The accountant’s skill set is much more versatile, with more applications, than you may imagine — and if you need proof, then look no further than one of the latest additions to the myriad service offerings of Habif, Arogeti & Wynne.
The Atlanta-based Top 100 Firm’s ComplianceSuccess Program combines the profession’s talent for systematic inquiry and investigation, analysis and judgment with its core values of thoroughness, independence and integrity to help solve a major challenge facing a set of clients — in this case, title agents and other real estate settlement professionals who need to demonstrate their compliance with a set of industry best practices.
Title agents and title companies make sure real estate transactions run smoothly by researching a property’s ownership history, verifying that taxes have been paid, preparing and issuing title insurance, completing and recording various critical documents and more — and the Best Practices were promulgated by their trade group, the American Land Title Association, in response to a mandate from the federal government.
“When the Consumer Financial Protection Bureau came out with a memo in 2012 stating that they expected supervised banks and non-banks to have an effective process for managing the risks of service provider relationships relating to compliance with federal consumer financial law, ALTA wanted to take the lead in putting a set of guidelines in place so that title agents, settlement firms, closing attorneys and the like could be in compliance,” explained Lee Fields, HA&W’s managing director of business consulting services.
“I look at ALTA Best Practices as the title industry version of CPA peer review — rather than having the government regulate them, they came out with these best practices in order to create self-regulation and regulation of them by independent CPAs, rather than the government,” said HA&W chief executive officer Richard Kopelman.
DISCOVERING THE NEED
Prior to creating ComplianceSuccess, the firm had worked with members of the title industry as part of its professional services tax and accounting practice, so it was familiar with the field.
“Then a client contacted us and said, ‘Hey, there’s this thing called ALTA Best Practices; can you help us? We want to be the first firm in the country to receive a report from a CPA showing that we’re in compliance,’” Kopelman recalled. “We already had experience in the mortgage, real estate and title industries, so we went out and visited with them and ended up conducting an agreed-upon procedure on that company. We provided them the first report in the nation that we’re aware of to demonstrate compliance with ALTA Best Practices for their compliance with CFPB rules and regulations.”
That one-off engagement, however, was only the start. “After we completed that agreed-upon procedure report, they wanted to do a press release on it, and it was right around that point that light bulbs went off and we said, ‘Wait a second, what’s going on here? How big is this market? What are the opportunities out there in the marketplace on a national level?’” Kopelman continued. “We began making a lot of phone calls and doing a lot of market research around who are the users, who are the people that are going to be hiring CPAs to do this work, who are the players in this industry. We talked to the CEO of the American Land Title Association, we talked to a dozen mortgage banks across the country, large and small, we spoke with other title agents, several underwriters, and also residential real estate agents. ... We probably spent three months doing that.”
The firm’s research included attending conferences and talking to staff from the CFPB, according to Fields, and the final judgment was that it was an opportunity worth pursuing. “There’s certainly the market for it,” Fields said. “The industry is going through a sea change, of which ALTA Best Practices is a part, and this whole idea of being compliant to a set of best practices is kind of new to this industry, so we knew there was going to be a fair amount of assistance required by the title agents to help them navigate through what was being either mandated by government or suggested by an industry association.”
SHAPING THE PROGRAM
With the market opportunity identified, the firm began to build out the new service.
In part, they looked outside the firm: “We worked in conjunction with the American Institute of CPAs and the ALTA leadership as well as their Best Practices Committee to have the AICPA issue technical guidance, which was issued in late 2014, on how CPAs should report on Best Practices,” Kopelman said. “That was a key factor — what should the reports be, what types of report should be issued.”
But they also built upon their original engagement. “Like any new offering, you are continually improving — you obviously learn a lot in your first couple of engagements, and you refine as you go,” Fields explained. “We’ve learned a number of things throughout the process. One of the first things we learned is that the biggest value we can bring to our clients is to minimally disrupt their business as we are doing the work, because in this industry, volume is everything. So we took the bones or basics of what we did on the first engagement, and took those learnings and applied them to the second engagement, and so on and so forth. So it’s really a set of continuous improvements that go on here.”
In its basic form, a ComplianceSuccess examination resembles an audit — but it’s not checking for compliance with GAAP. “What we use as criteria for testing is the ALTA Best Practices framework, the assessment procedures — we use those to guide us through the process,” explained client services executive Michele Mosetti. “There are seven pillars, or criteria for their agents to follow — when we go in and do our testing, we are actually looking at what management asserts that they are doing, which is that they are in compliance with the criteria and the framework, and we test those and sample those, through inquiry, inspection, on-site observations, examining source documents, and so on.”
