Audit Report ROM 10-09: Lack of Approval for a Recovery Act Surety Bid Bond Guarantee

On December 15, 2009, the OIG issued the Independent Public Accountant or IPA’s management letter in Audit Report ROM 10-09, Audit of SBA’s FY 2009 Financial Statements -  Management Letter.  The management letter includes information related to non-reportable findings discovered during the Audit of SBA’s FY 2009 financial statements. 

During test work on the American Recovery and Reinvestment Act Surety Bond Guaranty (SBG) Program, the IPA noted an issue related to internal controls regarding the Preferred Surety Bond (PSB) bid bonds.  Specifically, one surety bid bond was erroneously approved and not canceled prior to the IPA’s test work for this review. The surety bid bond was approved by a preferred surety company on July 7, 2009, through the Surety Bond Guaranty (SBG) System in the amount of $93,380. However, when the IPA requested the supporting approval documentation from the surety company in mid-September, the surety company replied by stating that the bid bond was recorded in error and should be canceled. The surety company explained that the contractor did not complete SBA Form 994, Application for Surety Bond Assistance, and ultimately did not bid on the job. The IPA noted the bid bond was canceled in the SBG system on September 28, 2009, which was subsequent to the identification of the error.

Under the PSB Program, participating surety companies can issue, service, and monitor bonds without SBA's prior approval. The SBA does not have a process in place to ensure that aged outstanding PSB bid bond approvals are valid transactions, and accordingly, there is increased risk that invalid approvals will be made that are not in compliance with SBA policies and procedures.   The IPA recommended that the SBA 1 ) Continue to monitor preferred sureties to ensure it maintains all required supporting documentation, including an SBA Form 994, to support all bid bond approvals, and 2) Develops and implements policies and procedures to monitor aged outstanding PSB bid bond approvals.