TDI Audit Review John Rothermel January 17, 2019 In order to obtain - PowerPoint PPT Presentation

Welcome to today’s webinar! TDI Audit Review John Rothermel January 17, 2019

 In order to obtain a CE Certificate or CLE Credit, you must  listen to the webinar for a minimum of 55 minutes  obtain the password (provided at the end of the presentation)  follow the instructions as given 2

ATTORNEY INFORMATION Because of opinions expressed by the Texas Department of Insurance (TDI) concerning rebates, legal credit is available only to:  Attorneys who own title agencies that are Stewart Title Guaranty Agents  Attorneys employed by a title insurance agent licensed with Stewart Title Guaranty or Stewart entities  Fee attorneys who have an Escrow Officer license through a Stewart Title Agent or Stewart entity We welcome any other lawyers to listen, but cannot provide continuing education credit to you. 3

TDI Audits Review John Rothermel Senior Vice President Regional Underwriting Counsel Senior Underwriter SW Regional Underwriting Office Stewart Title Guaranty Company

Information taken from the Texas Department of Insurance (TDI) Summary of Operations Report for the 4 th Quarter of Financial Year 2018 (June to August) presented to Texas Title Insurance Guaranty Association Board of Directors 10/29/2018. 5

Compliance Audits and Escrow Audits Reports QTR FY 18 FY 17 FY 16 FY 15 FY 14 Field audits completed 65 265 289 266 308 286 Field audit reports processed 67 269 296 252 317 276 Section 2651.151 audit reports received 61 586 558 555 553 566 Section 2651.151 audit reports reviewed 40 553 572 576 542 565 6

Analysis of Title Insurance Agencies Licensed as of 8/31/2018 Breakdown of Comprehensive Audit Status Agencies Agents Agents # of (new) audited last audit last audit Agents # of within last 2 was 2-3 years was over 3 Never Region Agencies years ago years ago Audited NTX 217 189 14 4 10 CTX 120 103 9 0 8 WTX 96 90 3 0 3 HOU 131 109 18 0 4 STX 35 29 5 0 1 Totals: 599 520 49 4 26 % of Total: 86.8% 8.2% 0.7% 4.3% 7

REVISED Goal: In order to comprehensively audit every agent at least once every 2 years, we need to conduct 300 comprehensive audits per year, which amounts to 75 audits per quarter. Last 12 months — (9/1/17 – 8/31/2018) – 265 audits (within 35 of goal) Last 3 months — (6/1/18 – 8/31/18) – 65 audits (within 10 of goal) 8

Experience Report Limited Reviews Out of 63 comprehensive audits completed during the quarter, 55 (85%) included a limited review of the agent’s latest experience report. The following results were reported. FY FY FY FY FY QTR 18 17 16 15 14 Number of experience reports reviewed 55 135 163 161 159 180 1. No material discrepancies noted. 52 124 147 160 155 172 2. Income and/or expenses reported in wrong 0 0 3 1 1 2 categories 3. Total income and/or expense amounts reported 3 11 13 0 3 6 didn’t agree with agency’s financial statements 9

Insolvency VIOLATION OR DISCREPANCY QTR YTD Financial statements indicated agent was insolvent or had cash 3 9 flow problems. 10

Abstract Plant VIOLATION OR DISCREPANCY QTR YTD Agency unable to retrieve instrument information. Unable to 0 1 verify legal plant. 11

Texas Insurance Code VIOLATION OR DISCREPANCY QTR YTD § 101.102 – Conducted unauthorized business of insurance. 4 10 12

Texas Insurance Code VIOLATION OR DISCREPANCY QTR YTD § 2651.001 – Issued polices for property in county where not 4 16 licensed 13

Texas Insurance Code VIOLATION OR DISCREPANCY QTR YTD § 2651.301 – Failed to maintain separate escrow account 9 35 (commingled escrow & operating funds). 14

Texas Insurance Code VIOLATION OR DISCREPANCY QTR YTD § 2651.151 – Annual escrow audit report prepared incorrectly 7 23 or contained material inaccuracies or other problems 15

Texas Insurance Code VIOLATION OR DISCREPANCY QTR YTD § 2652.001 – Unlicensed person acting as an escrow officer 5 30 16

