10 Tips for Surviving Your Next Escrow Audit
Let’s face it. No one likes to be audited. It’s a pain and it takes up your valuable time. Chances are, you, like many others, just plain dread that email or phone call letting you know your annual audit is coming up. Unfortunately, it’s just one of those things that must be dealt with in this business. As a former internal auditor for Stewart, and current senior vice president of Stewart Financial Services, I have a few tips that might help make your next audit less stressful.
1. Respond to the audit request in a timely manner. This means as soon as possible. Not responding, or taking several days or weeks to get in touch to schedule an audit, may prompt the auditor to involve Stewart Agency Services. Scheduling the audit as soon as the notification comes in can really help speed the process along.
2. Be sure to perform a three-way reconciliation. This is a reconciliation where the bank is balanced to the books, and then balanced to the open file listing (or trial balance). These three numbers must be equal in order to have a proper, three-way reconciliation. This is required by auditors and underwriters to be completed on a monthly basis, and proof of this reconciliation must be presented during the audit.
3. Reconcile accounts through the last day of the prior month. Having accounts reconciled as current as possible is a MUST for surviving an audit. I recommend that accounts be reconciled through the last day of the prior month when the auditor visits. Reconciling in a timely manner is often made easier with online banking – simply print your bank activity through the end of the prior month on the first business day of the next month.
4. Don’t wait until your audit comes around to resolve issues. Have a procedure set in place to resolve any debit files, old outstanding checks, outstanding deposits and wires, and banked not booked items any time these issues arise. It is not wise to wait until an audit is approaching to start looking into these items. Any unresolved items should be examined monthly (or more often with daily reconciliation) and resolved immediately. Keeping up to speed throughout the year will make it much easier if there are, in fact, any small issues that must beresolved before an auditor visits.
5. Have proof of resolved items. No one is perfect. And your escrow account will likely have at least one issue that needs to be resolved at the time of an audit. The best bet is to take care of it, and have proof that it’s resolved when the auditor comes.
6. Stay on top of high-priority checks. High-priority checks – such as payoffs, tax and insurance checks – should clear in less than one month. If any of these types of checks are outstanding for more than a month, follow up and reissue them if necessary; be sure to have proof for the auditor if so.
7. Prepare and report policies, and remit to the underwriter in a timely manner. Be sure to follow the guidelines in the underwriting agreement for remitting payment to your underwriter in a punctual manner, and always prepare and report policies quickly as well.
8. Know your policy authorization limit. Be sure to know what your policy authorization limit is, and obtain approval from the underwriter for any policies that exceed that limit.
9. Record documents as soon as possible. Record documents with the appropriate local authority as soon as possible. Recording may take time, so be sure to retain proof of when the documents were submitted.
10. Be courteous to auditors. Ever heard the phrase "You attract more flies with honey than vinegar"? That applies here! No, auditors aren’t flies. But they are people! Remember to be nice and courteous when scheduling your audit and during their visit.
While this list may not include everything you need to know about an audit, it’s a good start. Feel free to contact me today with questions about surviving your next audit, or for assistance with three-way reconciliations.