We have an escrow department (other than real estate escrow) that I'm starting an audit on. Does anyone have any audit programs or help in this area? What types of compliance issues (besides state) am I looking at. We are exempt from our state law since we are a financial institution. I can follow what we did last year but I want to make sure that I'm covering all my bases!

Thanks!

IMO It is extreamly difficult to audit escrows if you have no training in how to be an escrow officer. There are a probably a lot of laws in your state regarding real estate transactions that the escrow officer has to comply with. I've not heard being a financial institution exempts anyone from state laws, but if you are great..

There are numerous compliance requirements all with very detailed disclosure processes that should be audited for adherence. That in itself is a monumental task. Don't forget the deposit or GL accounts used by the escrow dept. that should also be audited.

These are not real estate escrow transactions. These are other escrow accounts in which we are just a third party and they pay us a fee. I don't believe we have a licensed escrow officer. Ha ha...more problems?

Now I'm confused. What other types of escrows are you getting. Maybe an example would help.

Any buyer seller transaction. So if someone sells a trailer for example, they may set up an escrow account with the buyer to track the payments. We act as a third party that notifies the seller when the buyer has made a payment and track the principle and interest. We help them with their contract and they pay either a monthly or quarterly fee. It could be real estate, but it's not like an individual escrow through a loan you make at a bank. In this case, we have no liability. Does that make sense. I don't think many banks out there do this much anymore I've heard.

I've never been anywhere that does this, but that isn't saying anything. You may have to create your own program, but check AuditNet first.

Let me see if I've got it straight. John sells Bill a trailer (or any other asset). John "owner finances" the sale, but asks the bank to help him track it. Bank collects the payment from Bill to remit to John and collects a fee. Bank calculates P&I and records somewhere. Bank lets John and Bill know when loan is paid in full. Is this right?

If so, I think you have more risk there then you realize. Think through the transaction and find the risk. That will help you with your audit. Start with step A. What could happen if...? Clues: Is there potential for fraud? Could Bill say he made a payment and it not get recorded? Could John say he never received a payment when one was sent? Can a bank employee not account for the payments properly (intentionally or unintentionally)? What monitoring or controls are in place? Do you have seperation of duties?

This is just a start. If you need further help, ask. BTW, if you register, you can send me (or any user) a Private Message for those things you just don't want to discuss in the open.

Good luck!

We referred to these as "Contract Collections" You set up the collection, notify the payor where to send payments, when payments are received you calculate P & I, post the payment to a ledger, send as statement to the payor that show P & I posted, and deposit funds in the note owners account.

For all this you take a small monthly fee.

For Audit
Pull the note and make sure all the terms were set up correctly. Audit payments for corect P & I calculation. Check security of the notes being held. Audit the Contract Collection Agreement signed by the note owner, and determine all parts of the agreement are being adhered to.

This used to be a very common practice for banks to do. It was usually housed in the Note Department. The bank was not responsible to make any collection effort of past due payments. Nor did we call or notify the owner a payment was past due.

Of course the bank was supposed to calculate P&I correctly. We collected $10.00 a month to provide this service.

Don - How do you account for those? Do you keep an Excel file, paper ledger, or something else? Do they show on the bank's books other then the income statement? It sounds like the work is more than the fee.

You see, that's why I love BOL. I learn something new every day!

You got it right! Not a lot of money in fee collection. But that does help...do you happen to have an audit program that you use for contract items? I just want to make sure that our current program is appropriate. I do have a sign on and can PM you if you like.

Ours aren't set up on the banks books. We have an outside software that we use. Fee income goes through our general ledger.

Sorry I'm not a day to day branch banker any more as I retired a number of years ago. So I can't supply you with an audit form.

We did have a Contract Collection GL account to which the principal received daily was posted. Collections were maintained in an envelope which contained the note and collection agreement. The outside of the envelope had a table printed on it where payments were posted. Each envelope was an individual ledger and payment record.

I don't remember the Monthly Certification process but we did run the beginning and ending balance to come up with a figure that Balanced to the GL account.

It was a lot of work for a very small fee. Thats why most banks stopped taking them