Editorial Note on Part 115
Editorial Note: Nomenclature changes to part 115 appear at 72 FR 50038, Aug. 30, 2007.

§ 115.21 Audits and investigations. ( a ) *Audits* — ( 1 ) *Scope of audit.* SBA may audit in the office of a Prior Approval or PSB Surety, the Surety's attorneys or consultants, or the Principal or its subcontractors, all documents, files, books, records, tapes, disks and other material relevant to SBA's guarantee, commitments to guarantee a surety bond, or agreements to indemnify the Prior Approval or PSB Surety. See § 115.18(a)(3) for consequences of failure to comply with this section.
( 2 ) *Frequency of PSB audits.* Each PSB Surety is subject to an audit at least once every 3 years by examiners selected and approved by SBA.
( b ) *Records.* The Surety must maintain the records listed in this paragraph (b) for the term of each bond, plus any additional time required to settle any claims of the Surety for reimbursement from SBA and to attempt salvage or other recovery, plus an additional 3 years. If there are any unresolved audit findings in relation to a particular bond, the Surety must maintain the related records until the findings are resolved. The records to be maintained include the following: ( 1 ) A copy of the bond;
( 2 ) A copy of the bonded Contract;
( 3 ) All documentation submitted by the Principal in applying for the bond;
( 4 ) All information gathered by the Surety in reviewing the Principal's application;
( 5 ) All documentation of any of the events set forth in § 115.35(a) or § 115.65(c)(2);
( 6 ) All records of any transaction for which the Surety makes payment under or in connection with the bond, including but not limited to claims, bills (including lawyers' and consultants' bills), judgments, settlement agreements and court or arbitration decisions, consultants' reports, Contracts and receipts;
( 7 ) All documentation relating to efforts to mitigate Losses, including documentation required by § 115.34(a) or § 115.69 concerning Imminent Breach;
( 8 ) All records of any accounts into which fees and funds obtained in mitigation of Losses were paid and from which payments were made under the bond, and any other trust accounts, and any reconciliations of such accounts;
( 9 ) Job status reports received from Obligees and documentation of each unanswered request for a job status report; and
( 10 ) All documentation relating to any collateral held by or available to the Surety.
( c ) *Purpose of audit.* SBA's audit will determine, but not be limited to: ( 1 ) The adequacy and sufficiency of the Surety's underwriting and credit analysis, its documentation of claims and claims settlement procedures and activities, and its recovery procedures and practices;
( 2 ) The Surety's minimization of Loss, including the exercise of bond options upon Contract default; and
( 3 ) The Surety's loss ratio in comparison with other Sureties participating in the same SBA Surety Bond Guarantee Program to a comparable degree.
( d ) *Investigations.* SBA may conduct investigations to inquire into the possible violation by any Person of the Small Business Act or the Investment Act, or of any rule or regulation under those Acts, or of any order issued under those Acts, or of any Federal law relating to programs and operations of SBA.
[61 FR 3271, Jan. 31, 1996, as amended at 72 FR 34599, June 25, 2007]