Pillar 2
Escrow Accounting
Best Practice: Adopt and maintain appropriate written procedures and controls for Escrow Trust Accounts allowing for electronic verification of reconciliation.
Purpose / ______. (hereafter referred to as “______”) shall establish internal controls to meet requirements for safeguarding client funds and to minimize the exposure to loss. The Agency currently does business in ______.
Procedures / Requirements (Note: change this form to reflect your office procedures. Review legal, contractual, and statutory requirements for escrow accounts and incorporate those requirements in these procedures.)
When there is a change to these policies and procedures, there shall be an email notification sent to employees
1. Announcement at a staff meeting
2. At staff meeting everyone will
a. Receive a copy of new policy and procedure and
b. Sign original policy
3. Training on new procedure
Questions regarding any of ______escrow accounts shall be directed to (Insert title of position and the name)
I. Escrow Accounts
A. Escrow accounts and operating accounts are separate and are labeled as such
1. ______maintains ____ bank accounts
2. Escrow funds maintained under a fiduciary capacity by ______are not commingled with ______, employee’s or manager’s funds
3. ______shall maintain funds in each escrow account to cover bank charges related to each escrow account, in no event over $____ per account
4. Escrow accounts will not have overdraft protection
5. Escrow accounts will not have debit cards
6. Checks shall be
a. Kept in a locked cabinet with supervisor access only
7. Any un-deposited funds will be kept in a locked cabinet overnight for deposit next business day
8. Disbursements from escrow account will only be made from collected funds, unless the funds fall within an exception as outlined in a rule, regulation or statute
9. Disbursement of ______fees shall occur at the time of settlement
10. ______has a dedicated standalone computer for online transactions and is configured to block all other web sites
11. Escrow bank accounts are appropriately designated as “escrow account” on
a. Original banking agreements
b. Checks
c. Deposit slips and
d. Bank statements
Bank / Account number / Type of account / Name of account
12. Escrow accounts are with a federally insured ______bank
13. All checks are signed in person, signature stamps are forbidden
B. Banking transactions conducted by authorized employees
1. Via agreements with financial institutions, _____ management authorizes employees for escrow account transactions
2. Individual(s) designated as “wire transfer administrator” to set-up and change online banking permissions has been authorized by ______management
3. Wire transfer initiation and approval levels are
a. Set by ______management and
b. Reviewed for changes in staff routinely, but not less than annually
c. All wires will have two person verification
4. Former employees are immediately deleted as
a. Signatories and
b. Authorized wire transfer individuals
5. Authorized check signers and wire individuals do not maintain escrow accounting records or perform escrow account reconciliations
6. Wires may only be initiated by persons with signatory approval as stated below and will required a second person verification
7. A list of authorized individuals is maintained in chart below
Persons with signatory approval*, of my transfer funds:
Name / Ops. Acct. / Payroll Acct. / Escrow Acct. / Escrow Acct. Incoming (no checks) / Escrow Acct. Real Estate / Escrow Acct. e-recording (no checks)
* Any check or wire from operations or payroll account over $_____ will require two signatures; any check from an escrow account over $10,000 will require two signatures, one of which must be a (insert title of position, e.g. Owner); all wires will require two verifications
**May only sign in an emergency and will need email approval from (insert title of position, e.g. Owner)
C. Escrow account reconciliations
1. Each escrow account (Escrow Account – Incoming; Escrow Account – e-recording;) will be reconciled monthly using three-way reconciliation method which shall include the following
a. Book Balance (check register)
b. Adjusted Bank Balance (bank statement with adjustments for uncleared items)
c. Trial Balance
d. Reports
i. Reconciliation summary report
ii. Trial balance report
iii. Outstanding deposits/wires
iv. Outstanding checks/wires
v. Bank statements
vi. Cleared items report
2. Monthly reconciliation cannot be performed by (insert title of position and name) or person who authorized disbursements
3. (Insert title of position and the name) duties
a. Standalone computer for banking purposes
b. Said computer shall
i. Not have Java, Adobe or Flash programs
ii. Will have
1) Malware protection
2) Automation updated
3) Strong authentication
c. Permission for (insert title of position and the name)
i. Shall be limited to review only
ii. All transactions shall be blocked
d. Daily
i. Review each back account online for
1) Deposit activity
2) Disbursements activity
3) Errors or
4) Unauthorized transactions
ii. Notify bank of any issues within 24 hours of discovery
iii. Ensure Positive Pay information has been given to the bank (see Positive Pay procedures below) by (insert title of position,)
e. Monthly
i. Each month reconcile each bank account within (insert # of days after receipt of bank statement, e.g. fifteen days) of receipt of the statement
ii. For each escrow account use three-way reconciliation
iii. Monthly three-way reconciliations shall be completed within (insert # of days after receipt of bank statement, e.g. fifteen days) days
iv. Each reconciliation shall be compared to file ledger balances
v. Any discrepancy of any amount shall be researched
vi. Each check which has not cleared should be added to monthly report with an explanation as to why it has not cleared (e.g. check 1001 is for taxes not yet due and payable but collected at settlement)
