On August 21, 2000, the OIG issued Audit Report 0-23, Independent Accountant’s Report on the Performance Audit of American Bankers/American Reliable Insurance Companies. The objective of the audit was to determine if the lender originated, serviced, and liquidated the purchased loan in accordance with SBA rules and regulations.
The SBA’s Surety Bond Guarantee Program (SBG) was created to assist small, emerging, and minority construction contractors. The SBA indemnifies surety companies from potential losses by providing a government guarantee on bonds issued to the contractors. The SBA guarantees up to 90 percent for contracts not exceeding $1.25 million for a Prior Approval Surety.
The Independent Public Accountant (IPA) determined that American Reliable did not comply with SBA’s policies and procedures for underwriting bonds. Specifically, American Reliable did not maintain all required underwriting documents. Further, American Reliable claimed unallowable losses and expenses, including those not covered by the bonded contract, expenses not allocable to the bond, and an expense not supported by a canceled check. In addition, American Reliable did not adjust the SBA guarantee percentage when the final contract exceeded the $1.25 million statutory limit, or pursue all sources of recovery. As a result, the IPA questioned $887,954. The IPA reported 11 findings, of which five had been resolved. The Associate Administrator, Office of Surety Guarantees agreed with the remaining six recommendations.