by Chris on July 23, 2010
A city official in Avon Lake, Ohio, apparently ran afoul of the city charter by working for the last 18 months without being properly bonded.
Tom DiLellio was appointed Avon Lake’s finance director in 2008 but didn’t purchase a surety bond valued at $200,000 until Wednesday, July 14. The Avon Lake city charter requires the finance director to be bonded before taking office.
Avon Lake’s mayor, Karl Zuber, told The Morning Journal that he thought DiLellio purchased a bond in January 2009, and said there will be “some kind of action against (DiLellio).”
City finance directors typically manage millions of dollars. Surety bonds are required to prevent embezzlement or other unethical acts. There is no evidence that DiLellio committed such an act, but one council member wants him suspended and another has called for his firing.
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by Chris on June 30, 2010
Florida authorities have cracked down on a Texas surety company that allegedly sold unauthorized bonds to school districts and businesses contracted by the U.S. military.
The Florida insurance commissioner recently issued a final cease-and-desist order against Texas-based Infinity Surety and its president, George D. Black Sr. Officials claim Infinity Surety sold more than $2 million in surety bonds to Florida contractors, but had only a starter-home in Texas — valued at $130,700 — to back up the bonds. Officials said the company had no legal authorization to sell bonds in the Sunshine State.
Black was indicted in March by a federal grand jury on mail fraud charges. He allegedly earned $2.8 million in fees by selling bonds online to 150 different companies. Weeks after his arrest, Florida insurance officials issued Infinity an initial cease and desist order. The final order, issued near the end of June, means the company must stop its Florida operations.
But Florida wasn’t the only state wary of Infinity Surety. In December, Louisiana insurance officials filed a lawsuit against the company, claiming it lacked the proper certification and licenses.
A month later, the state’s insurance commissioner, Jim Donelon, started raising red flags about bid bonds and performance bonds issued by the company.
Black was released on bond in late March.
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With floodwaters in Nashville and an oil spill in the Gulf, small businesses have their eyes set on moving into these afflicted areas. Doing so would be made easier by the U.S. Small Business Administration’s proposed increase in surety bond guarantee limits. The purpose is to make bigger contracts in disaster areas more accessible to service-sector and construction businesses.
The recent proposals
The SBA posited new rules, including:
- A bond may be issued if the product or service will be manufactured or performed, respectively, in the disaster area for non-federal contracts and orders up to $5 million.
- If a federal contract or order up to $5 million will directly assist the impacted area the performance site does not need to be within the area.
- Federal contracts or orders can have a guarantee of $10 million per the request of an agency’s head that is aiding reconstruction efforts.
All of these proposals add to surety bond increases that the American Recovery and Reinvestment Act of 2009 made possible. Pending the SBA’s extension for the increased amounts of a specific disaster, the higher bond guarantee limits would be effective for one year after the disaster declaration.
The SBA Office of Surety Guarantees
For almost four decades, the office has helped small and minority business earn more contracts. The office of Surety Guarantees oversees the Surety Bond Guarantee (SBG) program by partnering with the surety industry. Companies that work with the SBA issue bonds. A percentage of these bonds are backed by the SBA in case of a contractor’s default. Two different programs in the SBG program guarantee either 90 percent or 70 percent of bonds issued by a surety company.
Through September 2010, the SBA will guarantee bonds on contracts valued up to $5 million. It is a temporary increase that remains in place through September 2010. Contracting officers that prove a guarantee is in the government’s best interest, the SBA will guarantee contracts up to $10 million.
How surety bonds work
Surety bonds, unlike insurance, involve three parties: the principal, the obligee and the surety. Rather than protect any party from financial loss, surety bonds simply compensate the obligee, or project owner, if the principal, or contractor, fails to fulfill all contractual agreements.
The SBA teamed up with surety industry to make more bonds available to companies that would struggle to get them in the general market. In doing so, surety companies are repaid for losses incurred when a contractor defaults.
More on the SBA’s proposed rules
In the proposal, the SBA emphasizes that it does not pay insurance or indemnification costs that are a part of a bonded contract. In 2008, an act increased eligible amounts for orders and contracts related to a certain disaster. For a list of recently declared disasters, businesses can check the Federal Emergency Management Agency website.
“These proposed changes are one more way we can help small businesses, particularly in the construction and service sectors, compete for and win critical contracting opportunities that help them grow their business and create jobs,” said the SBA Administrator Karen Mills in a press release.
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Even though a new federal law was passed back in 2008 to toughen up requirements for licensed mortgage brokers, some states have been slow to implement their version of the law, which in some states has increased the amount of surety bond brokers must carry. Earlier this month, I wrote about some of the states where deadlines to comply with new rules have yet to take effect.
