Washington State Department of Financial Institutions

Escrow Agent Alert #03-01 ES

DATE: May 28, 2003

TO: All Escrow Agent Licensees, and Interested Parties

FROM: Whittier Johnson, Program Manager

SUBJECT: Trust Account Alert

During our examinations of escrow agents, and in reviewing the Escrow Agent Quarterly Report, the Department of Financial Institutions (DFI) discovers a high level of apparent trust account violations.  We find this to be a very alarming circumstance, and believe it is directly related to the high level of enforcement DFI conducts for embezzlement and theft under the Escrow Agent Registration Act, (Act), Ch. 18.44 RCW.

These apparent trust account violations take several forms, including:

In many of these cases, the escrow agent blames the violation on their trust accounting software, or on the indifferent response given to reconciliation problems by some of the outside accounting services that provide the software.

These are not acceptable reasons for consistent negative balances in individual escrow transactions, for large overdue check balances, or uncleared exceptions in your trust account reconciliation reports. There are no acceptable reasons.

Clearing exceptions in your reconciliation reports and clearing overdue checks are critical issues in the internal routine and control of your business. Failure to clear exceptions results in a trust account that does not reconcile, allowing imbalances to accumulate overtime, often promoting other lax accounting practices, and in some cases allowing employees or the designated escrow officer to hide embezzlement and theft. Failure to clear overdue checks can also lead to embezzlement or theft. We see it over and over again. The surest way to protect your company against embezzlement and theft is to pursue a consistent, thorough, highly visible, and rigorous reconciliation process.

DFI will continue to enforce its long standing “Zero Tolerance” policy on trust account violations [See attached Escrow Agent Alert #95-1]. At a minimum, trust accounts must be reconciled on a monthly basis as required in chapter 208-680E WAC and exceptions must be cleared.  Software problems must be corrected, or new software must be purchased. Pursuant to RCW 18.44.071, the designated escrow officer (DEO) is responsible for the licensee’s handling of escrow transactions, and management of the agent’s trust account. Administrative rules under WAC 208-680E-011(9) further define the role of the escrow agent.

Contracting with an outside accounting service or using a software package from an outside accounting service does not release the escrow agent or DEO from their responsibilities.  DFI will continue issuing directives to require licensees to submit complete trust account reconciliation reports of their trust accounts in cases where consistent violations are discovered. Enforcement of these directives will be given our most immediate and forceful attention, including possible license revocation, fines, receivership, and where necessary, criminal referral.

Sincerely,



Mark Thomson
Director of Consumer Services.

DFI