Wood County reporter. [volume] (Grand Rapids [i.e. Wisconsin Rapids], Wis.) 1857-1923, 1891-12-03
BANK EXAMINATIONS
Do Examiners Examine is an Inter
esting Question to Bankers and
Business Men.
Public Accountant Gives Some Good
Reasons Why Facts Cannot
Be Reached.
Some Things These officials Ought to
Know to be of Practical
Utility.

At the present time there is hardly a
more pertinent question among business
men or one more frequently asked than
"Do bank examiners examiner" and there
is scarcely one in which they take more
genuine or lively interest. In spite of
some misgivings when bank has failed
or been robbed, it has hitherto been sup
posed that the system of national bank
examination was well nigh perfect, and
that IN the examiners themselves stock
holders and depositors alike had a corps
Of vigilant guards, who would etfectualiy
prevent any malfeasance OF bank officials.
This supposition has received so rude
shock during the past year that on all
sides is heard atdemand for real examina
tons and for method which will lead to
the detection of fraud some little time be-
fore L bank is Quilted
Some of the imperfections of the present
system Of bank examinations and some of
the errors in bank practice are pointed out
BY James Warrington, public account
ant, who has had a long experience in the
auditing of accounts Of business corpor-
ations and whose criticism OF the methods
Of examination employed in the case of
the Keystone Bank, of Philadelphia, was
given few days ago. In reply to re-
porter's request for some suggestions as
to the means to be employed to secure
examinations which should reveal the true
condition of banks he said:
''This subject has engaged my attention
for some years past, and | think | know
something about the difficulties of he
work and the most practical ways of man
aging it. But before the remedy is APP
piled we must know something of the
disease, SO let me tell you something of
what bank examiners have to contend
with. So far as | can see there is not
among business men that clear perception
of the reasons for the failure of the system
which is a neces> airy preliminary to The
formulation and adoption Of better one.
Neither does there seem to be any clear
understanding of what is really involved
in bank examination | have held for
some years, and still hold, that the
methods of examination now practiced
are really useless, and that there is only
one method which is at once practical and
efficient.
EVIDENCES OF UsELEssNEss.
SIN speaking of bank examinations |
would include not only those by the regu-
larry appointed national bank examiners.
but by the examiners for the courts and
by committees of directors. say advised
" that they are all failures and that they
are so necessarily. That they are useless
Philadelphia alone affords ample evidence.
The national bank examiner did not pre-
vent the downfall OF the Keystone and
Spring Garden Banks or the serious de,
falcation in the Manufactures National
Bank The court examiners did not pre-
vent, or discover until too late, the defal
cations in the Provident Life or Union
Trust.
The directors in all these corporations
gave no hint that there was any dlshon-
esty, notwithstanding it was rampant, and
in the cases of the Columbian bank and
the Bank of America not sign OF the
internal rottenness was found Dy the dl-
rectors. or if found, was concealed. l only
mention cases which have become public,
but almost numberless cases could be cited
OF matters seriously affecting corporations
which 90 on undecided for years, and
when found, often by mere accident, are
quietly written off.
Il think need not adduce 'urther evil
denco in support Of the position [ take
that bank examiners do not examine,
and will put the question In another form
can bank examin ers examine? To this
| emphctically say no. Now, in order to
put the matter clearly, will take up sep
aretely the different classes Of examiners
and endeavor to show why, IN my opinion,
they cannot examine.
WHY EXAMINERS FAIL.
"As to the national bank examiners,
their deficiencies can, perhaps, best oe
shown by stating what ought to be the
qualifications for such a position. They
should be familiar with the com mercial
world. They should De possessed of wide
experience as accountants, and therefore
CAPABLE of detecting manipulation. They
should be perfectly conversant with the
general run of the business of each bank
examined They should have some knowl-
edge Of commercial law.
IF such be necessarily the qualifications
it will follow logically: That no mere
book keeper can satisfactorily ill the posi-
ton: that no examiner should have more
banks to examine than he can personally
handle; and in my opinion no examiner
should exclusively examine banks.
"It needs very little argument to show
that man with political influence, or
even a good bookkeeper, will not make an
efficient bank examiner.
EXAMINERS ASSISTANTS OF NO USE. j
sit needs years of practice and exper-
fence to detect fraud quickly, and the ex-
perience must not only have been long but
wide But if for argument sake such a
man be had can he under the present sys-
| TEN examine IN a proper manner? L
think he cannot for several reasons. In
| examining bank, or in fact, any bust
ness, many points which require the
incest Judgment must come up, and II an
| assistant of little experience be employed
he will probably overlook them, or may
even mislead his principal; therefore |
claim that an examiner should only
examine as many as he can personally
handle.
| 1.-The national bank examiner has so
| many banks to examine that he cannot do
his work efficiently. This overlooking of
| the examiner leads to another diff culty.
In order to economics his time and get
| through his work he is compelled TO have
pretty regular time for visiting each bank.
and when he does make a visit must finish
| the examination without interruption.
Consequently bank officials have shrewd
idea when to expect the examiner, which
| dishonest ones fail not to take advantage
/ of. Bank book keeping is generally man
aged on a system which does not readily
lead itself to examination without
notice.
That kind Of examination which con-
sists in checking entries, footing Up
columns and trusting to trial balance Is
far from being an ideal one and yet with