What is an Open Files Listing
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Fall 2002, Volume 1, Number 3
What is an Open Files Listing?
by Robert Quinn, Senior Auditor
"Open Files Listing" is a term that has been greatly misunderstood and caused much bewilderment over the years.
Yet it is an invaluable management tool for anyone who maintains a trust or conveyancing account which contains "other people's money." We at Stewart Title Guaranty Company highly recommend that this listing be an integral part of an agency's bank reconciliation process.
So what exactly is this open files listing? It is essentially an accounting for and itemization of various funds that are being held in a conveyancing, trust or escrow account on behalf of clients and/or other parties. Another term often used to describe this listing is an "escrow trial balance."
Ideally, an open files listing should detail each open file by name or file number; it should also show the current balance of the file and the date that the most recent receipt or disbursement was posted to said file. The total of the open files listing should agree mathematically to the reconciled balance of the trust/escrow account (that is, the ending bank balance as adjusted for deposits-in-transit, outstanding checks and any other reconciling items).
The reconciled balance of the trust/escrow account should always be equal to or greater than the total of the open files listing. If this is not the case, then the account is short (that is, lacking sufficient funds) and all parties with monies in said account (or parties about to process funds through the account) are at significant risk.
Open file balances can be either positive or negative depending upon the circumstances. Some examples of positive file balances are as follows: a) funds are being held in escrow or as a holdback for a period of time after the closing date; b) the specific closing file has been fully funded but the associated disbursement checks were not prepared until after the reconciliation cutoff date; c) IOLTA interest income has been credited to the account but not yet transferred out prior to the reconciliation cutoff date; d) an agency's operating or personal funds were deposited when the account was first opened (safety amount), and those monies still remain therein.
Negative file balances can occur under the following scenarios: a) loans are underfunded (or unfunded) and the related disbursements are made in full; b) checks are prepared and issued prior to the reconciliation cutoff date, but the associated deposits are not received or recorded until after the cutoff date; c) disbursements exceed the amounts collected for a particular file; d) duplicate checks are inadvertently issued; e) the agency fails to reimburse the escrow account for wire fees and/or other bank-assessed service charges. The reasons for preparing an open files listing are as follows:
- The listing details to the agency all files that are being carried "open" at a given point in time;
- The listing especially serves to highlight files that are overdrawn (i.e. short);
- The listing provides to the agency and the auditor a basis for comparison in the determination as to whether the adjusted bank balance is sufficient in amount to cover all open files.
Because the open files listing represents a prudent fulfillment of one's fiduciary responsibility, several states have enacted legislation to require its preparation by all attorneys and title companies who maintain such escrow/trust accounts. The American Land Title Association (ALTA) also recommends this procedure as part of its "2000 Agency Supervision and Control Guidelines and Escrow Internal Control Guidelines."