Comprehensive Guide on Secure Escrow, Featuring SeedTrust’s Measures

Comprehensive Guide on Secure Escrow, Featuring SeedTrust's Measures

We deeply empathize with the negative impact that escrow disruptions and failures by other providers have caused for many individuals and families. At SeedTrust, our priority is to eliminate the risk of fund loss and reduce financial stress so our clients can focus on growing their families. We want to assure our clients and partners that this type of risk does not exist at SeedTrust.

Failure of other escrow companies highlights the critical need for secure, reliable escrow services in the surrogacy and egg donation industry. This detailed write-up should serve as a guide for prospective clients of escrow companies as well as competitive escrow companies. Unnecessary financial risks and escrow failures are avoidable and not acceptable.

SeedTrust was established to provide the surrogacy and egg donation industry with a more secure, efficient, and transparent escrow service. By elevating service and security standards, we have become the market leader over the last nine years, providing escrow services to over 25,000 families without issues. When it comes to selecting an escrow provider, there should be no room for compromise; the consequences are too high.

For an escrow company to be deemed secure and trustworthy, certain key elements must be in place:

Qualified and Experienced Team
Defined Structure and Processes
Independent and Specialized
Bonded and Insured
Oversight

Qualified & Experienced Team

The owners and team at an escrow company must be highly qualified and experienced in financial services management. Surrogacy and egg donation escrow is extremely complex. To successfully set up and manage a secure financial services company, you must employ a diverse team of professionals with exceptional qualifications and licenses in business, finance, accounting, banking, and law, with significant industry experience. At a minimum, an escrow company should have a full-time CPA and licensed attorney experienced in surrogacy and egg donation escrow to have oversight on the process.

At SeedTrust, we have a robust team of professionals led by our founders, a CPA, an attorney, and a former bank executive. This team of qualified professionals are leading experts in surrogacy and egg donation escrow who have extensive experience in all critical business and legal aspects of running an escrow company. Aside from SeedTrust’s founders, our team is made up of 50+ professionals which includes multiple attorneys, CPAs, and MBAs, all dedicated to securely serving our clients.

Our skilled and experienced team has successfully managed over 25,000 cases, establishing SeedTrust as the world’s leading expert in surrogacy and egg donation escrow management.

Defined Structure & Processes

Similar to any financial institution, an escrow company needs to implement secure operational structures, systems, and processes to ensure its security. The risk of theft or mistakes becomes too high when these are not in place or not followed due to a lack of internal checks and balances.

The proper structure with appropriate checks and balances is required. All requests and payments should be reviewed, paid, and audited by separate individuals who report to different managers. Multi-user controls and approvals must be in place for any money to be released from the client’s escrow account. These checks and balances ensure no single person can commit theft and helps significantly reduce potential errors. Timely auditing by a separate accounting team for all transactions also ensures that any potential theft or errors are caught quickly and can be dealt with as an isolated incident. This helps prevent potential issues from escalating into larger problems.

At SeedTrust, we take these guidelines seriously and have a rigorous structure with robust internal controls to ensure the security of our client’s funds. SeedTrust employs a 5-step approval process for all payments. Every request is thoroughly reviewed and approved by a team of specialized escrow managers and attorneys. After the request has gone through its initial submission and approval, an additional verification is completed by our MBA-credentialed Payment Manager led payment team. Payments are then released and go through an additional final audit by a CPA led separate accounting team to tie our core operational software to our accounting books and bank statements. In short, it would take four different people from separate teams colluding to steal any escrow money, and if this somehow happened, it would be caught by the audit team in a matter of days. This is just one example of SeedTrust’s thorough checks and balances that protect client funds and the integrity of our security. We maintain this level of rigor in every action we take.

The proper setup in an escrow company’s banking system is critical to its security and ability to maintain uninterrupted service to its clients. An escrow company must utilize all available fraud protection services banks offer, including positive pay, dual-control, and multi-factor approvals. Additionally, they should maintain accounts with multiple banks so they can continue operations with no interruption to the clients in the event there is a short-term disruption or issue with one bank. If a provider does not have these services in place, the risk of working with them is too high.