“The operational aspects make it a little different from just a standard audit, because you’re not only looking at documentation, you’re actually reviewing on-site how they’re actually doing things, and are they in compliance with the seven pillars,” added Fields. “There’s actually a consultative aspect to the audit as well, just by examining how people are doing what they’re doing, not just what they are producing. You are auditing processes and procedures.”
The program now offers a range of reports, from benchmarking up to the highest level of attestation, allowing title professionals to pick the degree of assurance they want to offer lenders. “We do reviews, examinations and, for businesses that want greater assurance, we do SOC 1s, SOC 2s, and we are one of the only CPA firms in the country that provides an ISO 27001 certification,” Fields said. “So depending on the level of assurance that a title agent wants to provide their lender — as well as the level of assurance they want to provide themselves regarding their operational effectiveness — that kind of determines the report.”
TAKING THE HIGH ROAD
The nature of the report is one critical aspect of the way HA&W differentiates Compliance- Success from others in the marketplace who claim to help title professionals prove to lenders that they are implementing the appropriate best practices.
“The key is that the framework and the assessment procedures that ALTA put out are a set of criteria to measure whether an agency is in compliance with the Best Practices, and in order to do that, our belief is that CPAs should be performing an assurance service, and if you’re performing an assurance service, then you should issue an assurance report,” Kopelman said. “There are others in the marketplace today who are issuing certifications — we just don’t know what that means, and neither does anyone in the marketplace.”
The problem is that there is no clearly or officially defined way to “certify” compliance. “The word ‘certification’ in and of itself is a made-up term,” Fields said. “It doesn’t really mean anything, but a lot of people use it. If you asked 10 people in the room, ‘What is a certification report?’ you may get 10 different answers. We cut through that by offering CPA attestation reports.”
“It’s important to keep in mind that our kids could open up a consulting firm and say that they will do ALTA Best Practices certifications, because there is no definition of what a ‘certification’ is or who is licensed/authorized to do them, and in the case of a CPA firm issuing a ‘certification,’ exactly what are they doing?,” Fields continued. “So the value proposition and the differentiator that our clients value is, No. 1, that we are doing attestation reports only, because that is what banks and financial institutions use for their own internal purposes, so they’re always going to accept that, and No. 2, that we hold the client truly accountable to the assessment procedures. We have taken the high road on this, and businesses know that because they are engaged with us to provide an assurance service, they don’t have to interpret anything. By getting an attestation report, especially an examination that includes an opinion, they know that their lender is not only going to accept it now, but they will accept it in the future when the lenders pay even more focus to the ALTA Best Practices.”
And that, Kopelman pointed out, is why five of the six largest title underwriters in the nation have named HA&W as preferred providers to their agents, and helps explain why it was named an Elite Provider by ALTA.
JUST THE START
The firm expects to have 400 clients in the program by the end of the year; it has already had approximately 60 go through the full process and be issued reports, everywhere from New York, Florida and the Midwest to California and the Pacific Northwest.
“The work can be performed anywhere in the country, and we’re doing that,” said Fields. “The team is up to 16 dedicated people, and we’re looking to expand that as well, given the traction that we have in the marketplace. If we ever need to pull from other parts of the firm, we can certainly do that, but we made the decision very early on to have a dedicated team because there are so many nuances in performing these engagements, and because you need to know the different state laws and how they apply, and whether ALTA is more stringent or less stringent than state law — all of that goes into performing one of these as efficiently as possible so that you are not disrupting the agent’s business operations.”
That dedicated team looks likely to be very busy in the future. Currently, ALTA recommends that testing for compliance take place every 24 months, and that may change over time. “Is it a potential recurring revenue model? Yes it is, and the procedures will likely change from what is currently in place,” Fields said. “They have already had two iterations, and there will be a third iteration next year. When that comes out, there will be added scope, so that anybody who has been compliant beforehand will actually have to go through it again.”
What’s more, many of the lenders and financial institutions that are meant to be the end users of the reports are focused now on other legislative regulatory mandates; once they clear those, their interest in and demand for proof of compliance is only going to grow.
“There are banks that have come out with very specific guidance, banks that haven’t said anything, and banks with medium guidance on what they’re accepting right now,” Fields explained. “As that gets clearer over time, these opportunities will take on even greater volume.”
AT A GLANCE
Firm: Habif, Arogeti & Wynne
CEO: Richard Kopelman
Team: 16 people
Clients: Title agents and companies, settlement firms, closing attorneys and other title industry professionals
Services: Attestation reporting on compliance with title industry best practices
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