Your Next Audit: Are You Prepared?

Chances are, you are overdue for an examination by the regulatory body governing your escrow company. Audits are rarely performed when expected. If it’s been close to two years since your last visit from a state auditor, here are some steps you can take now to be prepared and to save yourself some time and money!

Review a sampling of your files, both open and closed. Are they orderly with bound sections, or are papers loosely piled inside? Imagine that you are the auditor.

On closed files, see that all closing documentation is easy to find; check copies, receipt copies and computer-generated registers should be either clamped together or affixed to the inside back cover.

Review your trial balance. There should be no debit balances/overdrafts, no matter how small. This is something you should be doing anyway. Clean up files with tiny, likely erroneous, balances. A trial balance with twenty or more files showing deposit amounts of less than $10.00 tells the examiner that your file balancing is sloppy. Likewise, clear out old, zero-balance entries. Ask your software provider how to accomplish this if you don’t know how.

Review your outstanding check list for stale-dated items. Make certain your escheatable funds are up-to-date.
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Review your latest bank reconciliation. All exception items should be cleared monthly. Any open items will have to be corrected during the audit, a costly prospect when you consider that the meter is running on your audit bill. Consult with your third-party reconciler for assistance if necessary.

Be careful not to send items to storage that might be requested by the examiner. This includes all trust accounting records for the time period dating back to your last audit. Remember, the quicker you are able to respond and supply audit materials, the quicker your examination will conclude, resulting in a cost savings to you (not to mention a favorable impression on the auditor!)

Of course, your audit will also include the review of general account items such as payroll, accounts payable, insurance policies, leases, bonds, and loan documents. Always alert your bank as soon as you know you are under audit, and request cut-off bank statements on all accounts immediately.

Audits can be taxing, but you can mitigate the anguish with forethought and preparation. A little proactive effort today will save you time, money and stress when the auditor walks into your office.