At SeedTrust, we took no shortcuts when setting up our robust multi-bank system with the maximum level of fraud protection. There is no single-bank risk at SeedTrust, and any potential fraud would be stopped before it occurred using positive pay, dual control, and multi-factor approvals. Even in the event of a short-term disruption in one of our accounts or at one of our banking partners, we would seamlessly continue operations from one of the others, ensuring uninterrupted payments.

It is also critical that an escrow company has the proper systems, processes, and detailed protocols in place that cannot be bypassed by an employee or owner. These protocols must reside within established systems that further control the process while preserving transparency and oversight to protect client funds. Without this in place, mistakes and theft are more likely to occur.

SeedTrust maintains industry-leading software systems and rigorous processes and protocols at every step. For example, if someone on the payment review team catches an error, they cannot change it. They must return the request to the approving team to review, adjust, and reapprove. Everything at SeedTrust is facilitated through our custom-built escrow software to minimize errors, increase transparency, and ensure the proper process is followed without exception. The software also provides transparency for all our agency partners, intended parents, surrogates, and donors. Every adjustment in the system by the SeedTrust team can be tracked by clients in real-time, and they are notified immediately via email of any meaningful changes and once a payment is paid. This transparency reduces the risk of errors and ensures that any unauthorized payment will be quickly flagged. SeedTrust also maintains separate accounting software that audits our core operational system against the accounting books and bank statements. This dual system is another form of checks and balances providing additional security.

The infrastructure behind our escrow software prioritizes information security. Our online platform utilizes AES-256 encryption and follows the Health Insurance Portability and Accountability Act (HIPAA) guidelines. Your valuable data and information are handled with the utmost care.

Independent and Specialized

One of the most important components of an escrow company should be its independence as an unbiased third-party. The company and its owners should not have a greater allegiance to any party in the underlying agreements, nor should they have ownership or managerial control over any other providers paid throughout the process. The escrow manager has a fiduciary responsibility to manage the funds between the parties in strict compliance with the underlying contracts. In addition, the management of surrogacy and egg donation escrow is complex and requires complete focus. This should not be viewed as a secondary offering in addition to other core functions of a business.

One of the core responsibilities of an escrow provider is to review receipts and confirm that payments are authorized. This means only in accordance with the contracts or obtaining approval from appropriate parties. Both attorney and agency managed escrow accounts are unable to be truly objective in this process. This puts all parties involved at a greater risk because these escrow options are missing appropriate oversight and are not able to provide an unbiased opinion. The risk of them doing this objectively if they are paying themselves or others is too high and should be avoided. New York has recently passed a surrogacy statute, prohibiting agency-managed and attorney-held escrow where the attorney represents one of the parties because the conflict is too significant. The types of arrangements referenced in the New York Statute should be avoided. Some escrow providers with these conflicts of interest have clients sign conflict waivers, which reduces the providers’ risk of legal liability but does not protect the clients or other parties from the conflict.

If working with either of these types of escrow providers, all other security elements outlined in this article must be present. For example, even an attorney-held escrow should be backed by a substantial bond and have the proper checks and balances in place. Many do not have these in place, as escrow is not their core focus or expertise. Running an escrow company should not be a supplementary part of any business.

SeedTrust is an independent third party with no interest or control in any agency, law firm, or clinic. We are beholden only to our clients and are contractually bound, as fiduciaries of the trust, to manage the funds in strict compliance with the express terms of the Egg Donor or Gestational Surrogacy Agreement. SeedTrust is the leading expert focused solely on managing escrow and protecting all parties involved throughout the journey. We take on the responsibility and liability of reviewing and acting on all requests based on the contracts or obtaining necessary approvals. Our independence allows us to be neutral and objectively manage cases, guiding all parties through conflicts and issues. This includes involving both parties’ attorneys if there is a formal dispute or fundamental disagreement. Oftentimes, SeedTrust is able to recommend the best course of action for all parties because of our impartiality and expertise.

Bonded and Insured

Adequate bonding and insurance are critical components of an escrow company’s security. In the event of theft, errors, omissions causing loss, or a cyber-attack, these insurance policies and bonds provide a safety net to protect the company, its clients, and its funds. An escrow company must have adequate coverage; the risk is too high without it, as there is no secondary source of repayment in the event of a loss. Insurance and bonding are areas in which most escrow providers do not invest. These areas are often misunderstood by clients, so we will provide more details here.

