Understanding Your Trial Balance In A Three-Way Reconciliation
Your trial balance is the crucial third component of the three-way reconciliation process for an escrow trust account. Think of it as a snapshot capturing all files with nonzero balances, whether positive or negative. It's essential for ensuring the accuracy and integrity of the account.
When funds are deposited into an escrow account for a closing, they should be disbursed based on the closing details, resulting in a zero balance for each file. However, several factors can throw a file out of balance:
Forged bank statements
White washing of checks (employees and outside of the office)
ACH Debits
Early deposits are made prior to a closing (earnest money deposits)
Banking errors that need immediate correction (banks typically allow corrections only for a limited time after the banking cycle ends)
Returned checks or deposits
Discrepancies between credits and debits
Voided checks that mistakenly cleared the bank
Voided checks that were never reissued
Additional funds disbursed without corresponding deposits
Funds being held in escrow
To maintain a balanced account, your trial balance should be reviewed monthly during the month-end reconciliation. If any discrepancies are identified, it's crucial to address them promptly by disbursing remaining funds or depositing additional funds to cover shortages. This proactive approach prevents the firm or title company from being held accountable for any unresolved discrepancies by addressing them early.
Non-closing files, which aren't tied to specific closings, handle interest, bank fees, and other miscellaneous items. If these files go negative, a deposit from the firm's or title company's operating account should cover the charge. Performing daily reconciliations will alert you to any charges that clear the account, serving as a timely reminder to make necessary deposits. Additionally, banks can arrange to charge your operating account for any bank fees associated with the escrow account, ensuring that the escrow account remains unaffected.
In summary, diligent review and reconciliation of your trial balance are paramount. By staying on top of this process, firms can avoid potential liabilities and maintain the financial health of their escrow trust accounts.
Our affiliate, First Trust Accounting, can perform your daily and monthly three-way reconciliation remotely, without ever requiring a visit to your office. While important, the monthly reconciliation process can be difficult and time consuming. Moreover, you are not making money or advancing your business during this time. FTA is widely recognized for its professional expertise in providing clients with timely and accurate escrow & trust account reconciliation reports and doing so in a cost effective and efficient manner. To learn more, fill out a request, or get in touch with us directly!
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