vii. Any funds in escrow which are determined to belong to customer shall be refunded within (insert an amount of time, e.g. 10 business days)
viii. Create a monthly report
1) Verifying three-way reconciliations
2) Noting any
a) Discrepancy
b) Outstanding checks with explanations
c) Any refunds to clients and
d) Any balance in a matter’s subaccount
3) Any account reconciling items as mentioned above are
a) Followed up and addressed within (insert # of days) days
b) Items shall not be carried over month-to-month
i) Without special approval from (insert position, e.g. Owner)
ii) Said approval shall be in writing and included with monthly report
ix. The Underwriter may electronically review reconciliations upon request
f. Annually
i. Prepare a report showing all escrow account discrepancies for the year
g. Monthly reports, annual report and all reconciliations shall be retained for (insert a period of time, e.g. seven years)
4. Annually ______will
a. Review all reconciliations and bank accounts for any discrepancies
b. Any discrepancy found will be reported to
i. (Insert title of position, e.g. Owner) unless
ii. Issues appear to be from actions of (insert title of position, e.g. Owner)
iii. Then CPA shall report to (insert title of position, e.g. Manager)
c. The CPA shall prepare a report for review of management regarding each account
D. Follow up
1. Dormant file balances
a. Customer files with balances are reviewed monthly to determine
i. If a refund is due
ii. Why issued checks have not cleared
b. (Insert title of position and the name)’s approval is required for any disbursement from an escrow which has had no activity for prior six months
c. Approval will be given in writing and a copy of the same shall be retained for (insert a period of time, e.g. seven years)
d. If ______is unable to locate owner of dormant funds it will follow procedures pursuant State of ______regs
II. Transactional Procedure – File Ledger Reports
A. Individual closing procedure
1. (Insert title of position, e.g. Closer) duties for each closing
a. Open a subaccount using the file number
b. Draft HUD-1 or other closing statement in compliance with closing instructions received from lending institution and contract
c. Ensure there are no disbursement with further credit to third party, unless specified by the lender bank in closing instructions
d. Ensure that subaccount balances to zero after all deposits and directed withdraws – recheck just prior to disbursement
e. Print file ledger report
f. Fill in wire transfer forms, checks and deposits in compliance with trial balance report, HUD-1 or other closing statement
g. Obtain approval of HUD-1 or other closing statement from lending institutions
h. Give file, file ledger report, HUD-1 or other closing statement, wire transfer forms, checks, deposits and lending institution to (insert title of position, e.g. Owner) for review and signature
i. Notify (insert title of position, e.g. Owner) if any changes are necessary
j. If there is a change, ensure that subaccount balances to zero
k. Obtain approval from (insert title of position, e.g. Owner) for disbursement of funds, if (insert title of position, e.g. Owner) cannot be reach for approval DO NOT disburse funds, contact (insert title of position, e.g. Owner) for further instructions or approval
l. Follow up
i. ______days after closing check to see that following items have cleared
1) Payoff checks
2) Recording checks and
3) All deposits
ii. Ten days after closing check to see that following items have cleared
1) Government checks and
2) Service providers checks
iii. Thirty days after closing check to see that disbursements greater than $1000 have cleared
iv. Forty-five days after closing endure that all check have cleared
v. Bring to the attention of (insert title of position,) any checks or deposits which have not cleared by above stated deadlines
2. (Insert title of position and name,) duties for each file
a. Review
i. Each file
ii. HUD-1 or other closing statement
iii. Wire transfer forms
iv. Draft checks
v. Deposits
vi. Payoff statements
vii. Lending institution’s closing instructions
viii. Contract
ix. Lending institution approval of HUD-1 or other closing statement
b. Compare HUD-1 or other closing statement and payoff statements to ensure correct payee and amount is listed on
i. Checks
ii. Wire transfer forms
iii. HUD-1 or other closing statement
iv. Ensure there are no disbursement with further credit to third party, unless specified by lender bank in closing instructions
c. Review deposit slip and initial
d. Review rate sheet for title insurance
e. Sign checks
f. Sign wire transfer from
g. Sign and date file ledger report
h. Be available to approve disbursement, if unable to be available notify (insert title of position, e.g. Owner) for a substitute and notify (insert title of position, e.g. Closer) of the same
i. Approve disbursement upon verification that all funds for particular transaction are collected funds, or meet an exception
3. Prepare a Positive Pay list for (insert title of position, e.g. Owner)
III. Escrow account security:
A. Escrow account – incoming
1. This escrow account is for receipt of incoming domestic wires only
2. As soon as funds are deposited into this account, they will immediately be transferred to ______
3. This account will not have checks
4. This account is only to transfer funds to Escrow Account______
B. Trust account – e-recording
1. This trust account is for payment of e-recorded documents only
2. At settlement, transfer funds sufficient for e-recording into this trust account
3. E-recording company will withdraw funds necessary for e-recording
4. This account will not have checks
C. Positive Pay
1. Each escrow account shall be set up with Positive Pay
2. At ______pm each day, a listing of all checks with check number, payee and amount shall be given to the escrow bank for payment
3. Bank shall not pay any check that is not exactly as it appears on the list
4. Bank is to contact (insert title of position and the name) if a question about a check or wire should arise
