EXCHANGE ESCROW AUDIT

Exchange Escrow Audit provides independent verification that a Boston, MA investor's exchange proceeds are actually being held and handled the way the qualified intermediary agreement says they should be. Because the qualified intermediary controls substantial sale proceeds for the duration of the exchange, often ranging from a few weeks to nearly six months, an audit function that checks account structure, authorization controls, and disbursement activity against the underlying exchange documentation adds a layer of verification an investor cannot easily perform alone while also managing property identification and acquisition diligence.

Audit work begins with confirming the escrow or trust account holding exchange proceeds is a qualified escrow arrangement as defined under the Treasury Regulations, meaning the taxpayer's rights to demand funds are appropriately restricted so that constructive receipt is not triggered. This structural review is the foundation everything else depends on, since an escrow arrangement that does not meet the qualified escrow definition can undermine the entire exchange regardless of how carefully every other step was handled.

Verifying dual-authorization and disbursement controls

A meaningful share of qualified intermediary fund losses in the industry's history trace back to a single signatory having unilateral authority to move exchange funds, whether through negligence or fraud. Dual-authorization controls, requiring two independent parties to approve any disbursement, are considered a baseline best practice among reputable qualified intermediaries. Audit work verifies these controls are actually in place and being followed in practice, not just described in marketing materials, by reviewing the disbursement approval trail for actual wire transfers processed during the exchange.

Reconciling proceeds against settlement statements and draw activity

Running reconciliation compares the exchange proceeds received at the relinquished property closing, as reflected on the settlement statement, against the qualified intermediary's account records throughout the exchange period, and again against the disbursement made at the replacement property closing. For an improvement exchange or a transaction with multiple draws, this reconciliation extends to each individual disbursement, verifying it corresponds to a documented, milestone-based draw request rather than an undocumented transfer. Any discrepancy between what should be held in escrow and what the account records actually show is flagged immediately rather than discovered only at the final closing.

This service provides independent audit and verification support; it is not a substitute for the investor's own review of qualified intermediary documentation, and it does not constitute an assurance or attestation engagement under professional accounting standards.

Timing of the audit review matters as much as its scope. Reviewing escrow structure and controls at the outset of the exchange, before the relinquished property even closes, catches a structural problem while it is still easy to correct, such as an improperly drafted escrow agreement or a missing dual-authorization provision. Waiting until the exchange is nearly complete to conduct any review at all means a discovered issue has far fewer practical remedies available, since exchange proceeds may already be substantially disbursed by that point. A staged audit approach, checking structure at the outset, reconciling activity at the midpoint, and confirming final disbursement accuracy at closing, catches issues at the point where they are still addressable.

For an investor managing a reverse or improvement exchange, where an exchange accommodation titleholder is also involved, audit scope extends to verifying the titleholder's own accounts and the qualified exchange accommodation agreement's fund handling provisions, not just the qualified intermediary's escrow account. These more complex structures introduce additional parties and account relationships, each of which represents another point where documentation gaps or control weaknesses could otherwise go unnoticed until a problem surfaces at closing.