BUILDING SOCIETY FRAUD.

Temuka Leader, Issue 2399, 15 September 1892, Page 4

BUILDING SOCIETY FRAUD.

A special general meeting of the South Canterbury Building Society was held in Timaru on Monday evening, to receive from the directors a statement of the affairs of the Society. Mr E. G. Kerr (chairman of directors) presided, and there were about a score of shareholders and representatives of shareholders present. The chairman read the following as the directors' report.— " On the death of the late manager of the Company the directors took charge of all the books and papers they could find in the office, and appointed Mr W. R. Quinn, accountant, to make a thorough examination of the Company's books. They also called upon the auditors, Messrs C. S. Fraser and J. B. Rutland, to make a special audit of the Company's books. Mr Quinn's report and the auditors' report will be laid before you. The former, we regret to state, shows defalcations on the part of the manager extending over seven years, during which time he abstracted securities belonging to the company, received fixed deposits which he did not pay into the company's account at the bank or enter in the company's books, forged vouchers, property lists, and deposit receipts, and kept several bogus accounts in the books representing that certain people owed the company money when, as a fact, they did not owe anything. The consequence is that the company will have to face a loss of over £SOOO. Rule 103 provides that the auditors shall examine the securities held by the company, and they have certified in each annual balance-sheet that they 'have examined the books, deeds, and vouchers, in connection with the above accounts, and find the same correct.' As a matter of fact they did not examine the securities, but, as we now discover, were satisfied with a list of properties shown them by the late manager. If the auditors had done their duty and inspected the company's securities, as held by the bank, losses under this head would not have occurred. The directors hold a policy of £IOOO in the Victoria Insurance Company as a guarantee for the fidelity of the late manager, and a claim will be made on the company for that amount. The securities held by the company, and the uncalled capital, have been mortgaged to the Union Bank of Australia to secure an overdraft of £8874 ss. On Saturday last the bank made a demand on the company for payment of the above amount, and notified their intention to apply to the Supreme Court to have the company officially wound up. On being interviewed to-day the manager of the Bank said the Bank would be willing to consider any proposal for winding up the company that might be made by the shareholders. The directors consider liquidation by the court would be ruinously expensive, and recommend the shareholders to pass a resolution requesting the directors to take the necessary steps for winding up the company voluntarily, Avith as little delay as possible. It will be necessary to consult the Bank, before adopting this course, so that the Bank, as the only secured creditor, shall agree to the name of tho liquidator, or liquidators, to be appointed." Mr Quinn's report was a long one dealing with the several classes of seriatim-

The following are extracts therefrom : Stationery account, £9o—probably not more than half this amount in the office. A. A. Smith, Dr, £3s—This advance was repaid in 1888.

Dividend account, £247 10s 3d—Dividends paid since May last. In this account only warrants paid were charged, no provision being made for those unpaid, of which there were a considerable number among the old papers. Sundry debtors, £42l2s—Chiefly made up of sundry accounts paid to Moody and Ziesler in 1888.

Capital account, £8073 9s 2d—This agrees with the share register. Insurance account, £ll2 17s 7d — Principally insurances paid as far back as 1885,1880, and 1887.

Sundry debtors, £760 9s 2d—Principally journal entries, March 3890, interest supposed to have accrued to that date, but not charged to nor recovered from those owing it. Under the head "interest account £53 5s Bd," Mr Qujnn gave an instance to show how the account had been treated for some time. By means of forged papers a deposit of £75 had been twice repaid, with interest, in all £l9B 15s. Sundry depositors cr. £l7 6s 9d.—This on Ist April, 1892, is the only provisioil or accrued interest on fixed deposits, and a ridiculously small one for such a purpose, as more than this was paid on one deposit alone. Deposit account, £1391 4s sd.—This account is completely honeycombed with irregularities of different kinds, and in order to get the bottom of it each transaction since the formation of the company had to be scrutinised, with the following results :—Various sums totalling £O9O were paid out for deposits that did not exist, the first of these payments as far back as 1885. Sums to the extent of £193 10s were withdrawn in excess of sundry deposits, the principal aiuounji being'ou a deposit of Rev. E. Macintosh, who deposited £2OO on demand in July, 1886, and with an unstamped order on the back of the receipt r,o pay to Moody and Ziesler, or order, and this firm drew £350 six weeks later. Depositors had come forward whose names were not in the company's books, their claims amounting to £5lO. These increase the company's debt on this account to £2790; assuming, as the directors allege, the company has no liability on a forged deposit receipt for £BOO now afloat. Profit and loss account, cr. £425 12s 2d —Has been so bolstered up by other unreliable accounts as to be a myth. The company during the last six years has not been ir> a position to have a credit at this account.

