Problem Areas in Escrow Audits

Even well-run settlement agencies can encounter issues during an escrow audit. New agents will often ask, "What are the more common issues that are brought to light during an audit?" While a review of an agency covers many facets of the agency, below are a few of the more readily seen problem areas that require closer attention, as they pertain to the escrow accounts.

1. Delayed escrow reconciliations. Reconciliations on each escrow account (regular, e-recording, premium, dormant) are required to be performed monthly. These reports are expected to be reviewed and signed off by agency management as required by the Bureau of Insurance.
2. Outstanding deposits or trial balances that are negative. If an amount is noted as an outstanding deposit, this means that the exact dollar amount is not seen as a deposit for that month in the bank statement; or the amount cannot be matched to the appropriate file. This should be researched immediately. Is the money in the bank? If not, the transaction needs to be funded, often from operating. Any transaction that appears as negative, or short on the reconciliation report should be researched immediately and funded or corrected.
3. Not fully disbursing the file. The trial balance for the file is positive, but not all the money has been disbursed. There could be a legitimate reason to be holding the money in escrow, i.e., for a security deposit, a release still to be recorded, repairs, or a disputed amount among parties, etc. Files should be fully disbursed within 48 hours of being on record.
4. Uncleared amounts to the Treasurer of a specific country; and other High Priority items. Often, the the taxes are current, because the county has already deposited a check sent by the mortgage company from Escrow, and the check written from the file and sent to the county then remains uncashed. Usually, this money belongs to the seller or the borrower from a refinanced mortgage. Once verified that the taxes are current, this check should be reissued to the appropriate party. Other high-priority uncleared items to research immediately include payoffs, recordings, hazard premiums and any lien items.
5. Uncleared check - more than a year old. These amounts should be researched and escheated to the Virginia Treasury, once the agency has made the determination that the money has been abandoned. This can be determined at any time, but not later than one year from the issuance of the check. During a RESA audit, this is especially important as the Bureau of Insurance enforces this Virginia Admin Code. 
6. "Misc." ledgers. Specific amounts not properly flagged or identified in the escrow software may show up in an account created by your reconciler. The creation of this account will enable the three-way reconciliation to balance but if the account is positive, whose filed does the money belong? If the amount is negative, which file is missing money? To avoid this, ask your reconciler not to create these file ledgers as "miscellaneous" or "research," but rather contact you, so that the amount can be properly matched to a file. 

By paying close attention to these six areas after each monthly reconciliation, you will be in compliance and much more informed about the ongoings in your escrow accounts. Researching and solving problems are easy when the file has recently closed.

If you would like to see a specific topic covered, or have any audit or escrow questions, email us at VAAuditing@oldrepublictitle.com.