This post is part of a series sponsored by Old Republic Surety.
It’s fortunately rare, but when bond fraud occurs, it can be devastating. As a bond producer developing an escrow business book, you should be vigilant in scrutinizing the escrow companies you work with. Here’s advice from Old Republic Surety and the National Association of Bond Producers.
recent article in work insurance magazine,”Security scammers sentenced to prisonIt reminds us that secured fraud is a serious crime that can have severe economic consequences for guarantors, principals, undertakers and the public.
In this case, the victims were three contractors who were freed of $1.2 million by criminals who sold them fake bonds to secure employment in several states.
A high-profile case in Minnesota a few years ago involved The contractor who forged the bonds To win contracts with state agencies and municipalities. else charts This surfaced includes scam artists who claim to represent some of the most trusted names in our business.
Fortunately, bond fraud doesn’t happen very often. When that happens, it can harm the smallest of the largest contractors, suppliers, and owners. Worthless bonds leave victims without financial recourse. Fraud damages the good reputation of our industry, which we have all worked hard to maintain.
Todd Taylor of Old Republic Surety blogs, “How to pre-qualify your warranty – and why it’s so importantAbout ways you can protect yourself and reduce fraud risk. Two of the most important things you can do, which require repetition, are:
- Check with the escrow authority to issue the bond.
- Verify that the sponsor has already issued the bond.
The National Association of Security Bond Producers (NASBP) has a one-page summary describing it Two-step verification process in detail. If you are an agent, we highly recommend you to provide this to your contractor’s clients.
Among the safeguards you should take, according to NASBP:
- Contact your state insurance department to find out if the warranty has been accepted to do business in your jurisdiction. “With a few exceptions, guarantors must have a certificate of authorization from the insurance commissioner in each state in which they do warranty business. The National Association of Insurance Commissioners… provides links to All government insurance departments…”
- Check the US Treasury’s list of approved guarantees. “The list of approved escrow companies approved to offer bonds on federal contracts, known as Administration Publication 570 (or T List), is updated twice annually and is published by Treasury Department…The Section 570 publication includes the business address and telephone number of each listed warranty and each state in which warranty operation is licensed.”
- Contact the guarantor directly to ensure that the bond is approved. “All warranties listed in Circular 570 specify a specific contact telephone number. In addition, the American Warranty and Fidelity Association operates a program in which escrow companies voluntarily agree to receive inquiries for the purpose of verifying the authenticity of the warrantee. Warranty contact information is contained in SFAA Bond Obligee Guide…”
Two other precautions, Taylor noted, include:
- Check agencies. The owner or obligor must check to ensure that the powers of attorney are valid, concurrently dated and identical to the name on the attached bond.
- Check out a well-known rating agency. It is always a good idea to look for a company better morning To see if they are listed, find out their financial strength and rating. Other good sites to check out Standard & Poor’s And the Moody’s. (NB: Look for the Old Republic guarantee under our parent company, Old Republic International)
Bond managers face many uncertainties in the running of their business, most of which are known and they can plan for. But bond fraud is one of those risks that can surprise you. Always check credentials, ask questions and do your due diligence. Don’t ignore the red flags. If it sounds too good to be true, it probably is.
Staying vigil and checking the warranty is something everyone should get used to. Let’s work together to make sure that our contractors and contractors are not deceived by fraudsters.
If you have questions or need advice, reach out to Old Republic Surety branch closer to you.
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