval should be required and obtained prior to disbursement of funds from such files.
- In locations where an affiliate has a branch office(s), all funds which are to be held in escrow after closing and all files and funds which have been dormant in excess of six months should be transferred to the main office escrow account to be monitored.
- If possible, we recommend putting dormant files “on hold” within the escrow accounting system to help prevent unauthorized disbursements.
- The office should conduct periodic reviews of dormant files to determine if balances should still be held. Parties to the transaction should be contacted and proper disposition of the funds should be determined.
- If resolution of the funds is not feasible, they should be maintained in escrow until they may be disbursed in accordance with state escheat laws.
- Documentation should be placed in the file to explain the reason for dormant balances.
At no time can funds held in escrow accounts due to dormant files be used to cover shortages in other transactions.
Outstanding checks should be reviewed monthly and lienable items should be investigated timely.
- An outstanding check is considered by Audit Services “old” if it has been outstanding for greater than ninety (90) days. As necessary, the payees should be contacted and the checks voided and reissued.
- A stop payment should be placed on the old check before a reissue check is drawn. Management review and approval should be obtained prior to canceling and reissuing checks.
- Funds related to outstanding checks that are not disbursed should be maintained in escrow until they may be disbursed in accordance with state escheat laws.
- Documentation should be placed in the file indicating attempts to resolve issues related to outstanding checks.
At no time can funds held in escrow accounts due to outstanding checks be used to cover shortages in other transactions.
SOURCES AND LINKS:
ALTA Escrow Internal Control Guidelines
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