Bond, Crime and Employee Dishonesty Policies

The most important insurance policy an escrow company can hold is often called a bond. A bond is a crime, employee dishonesty, or theft insurance policy that protects clients’ funds in the event of loss due to theft or misappropriation. This type of policy can be called an employee dishonesty policy, crime policy, bond, or fidelity bond. In this context, the terminology is interchangeable. In the event of theft or misappropriation of funds, this policy will pay out to return the money.

Bonding requires underwriting given the risk for insurance companies, These policies can also be hard to obtain, especially if the escrow company does not have the right qualifications, team, structure, and systems in place. Additionally, the policies are very expensive, and escrow companies must be financially secure and willing to pay for them to protect their clients. It is crucial that an escrow company acquires and maintains a sizable bond. Given that the requirements and underwriting ramp up significantly at $10 million in coverage, we believe this should be the minimum policy an escrow company holds. They should not be trusted to hold funds if they cannot afford or qualify for a $10 million bond, or roughly 10 times what any one case could hold. Given that theft or misappropriation of funds is the most common issue with less secure providers, this should be a strict requirement. This bonding requirement should also pertain to law firms as they are subject to the same risk.

Errors and Omission Policy

The next critical policy is the errors and omissions (E&O) policy, which all escrow companies should maintain. This policy protects the company and its clients from mistakes that are not theft but human error. We believe an escrow company should maintain a $1 million policy, as it would cover mistakes on more than 10 cases at one time, which is unlikely to occur. Surrogacy and egg donation escrow are complex, with many payments, and an E&O policy should be in place to protect all parties in the event of a mistake.

Cyber Security Insurance

Cyber Incident Protection insurance is also very important. These policies protect the company from damages due to a cyber-attack. An important component of cyber insurance is providing a response team to help guide a company under attack, reducing or managing any damages. We believe a $1 million policy provides adequate coverage for damages due to an attack.

General Liability Policy

Lastly, it is good practice for all businesses to maintain a general liability policy, which primarily protects them from lawsuits concerning bodily injury or property damage. This general policy should not be confused with the above policies as it is not overly relevant for a service company and generally does not protect escrow funds. However, a business not having one in place would be a red flag.

At SeedTrust, funds are insured by our industry-leading bond and insurance program. Our trust accounts are backed by a $100M million bond. Our comprehensive insurance coverage includes a $2 million general liability policy, a $1 million errors and omissions policy, and a $1 million Cyber Incident Protection policy. SeedTrust strives to reduce risk and protect our clients at all costs. We were the first to introduce a large bond in our industry and to highlight its importance.

Oversight

An escrow provider must have oversight and audits. In our industry, this can and should come from multiple sources. Without oversight and the risk of losing licenses in the event of an issue, the risk of working with an escrow company is too high.

As a starting point, an escrow company operating in our industry should have a licensed attorney as an owner or at least as a full-time employee with oversight authority. The day-to-day work requires this expertise, and it also ensures fiduciary responsibility and oversight by the state Supreme Court or attorney licensing authority (often the state bar association). In the event of an issue, a party can file a complaint with the state agency. The state agency can investigate the complaint and has the authority to review all funds held in the attorney’s trust escrow account to determine if there has been any wrongdoing or violation of the code of professional responsibility. If the attorney is found to have violated their duties to the parties, then the agency will seek to discipline the attorney. Discipline can range from requiring the attorney to take additional hours of continuing legal education on the issue addressed in the complaint, a letter of reprimand, suspension of the attorney’s license, or full disbarment of the attorney’s license to practice law. These claims are taken very seriously, as the most common reason attorneys lose their licenses is misappropriation or theft of client funds.

