Frequently Asked Questions
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When was the Senate Bill 185, (the Ohio Home Ownership Protection Act) passed and when does it become in effect?
The Ohio General Assembly passed this legislation on May 24, 2006. After a one-year delay, the new law's "independent review" of escrow operations became effective for 2008.
Who does the new law pertain to?
The new law applies to most non-bank mortgage lenders and to mortgage brokers that are licensed under R.C 1322. This includes most escrow agent companies.
What is the purpose of the rule?
The purpose of the rule is to establish ownership and licensing standards for title insurance agents and agencies. One provision of the rule mandates an annual independent review of the title agent's escrow, settlement, closing, and security deposit bank accounts.
When is the Independent Review performed?
Every title insurance agent that handles escrow accounts must have an independent review made of its escrow accounts by December 31, covering its activities for the 12 months ended August 31.
What are the independent reviewer qualifications needed to met this criteria?
The independent reviewer must be a certified public accountant. The independent reviewer may not be an employee of a title insurance company, nor may the reviewer be an employee of or hold any ownership interest in: (1) either the business entity being reviewed (2) in any affiliates of the business entity reviewed or (3) in any owners of the business entity being reviewed.
What type of engagement does this need to be?
The annual review is technically an "agreed upon procedures" engagement as defined in "Statements on Standards for Attestation Engagements" issued by the American Institute of Certified Public Accountants.
What does the review entail?
The review is to be performed in accordance with the guidelines set for below.
The auditor will request a listing of all agency bank accounts, including operating and other non-fiduciary accounts. The auditee would certify that the listing of bank accounts provided to the CPA is complete and accurate.
The auditor will request a listing of all the agency's affiliated companies. The auditee would certify that the listing of affiliated companies is complete and accurate.
The CPA will review and test the agent's "three-way reconciliation" for a recent monthly period available for all escrow accounts including all multiple and individual customer escrow accounts (regular, special/interest bearing, etc.) section 103 1 tax deferred exchanges, and other fiduciary accounts. If the auditee does not prepare an open escrow trial balance, the CPA must note the omission as specific findings and review any other type of bank reconciliation available. The test of the reconciliations will include procedures such as:
o Foot the reconciliation and any supporting schedules
o Compare bank balance per reconciliation with bank statement and resolve any differences
o Compare book balance per reconciliation with control account such as check book balance, general ledger, etc.
o Compare reconciled balances to the related trial balance of the same date
o Verify deposits in transit
o Verify outstanding check list and follow up on all large outstanding checks not clearing in subsequent periods
o Verify propriety of other material reconciling items by reviewing appropriate support
o Note any reconciling items more than thirty days old and discuss with client personnel
o Examine voided checks and verify that they are properly defaced
(The above list is not all inclusive).
The CPA will review the three-way reconciliation, (or any other type of bank reconciliation available,) for all agent escrow accounts for some additional months selected on a random basis. The CPA will look for evidence of management review and approval. Any reconciliations that were not prepared in a timely manner or reviewed by management would be noted as a specific finding.
The auditor will perform a review all escrow bank account bank statements and trial balances for unusual items, i.e. negative balances, non-sufficient funds or other large or frequent bank service charges, large even-dollar disbursements etc. Any unusual items that are not adequately resolved would be noted as a specific finding.
The auditor will select a representative sample of canceled checks and wire transfers from the twelve-month review period and examine them for unusual items. The actual number of canceled checks and wire transfers sampled will be disclosed in the review report, along with an explanation of the number selected. The following items, although not all-inclusive, would normally result in further investigation. Any of the following items that are not adequately resolved by the person performing the analysis would be noted as specific finding:
o Checks or wire transfers for large amounts payable to the agency or its affiliates or owners which do not appear to be fees
o Large even dollar amounts (in certain commercial transactions, large even dollar amounts are not uncommon; for these transactions, the escrow file would be reviewed to determine if the transaction is valid)
o Checks or wire transfers with no file reference
o Checks or wire transfers with unusual references
o Slow clearing payoffs or proceeds
o Improper or unusual endorsements
o Alterations to canceled checks
o Checks payable to cash or bearer or to banks for cahier's checks and unusual transfers between files and/or bank accounts
The CPA will review a representative sample of files for written instructions or external support of the escrow account records. The files for review would be selected from the reconciliation review, from significant untimely clearing items, dormant files and open and closed files selected at random. The actual number of files sampled would be disclosed along with explanation of the number selected. Any instances or inadequate external support that are not resolved would be noted as a specific finding.
What is the most efficient time to perform the review?
Even for a calendar year agency, the best time to perform the initial planning for the independent review is during the summer or fall. This would allow for the identification and remediation of any "control deficiencies" on a timely basis and avoids the manpower crunch all CPA firms have in the first quarter of the calendar year.
Who receives the results of the review?
The title insurance agency must provide a copy of the report prepared by the CPA, as well as certain other forms (e.g., Appendices A, B, and C) to the title company it represents within fourteen days of the completion of the review.
If no annual review has been performed because the agent does not own or maintain any escrow accounts, the agent must notify each title insurance company it represents of its non-review status with ninety days of the close of the previous fiscal year.
The title insurance company then notifies the Ohio Department of Insurance's enforcement division within 120 days of the end of the title agent's fiscal year if either of the following events occurs:
(1) A title insurance who has failed to file with the title insurance company either an annual review or a notification of non-review status. Or
(2) Each title insurance agent whose annual review contains specific findings. A copy of the review and all schedules shall be attached to the notification.