The Washington herald., 1911-02-28
BONDING COMPANIES
SCORED IN REPORT
Fidelity Division of Treasury
Department Advocated.

A strong indictment Of surety compa-
nies is contained in the report Of the
bonding commission, submitted to the
Senate and House of Representatives yes
terday, Senator Gallinger, OF New Hamp-
shire, is chairman of the commission.
Representative Tawney. of Minnesota.
initiated the investigation. The commits
sion recommends legislation creating a
fidelity division in the Treasury Depart
ment, at an annual expenditure of 81. 5.Ooo
a year, which shall hereafter have charge
OF all matters pertaining to the bonding
OF government officers and employees.
That the government is inadequately
protected under the present system is
demonstrated, according to the report, by
the fact that the surety companies "have
not paid losses in full," have not paid
them promptly. and have not paid them
without litigation. They have paid only
366S per cent OF the amount due the gov
eminent under their legitimate losses, and
much OF that has been paid only after
long and vexatious litigation.
This state of affairs is due the COM
mission reports, ito the companies avoid
ance Of liability on technical grounds and
to the insolvency Of companies. The
6S.3 of losses unpaid include a large
amount abandoned through relief acts of
Congress, a fact that illustrates one of
the greatest defects of the present system
When a loss occurs under bond for
which the officer who pays the premium
is liable, but which is due to the dis
honesty Of a subordinate, the officer is
relieved by Congress, the government de-
rfves no benefit from the preiums paid
fhA fa Of
country bear the burden of the loss.
The report charges that not only have
the surety companies failed to pay losses.
but that they have also failed to prevent
losses. Their systematic watchfulness
which is supposed to exist is not SUD-
ported. the commission says, by the fact.
The commission sent a letter of inquiry
to the Chief OF the Secret Service of the
Treasury, all assistant treasurers, and
the auditors of the executive departments.
asking II any surety company had ever
furnished information which had ever
prevented a loss, shortage. or defalcation.
Without a single exception, every reply
was in the negative.
The First Assistant Postmaster Cen
eral did report. however. the occasional
requests from bonding companies to be
released from an individual surety were
frequently due to personal spite and not
to misconduct Of the employe in ques-
ton.
1T also appears" says the report,
that the companies are sometimes will
ing to conceal from the government the
fact that a particular employe is an en-
bezzler, il by so doing he VIII agree TO
protect them against loss. II this prac-
tice does not constitute -compounding
felony, II should be made so by statute"
With reference to the alleged bonding
trust, the report says:
Having secured a practical monopoly
OF the bonds required by the government
OF its own employees, seventeen OF the
twenty-one companies authorized to sign
bonds running to the government appear
to have combined in the latter part of
1905 for the purpose of raising rates and
preventing competition"