To insure the correctness of balances on the individual ledgers it would be well to render a monthly statement to depositors having active accounts, and to others at short intervals. A reconcilement blank, stating that the balance is correct, should accompany the same, to be signed by the depositor, and an envelope ad dressed to the cashier. If there are errors, the depositor may note them, to the end that they may receive official attention immediately; these reconcilements to be filed by the auditor and checked back by the examining committee.
Surplus Nominal and Real.— In some in stances it would be advisable for the directors, when making an examination, toemploy ,a trustworthy expert accountant to aid them in their investigations, because such an expert may be able to make a more complete analysis of the condition of the bank than can the directors. Here we venture, in the interests of justice to all, to express the conviction that while banks may continue to fail, shortly after they have secured a certificate of soundness from National or State bank examiner — as they have failed in the past—no such failure should take place following a like verdict of a board of directors of a bank, though there have been such cases. The official examiner of the Na tional or State government may not be pre sumed to know the standing of many of the promisors or endorsers of notes. It may be impossible for him to detect worthless paper, though it is supposed to represent thousands upon thousands in value. But no such plea can be accepted for the directors of a bank, some, if not all, of whom should have knowledge of the value of the paper upon which they lend their depositors' money. And what are the directors but trustees of the moneys of others, committed to them in perfect confidence, and to whom no language can too severely be ap plied, who fail to direct? Here it seems proper to emphasize a practice which is becoming far too common in the management of banking institutions, namely, the practice of carrying on the general ledger a large surplus fund, or undivided profits, through the failure to charge off bad paper which is known to be such. This is a matter to which, in their examination, directors should give their attention, that their bank statement may represent the exact con dition of the institution; just such a statement, in fact, as every right-minded director would furnish were the bank his own property. But let us be just to the directors, many of whom are prominent business men, some of them directors in several other institutions and other wise engaged in business occupations which take all their time, and which make it im possible always for the director to direct and examine, as he would be glad to do. This fact has obtained recognition among leading bankers, who have inaugurated another sys tem of examination, namely, the practice of having the books of the bank examined as often as may be deemed expedient by a com mittee appointed by the president from the competent clerks, including a chairman of con siderable experience. The committee being notified assemble immediately. Without a moment's warning all the affairs of the bank are put in their hands. They count the cash
on hand, examine balances, count all securities, examine and compare the sum total of all dis counted bills and their collaterals, verify all accounts in the ledgers — in short, they rigidly scrutinize the condition of the bank. No one — no officer even — is allowed to make any transaction without the knowledge of the com mittee, who take due account of it. Where, as in the large cities, branch banks exist, the affairs of each branch are also examined in the same manner and at the same moment, that there may be no collusion by shifting of bal lances, borrowing money or securities to make good a deficiency.
How Some Banks Examine Themselves. —The following from a circular letter, con vening a committee of examination, will give some idea of the character of the work per formed. The first line of the instructions to the committee may read as follows: On presentation of this order you will at once take charge of the bank, and will not allow any officer or clerk to do anything without your knowledge.
Then follow specific instructions to the committee: Count the cash in detail. Eicamine the cash items, and all items com posing exchanges, and see if any are irregular, and make full returns to the president. Test all discounted bills, their endorsements and col laterals, and prove the amounts and accom panying securities. Check up all the loans. Verify all extensions and balances of ledgers. Prove all certificates of deposit and certified checks as well as all outstanding vouchers. Prove the cashier's account; make a record of all outstanding vouchers and see that all checics drawn on the bank have two signatures. Verify the expense account. Ascertain whether all charges are initialed by an officer. Prove the teller's difference and submit all items to the president List all amotuits due from banks and verify them, noting any irregularity. Re port on amount due from each concern. Scru tmize and report upon clearing-house accounts and margin accounts of the Consolidated, Prod uce and Cotton exchang.es. List all dividend checics unpaid. Check off all stocics, bonds and mortgages. Describe all overdrafts, and see whether the books are properly kept Re port all suspended debts and balances due. Check off, a month back, the discount book and see if all amounts are duly entered. Examine exchange account; see if the entries appear suspiciously low and if there are any debits. Investigate interest account; see if all charges are initialed by an officer. All insurance policies and bonds should be scrutinized and a complete record tnade of the same. Report on all differences called for on general ledger, and whether they are all lmown to the officers. State at length your views as to the condition of the bank; report any departure from the method of our system as you understand it. Report any suggestions that may occur in con nection with the method of bookiceeping look ing toward their improvement. Finally state errors made in the methods pursued in the handling of bills discounted, loans or any other detail of the business.