What is a key control in handling borrower funds to ensure compliance?

• A. Co-mingling funds with company accounts
• B. Relying on borrower memory for payment amounts
• C. Segregation of funds and accurate accounting
• D. Delaying deposit into trust accounts until after year-end

Answer: (C)

Segregation of borrower funds and accurate accounting is essential. Keeping borrowed funds in a dedicated trust or escrow account, separate from company funds, creates a clear audit trail and ensures the funds are available for their intended uses and can be traced and reconciled. This level of control supports compliance with lending laws and investor/agency requirements. Relying on memory for payment amounts is unreliable and lacks a verifiable record, which can lead to errors or disputes. Co-mingling funds violates trust accounting rules and weakens internal controls, while delaying deposits into trust accounts beyond required timeframes is noncompliant and increases the risk of misapplication or shortages. So, segregation of funds and accurate accounting is the correct approach.