I’ve since discovered there are more states where deadlines fall somewhere in 2010 for compliance with the federal SAFE Act rules. Here are a few more states where it took a while to get new laws into effect. Some of these deadlines are coming up this year:
- Tennessee: Any brokers grandfathered in from having to comply with the new rules have until July 31, and then they must be re-licensed through the Tennessee Department of Financial Institutions. The state now has a net-worth requirement of $25,000 and a surety-bond requirement of $90,000.
- Utah: Established brokers have to pass both the national and local broker’s exam by the end of the year, but new brokers need to get it done soon, by May 1. No surety-bond requirement is in force here.
- Ohio: One of the stiffer surety-bond requirements here — $50,000 for main offices plus $10,000 per branch, up to $150,000 for companies and $100,000 for individuals. This one just went into effect in January.
- Nevada: This new broker law took effect last October, requiring a surety bond of $50,000 for any principal brokerage office and $25,000 additional if there is more than one branch.
- Oregon: Effective last July, the surety bond amount was raised from $25,000 plus $10,000 per branch to a minimum of $50,000.
As you can see, the new mortgage-broker laws are a confusing patchwork, with regulations and deadlines that are different in each state. If you need a mortgage broker bond, the experts at SuretyBonds.com can help you make sure you have the coverage required in the states where you operate.
Photo via Flickr user Hassan & Mariko
While most people carry car insurance to cover their vehicle liability, in many states there is another option — taking out a surety bond. If drivers do not want to pay the cost of car insurance, they can opt to self-insure, demonstrating independent of car insurance that they have the financial means to pay for any damage to other people or cars if they get in an accident. The primary way to self-insure is by taking out a bond.
In California, for instance, any vehicle owner can demonstrate their financial responsibility by offering up a $35,000 cash deposit to the DMV, or obtaining a $35,000 surety bond. Since obtaining the bond does not require locking up 35 grand in cash — most sureties only require deposit of a small percentage of the bond’s face value — it’s by far the more popular option.
In some states, only owners of many vehicles can take the self-insurance route and post a surety bond. In that case, it can be a good option for companies that have a fleet of vehicles. For instance, in Washington State, you must own 26 vehicles to qualify to self-insure. The bond must be for at least $60,000, filed with a bonding company authoried to do business in the state.
At SuretyBonds.com, we’re licensed to sell bonds in all 50 states. If you have questions about whether self-insuring could be an option for you, feel free to contact one of our experts.
Photo via Flickr user L. Marie
It’s a sad fact of business life: employees steal. There are two kinds of employee theft a company needs protection against, and different surety bonds cover each one.
It can be a confusing situation, because the term “fidelity bonds” is sometimes used to refer to both these bond types. A look at the two types:
Dishonesty bonds
The first type of theft is the kind where your workers rip off your company — they embezzle money, forge checks, pocket cash, commit computer fraud, sneak merchandise into their bags or steal company equipment. Dishonesty bonds protect your company against this type of employee theft.
Business owners in a wide variety of industries take out dishonesty bonds. Any type of business where a company bookkeeper, chief financial officer or accountant oversees the books or cuts checks would be wise to have a fidelity bond for that financial employee. If a shop owner has several employees who all ring up sales and use the cash register, the owner might be wise to have all those workers bonded as well.
Without a dishonesty bond, a small business could be devastated by a theft scandal. Lacking the resources to replace the stolen funds or merchandise, companies can go under. And small businesses are the most vulnerable to these types of thefts because they don’t have the resources for the costly security or theft-prevention programs used by bigger companies.
Business service bonds
The second type of employee theft takes place when you send your workers out to customer locations — an office building, private home, hospital or college campus. There, your workers may walk off with customers’ laptops, steal jewelry or cash, damage property, assault customers or commit other crimes.
Business service bonds are essential for any company that has workers on the job at customer locales. Common businesses where much of the work is done on-site include janitorial services, maid services, gardeners, exterminators, pool cleaners, security guards, carpet cleaners, painters, locksmiths, movers, pet-sitters, plumbers, and appliance repairmen.
Fortunately, both dishonesty and business service bonds are fairly easy to obtain, and relatively inexpensive. Coverage amounts vary greatly from $5,000 to $100,000 or more, depending on your company size and situation. Bond terms offered may vary from one year to three years.
It’s important to note that in most cases, neither of these bond types will not pay off if you do not prosecute the employee involved in the theft. An arrest and/or conviction will be needed to prove the theft was real.
Purchasing dishonesty and business service bonds offers your company more than protection from worker theft. These bonds also have the added advantage of reassuring customers that you have vetted your employees, and have financial protection in case workers misbehave on the job.
Photo via Flickr user Frederick Md Publicity
