Out of Balance: Are You Gambling With Your Clients’ Money?

In the course of balancing trust accounts over the last 22 years, I’ve come across just about every circumstance you can imagine. The common stuff — small bookkeeping errors, bank encoding mistakes, wires lost in cyberspace — occurs all the time. Finding one check (among thousands) paid for a penny too much has prompted many a headache.

The next level involves offices that are lagging in corrections. While regulations and just plain good bookkeeping habits call for immediate research and disposition of all mistakes, often times the person in charge is just “too busy” to sit down with their reconciliation and fix the problems in a timely manner. This calls for a gentle nudging from us, reminding them that the next audit is right around the corner. Not only will the regulatory body write the escrow entity up for the offenses, they will stare over their shoulders while corrections are made and bill them for their time while they watch. Not a happy scenario. If shortages are involved, penalties can be stiff and can even prompt the revocation of the escrow license.

What of companies that simply do not, or cannot, reconcile their books? Valdata Services is no stranger to this particularly difficult setting. Occasionally, we’ve been called in after the damage is done:  the state examiner is already in house, frowning and shaking his head while the escrow manager sweats. The pressure is on; the clock is ticking. If the auditor suspects a significant loss or criminal activity, keys may be asked for as the “men in black” turn the window sign from “open” to “closed”.

A while back, I was asked by a representative from an escrow software company to call on one of their clients, a company who had never reconciled their trust account. Fortunately, after balancing their thirty months of banking, no serious losses were revealed; mostly small posting errors and errant wire transfers. The company, in this case, was lucky. As a real-estate office escrow department, no regulatory body had examined them –ever.
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This same scenario later repeated itself, when we were called upon as forensic reconcilers to perform an official “look-back” for an attorney representing a real estate company-owned escrow. Here, again, the trust account had not been reconciled for a great many months. There was suspicion of co-mingled funds (hence the attorney’s involvement) and we were able to verify same. A substantial amount of trust money had been stolen from the account. The funds were immediately restored and proceedings were initiated against the alleged thief.

What is most important to note about this last case is the fact that the escrow, again, a broker-owned entity, had put not only their clients at risk for loss, but the broker’s real estate license as well.

Companies who delay the reconciliation of their books should understand the importance of keeping their trust funds safe. Procrastination will only make an already bad situation worse. Valdata Services, Inc., makes no judgment in these cases and can quickly bring everything up to date, then follow up with explanation and instruction on how to cure most exception items. Knowing your escrow accounts are current and free of costly mistakes will bring peace of mind and the freedom to focus on other important aspects of your business.