South Canterbury Times, THURSDAY, SEPTEMBER 30, 1880.

South Canterbury Times, Issue 2352, 30 September 1880, Page 2

South Canterbury Times, THURSDAY, SEPTEMBER 30, 1880.

Tine shareholders of the Permanent Building- Society of Otago had a rather stormy meeting in Dunedin the other evening. They met to consider their losses, and to hear what their directors, auditors and new manager had to say on the subject. What rendered their convocation particularly unpleasant was the fact that they were called upon to deplore not morel}' a loss but a scries of clever swindles. Had they been tiic victims of some wealthy corporation like the Timaru Harbor Board for instance, which, octopus like, extended its arms to embrace them and then tried to squeeze the life out of them, they might have lamented their miseries without much display of exasperation. But they arc the victims of that cheap and nasty audit system which prevails so generally in New Zealand, and enables its monetary institutions to become the easy prey of erring and unprincipled servants. Very properly, instead of expending their wrath on the fugitive ex-manager, the shareholders contrived to bring the auditors into hostile contact with the the directors and an exeedingly interesting duel ensued. The directors taxed the auditors with negligence, while the auditors threw the responsibility and blame on the directors. The meetingappeared to be tolerably evenly divided on the subject, but finally the report of the directors was adopted. The following explanation furnished by the auditors, Messrs Begg and Hislop, will be found interesting :

Towards the time of the next balance, about April this year, we repeatedly asked Webb when his books would be ready for audit. We commenced the audit on Thursday, Ith May, but were almost immediately brought to a standstill by requiring explanations from Mr Webb, who, we were told had gone on business to Wellington, but would be back on Friday night. In the meantime we were much surprised to find that a report and balance-sheep had been circulated among the shareholders signed by Mr Webb without any auditor’s certificate. Mr Webb did not return on Friday, and on Saturday the directors got an intimation that he did not intend to return. The directors asked us to make an investigation of the accounts as far as possible in Mr Webb’s absence, which we did under great difficulties, through want of all information, and this took fully eight days—the work frequently extending till near midnight. On May 11 we drew up an interim report, which was submitted to a meeting of directors on May 15. In this report it was pointed out that Mr Webb had embezzled the funds of the society to a considerable extent. So for as we are concerned, we have never yet had an amended balance sheet submitted to us, nor had any communication with the

directors except a letter asking for certain information, which wc supplied to the best of our knowledge, and this was followed on July 9by a letter from the society’s solicitors, of which the following is a copy:— “Messrs A. C, Begg and W. Hislop. Dear sirs, —We have received instructions from the Permanent Building Society of Otago to commence proceedings against you in the District Court to recover the sum of £2OO for damages sustained by the Society in consequence of your negligence in auditing the Society’s accounts. Will you please let us know whether you will settle the matter with Mr Leary the general manager; or if you intend to dispute your liability, will you furnish us with the name of a solicitor who will accept service of proceedings on your behalf. Yours truly, Hagchtt Bros.'axd Brest.” On receiving this letter we waited on Mr Leary, who had been appointed manager by 7 the directors, and he replied that he thought the course taken was not a proper one, and that if auditors were treated in this way, very few men could be got who would accept the ofiice.

There can be no doubt, despite the able defence of the auditors that the defalcations from which this Society 7 has suffered was due to the slovenly and imperfect manner in which the audits were performed. These defalcations were not of recent .growth, but extended over a number of years, so that had the books been properly examined, and the accounts carefully 7 balanced, the frauds could scarcely 7 have escaped detection. The directors were advised by 7 their solicitors that the auditors were responsible, and as Mr Walter (Mayor of Dunedin) very justly remarked —“ As to the smallness of the emolument paid them, that was no excuse, as so long as auditors undertook the work they should be responsible for it.” This sentiment was applauded, and there is undoubtedly a great deal of force in it. But so long as a paltry two, three, or even five guineas is annually voted for (he performance of such an important task as these auditors are called on to perforin the work can scarcely 7 be expected to bo done otherwise than slovenly 7. It is not enough that auditors should be thorough accountants, they must be experts ; nor is it sufficient that they perform their duties conscientiously, they 7 must do their work thoroughly. A careful audit requires trained effort, and a considerable display of painstaking and inquisitorial research. Cheap audits are always liable to prove very expensive in the long run. If shareholders and directors were only 7 a little more liberal with respect to the remuneration of auditors and more exacting in reference to the way in which they perform their duties there would be fewordcialcations. The question whether auditors should not be specially 7 licensed after undergoing an examination is one that in due course will probably engage the attention of Parliament, and there can be no doubt that for the protection of public companies and associations something of this kind is highly 7 desirable.