5. If bank is in doubt of a check or a wire transfer and cannot obtain verification from (insert title of position and the name,) the check and/or wire transfer will not be paid
6. (Insert title of position and the name) reviews positive pay exception report (insert when received and reviewed, e.g. daily)
7. All positive pay reports are maintained for (insert a number of years, e.g. seven) years
8. Any exceptions are documented and explained
D. ACH Blocks
1. Each escrow account shall be set up with an ACH block
2. All customers shall receive notice of ACH block
3. There shall be no exceptions for accepting an ACH payment
E. International wire blocks
1. Each escrow account will be blocked from receiving international wires
2. All incoming international wire will need to be domesticated prior to being deposited into any escrow account
F. Reporting issues with escrow accounts
1. Bank shall notify (insert title of position and the name) of any issues with any bank account
2. (Insert title of position and the name) shall investigate the issue and respond to bank within 24 hours
3. Any employee with The Agency who notices an issue with any of The Agency’s accounts shall notify (insert title of position and the name)
G. Background checks
1. Before an individual is hired, a background check (criminal and credit) is performed by (insert vendor(s) used,
2. Every (insert how often, e.g. one) years a background check (including criminal and credit) is performed on existing employees who have access to escrow account funds
H. Escrow account training
1. ______provides escrow account training (insert when and frequency) to individuals handling customer funds and conducting escrow account reconciliations
2. Training is conducted by (insert vendor or role/function, e.g. CPA)
3. All training and continuing education is tracked and maintained by (insert function or role name, e.g. Manager)
IV. Record keeping
A. (Insert title of position and the name) is to maintain originals or legible copies of the following including minimum listed details
1. Deposit slips showing
a. Date
b. Source of funds received
c. Client or matter for which funds were received
2. Sources of all escrow funds received
3. Canceled checks
a. Number consecutively
b. Include all endorsements
c. Include tracking information
d. Identified by client or case in memo of check
4. Other documentary support for all disbursements and transfers including records of all electronic transfers from client, which include
a. Name of person authorizing transfer
b. Name of recipient
c. Confirmation of withdrawing escrow account number
d. Date transfer complete
5. All records regarding all wire transfers into or out of escrow account, including
a. Receiving and sending financial institution
i. ABA routing number
ii. Name of each financial institution
iii. Both account holder’s
1) Name
2) Address
3) Account number
b. Intermediary bank
i. ABA routing number
ii. Name of intermediary bank
c. Name of client or matter identification
d. Purpose of wire (e.g., “payment on invoice 1234” or “John Doe closing”)
6. Journal for cash receipts and disbursements including
a. Columns for
i. Receipts
ii. Disbursements
iii. Transfers
iv. Account balance
b. Additional required information
i. Identification of client and matter attached to funds
ii. Date funds moved (transferred in or out)
iii. Check numbers for all disbursements
iv. Reason escrow funds were received or disbursed
7. Separate file ledger for each client or matter (subaccount)
a. Showing
i. Individual receipts
ii. Disbursements
iii. Transfers
iv. Unexpended balance
b. Including
i. Identification of client and matter attached to funds
ii. Date funds moved (transferred in or out)
iii. Check numbers for all disbursements
iv. Reason escrow funds were received or disbursed
8. All bank statements for all escrow accounts
9. To aid in the individual accounting of each matter, (insert title of position and the name) shall set up a separate subaccount for each matter which shall be reconciled prior to any disbursement
B. (Insert title of position and the name,) duties
1. Supervise (insert title of position, e.g. Closer)
2. Select random matters to review records monthly to ensure compliance with this policy and procedure
3. Investigate any issue, problem, complaint, irregularity in escrow accounts
4. Report findings to (insert title of position, e.g. Owner) monthly
Approving Officer / (Insert title of position, e.g. Owner, his/her signature and date)
Contact Officer / (Insert title of position and the name,)
Date Approved / (Insert date approved)
Date of Commencement / (Insert effective date of policy and procedure; date and how it will be announced, e.g. staff meeting; and date of training)
Amendment Dates
Date for Next Review / (Insert date for next review)
Related References and Links / · Policies and procedures relating to escrow accounts are kept in______Policy and Procedure book. Digital copy is kept at ______
· Banking agreements and wire transfer user reports are kept with (insert title of position and the name)
· Escrow Account Information is listed above and kept with (insert title of position and the name).
· Escrow account regulations:
EPIC Contains the following:
Escrow Audit Checklist
Three Way Escrow Account Reconciliation
Acknowledgement / By signing below each person does hereby acknowledge that they:
1. Have read the Escrow Accounting Policy and Procedures effective (insert effective date of policy and procedure).
2. I understand the Escrow Accounting Policy and Procedures effective (insert effective date of policy and procedure).
3. I had ample time and opportunity to ask questions in reference to the Escrow Accounting Policy and Procedures effective (insert effective date of policy and procedure) prior to signing below.
4. I have completed training on the Escrow Accounting Policy and Procedures effective (insert effective date of policy and procedure).
Name / Signature / Date
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