Peggy E. (Peg) Gustafson was sworn in as the Inspector General of the U.S. Small Business Administration on October 2, 2009. Ms. Gustafson previously served as General Counsel to Senator Claire...
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Audit Report 1-05: Audit of St. Paul Surety
On February 1, 2001, the OIG issued Audit Report 1-05, Audit of St. Paul Surety. St. Paul Surety had participated in the SBA’s Preferred Surety Bond Program (PSB) since August 18, 1993. In April 1998, St. Paul Surety purchased three additional firms and assumed responsibility for the servicing and claims handling of SBA bonds issued by these companies prior to this date. Preferred sureties are authorized to issue SBA guaranteed bonds without SBA’s prior review and approval. As of November 1, 2000, St. Paul Surety had issued 148 SBA bonds valued at approximately $30 million. As of October 17, 2000, St. Paul’s other firms had issued 1,281 SBA bonds valued at approximately $230 million.
The objectives of this audit were to determine if St. Paul Surety: (1) complied with policies and procedures in issuing SBA guaranteed bonds; (2) claimed only allowable, allocable, and reasonable losses and expenses; and (3) remitted fees due SBA timely and accurately. The OIG sample consisted of six bonds, of which three were for ongoing contracts and three were bonds with claims. St. Paul Surety records showed that 14 bonds were issued between May and September 2000 that covered ongoing projects. The OIG reviewed 3 of the 14 bonds for underwriting and fees only. Further, SBA records showed that St. Paul Surety had 48 bonds with claims that totaled approximately $1.1 million as of September 26, 2000. Of those, the OIG reviewed the two bonds with the largest dollar amount of claims and the most recently issued bond in claim. Claims on the three bonds totaled approximately $716,000 or 65 percent of the dollar value of all St. Paul Surety claims.
The OIG determined that St. Paul surety did not always comply with SBA’s policies and procedures for bond origination, claims, and salvage. Further, St. Paul surety’s written internal guidelines need strengthening. Additionally, St. Paul surety should reimburse the SBA $250,771 for its share of claims paid under an improper bond guarantee, expenses paid that were inadequately supported, and salvage that was not remitted within appropriate timelines. The OIG found that fees due the SBA were accurately calculated and timely remitted, and that management and financial controls were adequate to protect assets and prevent errors and fraud, except as noted. The OIG issued three findings and recommendations.