Obligee Presentation to City and County of Sacramento

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Experts at Surety Solutions were asked to give a presentation to the City and County of Sacramento Purchasing Departments regarding the parts of a bond and ways to prevent bond fraud. This informational presentation was scheduled because the County of Sacramento suffered a $1 million loss due to fake bonds.

"The County of Sacramento suffered a $1 million loss due to fake bonds."

A contractor was awarded a $3.5 million contract to supply and install water meters in the County of Sacramento. The contractor decided to flee with the proceeds from the contact; when the County went to make a claim on the bond it was discovered to be fake. This left the County with no choice but to pay another contractor to finish the job. Hopefully the presentation by Barry R. Page and Amy E. Johnston will help prevent this from happening again.

The presenters covered the anatomy of a bond, in great detail. This way people accepting the bonds will know what to look for when checking for authenticity. The most important part is the raised seal, which is easily checked. Also, the monetary limit on the power of attorney should not exceed the amount of the bond, or else the bond company will only be liable up to the amount on the power of attorney. Another simple check is to ensure the date of bond execution matches the power of attorney and notary acknowledgement. This is significant when determining if the power of attorney was copied from another bond.

Another free resource for obligees is the Department of Insurance. This is a very useful website and the extra step to verify licenses is well worth the effort. This website allows obligees to search by license number to verify the companies an agent is appointed with. Therefore, if an agent signed for a Merchants Bond and Merchants is not listed under their license, the oblige should become suspicious. At this point, the obligee should call the surety company to verify the agent or agency and bond number. The City and County of Sacramento understand the importance of being able to confirm a license so they will start requiring agents to list their license number on the bond form. It’s a simple addition to the bond form that can greatly decrease the likelihood of fraudulent surety bonds.

Overall, the presentation was very successful because the City and County Purchasing Departments intently listened to the Surety Solutions specialists. Hopefully they will start to implement some of the recommendations to ensure public funds are safe when being used for construction projects.        

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Amy E. Johnston
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