If you hold and disburse client funds, it is your responsibility to make sure all funds make it to the appropriate parties, leaving your file ledger with a zero balance. In order to ensure the integrity of this process, there are multiple auditing bodies who could come calling.
Depending on your state, you could be the subject of an audit from your underwriter, state bar association, or a government agency. It’s important that you know who your auditor is and what information they require so that you are prepared in case of an audit. Regularly reconciling your trust account and reviewing your reports for discrepancies are only the first steps to being prepared.
Does your auditor require daily reconciliation? What reports from your escrow software does the auditor want to see? Are you required to have a signature and date on the reports confirming you reviewed them? Are there additional quarterly requirements on top of what you are doing on a monthly basis? How long are you required to retain the reports?
As an example, in North Carolina, you could be audited by your underwriter or by the North Carolina State Bar. Page 6 of the Lawyer’s Trust Account Handbook published by the North Carolina State Bar lists three requirements for reconciliations:
You could be compliant with the above North Carolina State Bar requirements, but maybe your underwriter also wants a monthly three-way reconciliation in addition to quarterly. If you can be audited by multiple parties, you need to compare both sets of requirements to make sure you’re meeting them at every level.
As another example, in Texas, you can be audited by the Texas Department of Insurance (TDI). TDI has a Basic Manual of Title Insurance which specifies 22 minimum requirements for escrow accounting procedures and internal controls. One of these requirements specifies that monthly three-way reconciliations must be performed and that they must be completed within 45 days of the bank statement closing date. Another states that the reconciliations should be prepared by someone who is not also receipting and disbursing funds, unless the size of the organization does not permit this.
In summary, make sure you know which organizations in your state can audit you and be sure to use resources like their websites or contact your underwriter representatives to get a complete list of everything that is required in the event of an audit. The American Land Title Association (ALTA) also has a resource of best practices for escrow trust accounting which you can use in conjunction with auditor requirements to be sure you are taking all the correct steps to manage your trust account.
SoftPro also offers daily and monthly reconciliation services that can help you meet these requirements. We currently provide reconciliation services for customers across the country and your SoftPro Reconciler can act as a resource in the event of an audit.
Let SoftPro help take the stress out of reconciliations.