5 Tips to keep your Escrow Account under ALTA's best practices
Segregate Reconciliation Functions
Monthly Three-Way Escrow Reconciliation
Recording Accounts are to be treated the same as the Escrow Account
Make bookkeeping a priority
Positive Pay is an essential tool for title companies to fight against fraud while ensuring an extra layer of protection to the escrow account. It is an automated cash service provided by the bank, that helps the bank detect fraud by matching the title company's issued check with the check presented for payment. The title company will send a daily list of checks issue to the bank, and the bank will make sure to only honor those checks in the list. The dollar amount, check number and account number must all match, or the check is flagged by the bank, refuse, and sent back to the issuer for review.
Segregate Reconciliation Functions, is part of ALTA's best practices and is imperative to ensure a bias commitment to protect a client's funds held in an escrow bank account. This is also known as the Separation of Duties, and presents the concept that no one person should control the lifespan of a transaction. Meaning, no one person should, initiate the transaction, approve it, recorded and then reconcile the books. This ensure the principle that no user should be given enough privileges to misuse the system on their own. This practice is critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions. Relatively, hiring a third-party specialist, like Title Aid, to reconcile an escrow account that has no affiliation nor interest like an underwriter, will assure complete Segregation of Duties and security to properly maintain the client's funds accountability.
Monthly Three-Way Escrow Reconciliation, is a method of check and balances in which the bank statement, the book registry, and the client's funds matches. It requires all three components to ensure that clients funds are account for each client and reveals that funds are not mingling. When a component fails to match, it can indicate: entry errors, shortages per client, meaning the amount disbursed was greater than the amount funded by a client(s), and fraudulent transactions, among others. The Three-Way Escrow reconciliation also is helpful in revealing outstanding transactions. In the case of outstanding deposits, it can signal that funds expected to be receive have not yet been credited appropriately. For outstanding disbursements, flags disbursements that haven't been paid that can be lienable like mortgage payments, homeowner's insurance, property taxes, FIRPTA withholding, utilities, code enforcement, permits and other city or county bills. Having a three-way escrow reconciliation prepared every month is a fundamental task for title companies and attorneys to make any necessary claims or corrections on time.
Recording Bank Accounts, required to be treated such like an escrow account and prepare a Three-way escrow reconciliation. Just like an escrow bank account, a bank account solely to disbursed recording fees, requires the funds deposited to be credited to each client separately. This bank account is consider to have the same due diligence in assuring that the client's funds are used specifically for the client's purpose and is not mingling with any other client's fund. The Escrow and Recording bank accounts are both accounts where the title compan
y or attorney is holding specific amount of funds for a specific client's transaction.
Make bookkeeping a priority, make a habit to properly log each deposit received and every disbursement made according to Accounting principles. Having intact bookkeeping ensures your client's funds are properly safeguard and used for its intended purpose. It is a title company and attorney duty to preserve the management of the funds received by a client cure from any fraud, error, or mishandling. By establishing a priority in the company's bookkeeping you will become alert of any issues in time to act with a remedy, be prepare to make disbursements without worrying about any liabilities and safeguard properly the funds trusted in your care.
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