The underwriting and requirements set by the bonding or insurance company that issues the bond or theft policy serve as another critical form of due diligence and risk audit for an escrow company. Their requirements can be extensive, especially with coverage above $10 million. These companies specialize in assessing the risk of loss and determining if issuing a policy or bond is feasible. They often conduct detailed assessments of the company’s expertise, ownership, team, financials, structure, systems, processes, and banking. This review serves as an additional layer of oversight and occurs yearly to ensure that the level of risk does not increase. Effectively, they are responsible for paying out the loss up to the policy amount if the money is stolen, so they must ensure the risk is limited or worth taking. Working with any escrow provider without a bond of more than $10 million is not advisable.

Having a CPA on the team is also important and complementary to having attorneys. CPAs bring the needed financial expertise and internal control knowledge, making them invaluable for designing internal systems and processes. CPAs are also governed by their respective state boards. Similar to attorneys, if CPAs abuse their license through lack of competence, lack of independence, or violation of public accountancy rules as fiduciaries or trust administrators, complaints can be filed against them. If found to be non-compliant, the CPA could lose their license. It is important to confirm that the license is still active and in good standing with the state board. Many claim to hold the designation and license without meeting the required standards.

Internal and external reviews and reconciliation of escrow accounts by CPAs also serve as a critical form of oversight. Internal accounting teams should be separate from the operational and payment teams and should not have any banking approval authority to ensure independent checks and audits. It is best for this internal auditing of escrow accounts to be done in a separate accounting system where an independent set of books are maintained. The team should perform bank reconciliations and maintain separate ledgers in specialized accounting software, then once complete the accounting team should check those accounts against those in the core escrow system. Any discrepancies would indicate a mistake or issue that needs to be resolved. These reconciliations should be done regularly to prevent any wrongdoing from going unnoticed for a long period. Having a separate accounting team in a separate system to check the operational teams is critical. Escrow companies should also engage mid-to large-tier accounting firms to conduct thorough financial audits. These audits involve a rigorous process that examines financial statements, escrow accounts, IT practices, and internal controls, uncovering any deficiencies or issues. As the most detailed form of third-party financial evaluation, audits must be entirely independent to prevent any potential influence from management, reducing the risk of fraud. Audits lend substantial credibility to client accounts by verifying and testing funds. In summary, an external audit by a qualified CPA firm is the most effective way to ensure escrow funds are accurately accounted for, properly maintained, and managed ethically.

Another important form of oversight comes from agencies, intended parents, surrogates, and donors, who should have real-time access to all account details, including ledgers and transactions. System transparency and real-time notifications are important as they give all parties the ability to identify and address any potential discrepancies or issues promptly. This is also why the agency should not hold the escrow in-house.

With their underwriting and risk evaluation expertise, our insurance and bonding providers conduct detailed assessments of SeedTrust’s expertise, owners, team, financials, structure, systems, processes, and banking. This review serves as an additional layer of oversight. After this detailed review, our insurance providers back SeedTrust with the industry-leading $100M million bond.

SeedTrust meets and exceeds all of these standards and regularly finds ways to improve security. Our team is comprised of many professionals, including CPAs and attorneys who have a fiduciary responsibility to their clients. In the event of an issue, the proper authorities could be called in, potentially leading to the loss of their licenses. Given our bond size, we undergo a detailed annual underwriting and audit to ensure there are no significant risks within our structure, team, processes, or functions. Additionally, our internal and external accounting teams, led by CPAs, frequently review and check our accounts. Lastly, everything at SeedTrust runs through our secure system, which provides 100% transparency and real-time notifications to all our clients and agents. These core areas ensure proper ongoing oversight and clear channels to contact authorities if any issues arise.

Conclusion

For intended parents, surrogates, and donors, selecting an escrow provider is often an afterthought. This can be a major mistake since an escrow company is highly involved throughout the journey and is a critical partner. It is essential to ensure that the provider is qualified and does not put you or your money at risk.

SeedTrust offers an exemplary model, providing unmatched security, transparency, and expertise. With a highly qualified team of attorneys and CPAs, rigorous internal and external audits, comprehensive insurance coverage, and a robust, transparent system, SeedTrust protects funds and peace of mind for all clients. Our independent operations, stringent protocols, and industry-leading standards effectively mitigate risks, making SeedTrust a trustworthy and reliable escrow service provider.

Please don’t hesitate to contact us if you have any questions or need assistance. We’re here to provide you with peace of mind, allowing you to focus on what’s truly important: building your family.