SB-185 Requirements

Requirements for an SB-185 Review:

• The agreed-upon procedures report must be completed by a Certified Public Accountant
• The CPA selected must be independent
• Each trust account maintained by the company must be reviewed
• All 20101 reviews of trust accounts must be completed before December 31, 2010
• Penalties for not completing the compliance review in time may include losing a license to perform business
• In order to ensure that the compliance review can be completed in a timely manner, companies should have performed regular three-way escrow reconciliations on their accounts

What is a Three-Way Reconciliation?
In order to complete the reconciliation, the following reports must be included for each account.

Escrow Trial Balance
A trial balance is a list of all open files as of a given point in time.  The trial balance will show the amount of funds held for each customer.  The trial balance should correspond with the final date of the bank statement and should agree with the statement balance.  A trial balance greatly assists the reviewer with an SB-185 review because it indicates all the customer-related liability claimed against the agent’s trust assets or the checking account balance.  The trial balance shows whose money is being held in the trust account.

Outstanding Deposits
Outstanding deposits are funds that have been received by the agent, and while they have been added to the books, they have not yet appeared on the bank statement.  These funds will be included in the trial balance but will have to be added to the bank statement balance in order to make the two agree.  To be considered complete, it should have the date the deposit was posted, the deposit amount and all file numbers.  These deposits should never be more than a few days old.

Outstanding Checks
Outstanding checks are escrow funds that have been disbursed by the agent, but have not yet cleared the bank account.  These funds will no longer be included in the agent’s trial balance total and will have to be deducted from the bank statement total to ensure that the two agree.  The outstanding checklist should include check numbers, issue date and amount.  Like the outstanding deposits, these transactions should never be more than a few days old.

Bank Statement
Items of concern in a bank statement include overdrafts, NSF charges and returned items.

Reconciliation Summaries
The reconciliation summary is a one-page statement that brings the bank statement balance into agreement with the trial balance of the same date.  It is common to include a monthly transaction summary with the reconciliation summary, and this ties the beginning system balance to the month-end balance. This creates true “three-way” reconciliation.