21 HќќѠіђџȱ юћјђџ ѢљѦ 2014 While contemplating this policy and procedure on escrow accounts, consider the traditional and nontraditional threats to the escrow account. Most of the current controls on escrow account management are local controls that think and act locally. The controls focus on employees and the access they have to entrusted funds. One cannot abandon these time-tested controls. Today, however, Ĵȱȱȱȱ¡ȱ ȱȱȱȱȱȱĜȱ through the door, but through the computer network. The modern mentality is to think globally, as well as locally. ȱȱȱȱȱȱ ȱȱȱ¢ǵ a. ¢ȱȱǯȱAll entrusted funds should be kept in a ¢ȱȱǰȱȱ Ĵȱ instructions from the owner of the ȱȱě¢ǯȱ ȱ possible, make sure that there is insurance to protect client funds. ȱęȱȱ¢ȱȱ ęȱȱȱȱęȱ institution that has its deposits insured by an instrumentality of the federal government, including the Federal Deposit Insurance Corp. (FDIC) and National Credit Union Administration (NCUA). b. Separation of funds. All entrusted funds should be kept in a bank account that is separate from all other funds. Do not commingle funds. To that end, all supporting information for the escrow account should be marked “escrow” account or “trust” account. This includes all of the checks, deposit tickets, bank statements, bank agreements and all other account-related supporting documentation c. Authorized personnel only. Transactions regarding entrusted funds should be performed only by authorized employees. All businesses have employees with varying levels of skill and expertise. Some employees may not have the requisite training necessary to be allowed to access the escrow account. Others may not have job requirements that necessitate access to the escrow account. ȱ ȱȱ ȱȱĴȱȱ access the funds, perform adequate employee training to make sure that mistakes are kept to a minimum. Additionally, before allowing ¢ȱ¢ȱȱȱĜȱȱ escrow accounts, perform a criminal background check. Subsequent checks every three years (going back ęȱ¢Ǽȱȱȱȱȱ of this best practice. This process is ǰȱȱ¢ȱȱęȱȱȱ employee was truthful about past indiscretions. Finally, when an employee leaves, ȱȱȱȱȱȱĜǰȱȱ escrow account and the computer should be terminated immediately. In the old days, employers would simply ask for the key to be returned. Today, employers need to get that key, but also need to terminate employee passwords, change the signature cards and change the alarm code, as applicable. d. Reconcile escrow accounts. Responsible accountholders balance their personal checking accounts every month. Client funds in the escrow account require at least that same level of care. This simply means that the account is prepared with trial balances, which match the checkbook and the bank statement. ȱ ȱȱȱȱȱȱȱęȱ balances, they must be documented and tracked to resolution. Additionally, there should never ȱ¢ȱȱęȱǯȱ ȱ all of this is complete, the monthly three-way reconciliation should be reviewed by management. The reconciliation is the oldschool way to “follow the money,” but still vital to the protection of the escrow account. The new-school way includes a timeliness that increases the security and detection. ALTA Best Practice No. 2 calls for the daily reconciliation of receipts and disbursements and the three-way reconciliation within 10 days of the receipt of the bank statement. Once it is performed, the threeway monthly reconciliation must also be electronically available for ęȱ¢ȱȱĴȱȂȱ title insurance underwriter. The more ȱȱ¢ȱȱȱ¢ǰȱȱĴǯȱ Together, everyone can help protect the entrusted funds. e. Separation of duties. Traditionally, when addressing separation of ǰȱĴȱȱȱ about separating check writing from check-signing authority, or separating wire preparation from wire-approval authority. Both of these practices are recommended for prudent and practical escrow controls. For compliance with the requirements of Best Practice No. 2, the reconciliation of the escrow account should be performed by someone without any disbursement authority over the account. This basic precaution adds a math checker for a simple mistake, and a watchful eye for a greater indiscretion. Whether there is a simple error in math, a wayward ¢ȱȱȱ¢ȱĴǰȱȱ- ployee following the money should not have access to the money. f. Block international access. Think globally, and be concerned with new threats that do not walk in the door. Anyone who has ever paid by check on the phone has experienced the convenience of automated clearing house (ACH) transactions. All that is needed is a routing number, a checking account number and a phone. Imagine how convenient and easy that process would be for a criminal. There is no place for an ACH transaction on the escrow account. They can easily be blocked by merely requesting it from the bank. Another easy protection is an international wire block. How often is it necessary to wire funds overseas — outside the jurisdiction of United States or local law enforcement? ȱȱęȱ before allowing the bank to wire funds to a foreign country may not be an unreasonable hindrance to daily operations. Simply ask the bank to implement the precaution. ǯȱ ȱ ¢ǯȱPositive Pay is available at most banks. This &RQWLQXHG RQ SDJH
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