Investment account, £18,226 5s 5d.-~ Moneys advanced on mortgages; securities held by the Union Bank. From that total must be deducted £169 10s Id, on nine securities (named) not in the bank's list .ipd which had either been hypothecated otherwise missing; there is no trace of them among the company's papers. There were also to be deducted the amount of repayment account £BB9 8s 9d, also £l6 repaid in August 1890, but not recorded in the books. Profit on properties sold dr. £35, and suspense account, cr. £3s.—The profit is mythical. Both are journal entries and one nullified the other. Rents.—No rent account was kept; but from a private ledger left by a clerk, he learned that going no further back than the present or last tenant, of £227 10s 8d received only £72 16s found its way into the company'* hands. Insurances. Renewals oi various policies wanting; several policies missing ; some of those held are bogus interim policies of which the insurance company have no record.

Defalcations.—-To ascertain the whole would require an extended labor, the cost of which would be and could not bo recouped.

Position. —I find the position of the company (always assuming that its clients verify their individual balances as shown by your three registers—a rather credulous assumption—and the value of properties in the hands of the company is fully realised) to be as follows : Liabilities—Capital paid, £8073 9s 2d; subscription shares, £B3O ss; fixed deposits, £2792 lis 7d; interest on same, say, £200; Union Bank, £B6BB 2s lOd; interest on same, £238 14s Od ; dividends, insurances, and sundry liabilities, say, £l2O ; total £20,943 3s lOd. Assets Mortgages, £15,029 Gs 7d ; rents, say, £IOO ; safe, &c, £3O ; cash on hand, £3 6s ; total, £15,762 12s 7d. Deficiency, £SIBO 10s, 6d. The report of the auditors, Messrs J. B. Rutland and C. S. Fraser, gave a list of nine cash vouchers, for £364 13s 5d in all, as missing (£179 of it dividend account of May last). The found two small omissions in the abstract- of the deposit account supplied to them. From this abstract they found the deposits still due by the society £2214 15s lOd; amounts purporting to have been deposited with the society and paid out as such, but of the deposit of which they could find no trace of £B4O Is 4d. The auditors stated that the insurances were in a better state than Mr Quinn had reported. Of two share transfers passed by the board in April last, only one had been entered in the register. The auditors agreed with the investigator that securities for £1691 were missing. They gave a list of deposits—in existence £2214 15s lOd; paid out as deposits which could not be traced, £B4O Is 4d; amounts paid out, presumably interest, £53 10s Id.

In the course of the discussion the chairman said the directors held shares to the value of £4OOO and had no suspicion of the honesty of their manager, Mr Ziesler. Several of the shareholders blamed the directors, and the directors blamed the auditors. It was anticipated that some calls would have to be made.

The chairman explained how the auditors had been " hoaxed" in the matter of securities in the bank. The manager wrote out a correct list of them on two half sheets of foolscap, and got the banker's certificate on the second half; then returning to the office he rewrote the first sheet, adding a lot of missing securities, and pinned this sheet to the one bearing the banker's certificate, that the list was correct. The auditors accepted the list as correct instead of going to see the securities as the rules provided, and as their reports said they did. The correct first sheet was kept and reattached for the banker and directors to see. It was decided to wind up voluntarily.