Texas Insurance Code VIOLATION OR DISCREPANCY QTR YTD § 2702.053 – Actual receipts and/or disbursements not in agreement with settlement statement or premium split not 41 166 disclosed. 17

Title Bulletins VIOLATION OR DISCREPANCY QTR YTD Title Bulletin NO. 160 – All parties receiving portions of the real 19 64 estate commission not disclosed on settlement statement. 18

Procedural Rules VIOLATION OR DISCREPANCY QTR YTD P-21: Schedule D of commitment not in file or premium split 26 98 not disclosed on commitment. 19

Procedural Rules VIOLATION OR DISCREPANCY QTR YTD P-73: Failure to prepare/maintain Form T-64 (TD) when CD 33 129 used. 20

Rate Rules VIOLATION OR DISCREPANCY QTR YTD R-1: Unauthorized fee charged for closing (or tax search) in 3 13 addition to premium. 21

Rate Rules VIOLATION OR DISCREPANCY QTR YTD R-2: Premium collected in installments or premium not 0 0 collected at all. 22

Rate Rules VIOLATION OR DISCREPANCY QTR YTD R-8: Refinance credit not given or not calculated correctly. 5 16 23

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #1 – Monthly escrow trial balances not prepared or not 2 10 prepared timely. 24

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #3 – Reconciliations not approved by management or reviewed 4 12 by another employee. 25

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #5 – Only one signature on escrow checks when agency’s size 6 17 required two signatures. 26

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #6 – Record did not include copies of all checks, invoices, 16 43 deposit slips and receipt items. 27

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #9 – Escrow bank accounts not styled as “escrow” or “trust”. 7 32 28

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #10 – No management approval for disbursement made on accounts open for more than six months or no review for 8 23 disposition of funds. 29

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #14 – Guaranty file number not displayed on all escrow checks 2 6 or deposit tickets. 30

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #15 – Disbursement sheets missing, incomplete or incorrect. 19 77 31

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #16 – Every disbursement not supported by invoice or sufficient 33 128 other evidence. 32

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #17 – Escrow receivables not cleared timely. 4 25 33

Minimum Escrow Accounting Procedures & Internal Controls VIOLATION OR DISCREPANCY QTR YTD #20 – Images of checks did not meet requirements 3 12 34

Escrow Auditing VIOLATION OR DISCREPANCY QTR YTD Pattern of posting errors. 2 17 35

Escrow Auditing VIOLATION OR DISCREPANCY QTR YTD Outstanding checks not cleared timely. 40 128 36

Guaranty Files VIOLATION OR DISCREPANCY QTR YTD Legal documents not recorded timely with county clerk or 12 43 evidence of timely recording not on file. 37

Guaranty Files VIOLATION OR DISCREPANCY QTR YTD Funds not disbursed or escheated to state. 17 57 38

Minimum Capitalization Rules VIOLATION OR DISCREPANCY QTR YTD S. 5: Quarterly tax report not submitted timely. 12 48 39

Contact Info John Rothermel SW Regional Underwriter Senior Vice President Senior Underwriter Stewart Title Guaranty Company San Antonio, Texas 210.590.1981 john.rothermel@stewart.com 40

Per the TDI and the State Bar, in order to obtain a CE Certificate or CLE Credit you must: – listen to the webinar for a minimum of 55 minutes – obtain the password (provided at the end of the presentation) – follow the instructions as given 41

To Receive CE Credit Each individual seeking credit hours must send their own certificate request to: CEcertificate@stewart.com Please include the following information: • Provide only this Presentation Name in the Subject Line of your e-mail – “TDI Audit Review” In the body of your e-mail: • Name of Participant (as it appears on your Escrow Officer License); • Presentation PASSWORD given at the end of the webinar; • License Number Only (located on left side of Escrow Officer Certificate of License – for example: License Number: 1234567-890123) For Attorney CLE Credit also include: • Texas State Bar Number • Affiliation with Stewart – Employed by Stewart Title Guaranty Company; – an affiliate; or – a Stewart agent For more details, see the CE and CLE FAQs at: http://www.stewart.com/en/stg/texas/education/texas-tips/ce-cle-faqs.html 42