CHAPTER THIRTY-THREE.

Expert Examinations of Street Railway and Other Corporation Property and Accounts for Banks, Syndicates,

Trust Companies and Investors.

Money makers are the same the world over. They have not changed for three thousand years. Their practice conforms within the law to their desires. Persistent, aggressive effort to achieve fortune is commendable.

What one possesses others strive to obtain. This is called enterprise. Acquisitiveness is the animating cause of commercial activity; possession of wealth, the goal of mankind. If these truths were more generally kept in mind, men would be more wary in making investments; more painstaking in looking after investments already made.

Those who have money to invest in corporation securities should not buy without investigating, nor hold without guarding. Investors in corporations will be wise if they exercise equal foresight. It will be only common business prudence.

As long as men will buy securities without intelligent investigation, so long will they be disappointed in their investments. I do not say that securities selling below par, or at merely nominal rates may not be valuable; they may be more desirable than those selling at a premium. But wise men will not touch a security without careful investigation. Those who do are the most reckless of gamblers and unworthy of sympathy if their ventures turn out unfortunately.

While men should not buy securities without investigation, they should not sell without reason. Mere rumor should not disturb them. Stocks and Bonds are ever the subjects of manipulation. The effort to induce the public to sell when the market is going up, and to buy when it is going down, never for a moment ceases. Representations conform to these ends and markets are manipulated accordingly. Speculative classes are kept alive by the dupes who believe their misrepresentations.

Millions of dollars are lost every year, simply because investors neglect to make a proper investigation. Millions upon millions of dollars have been lost by investors, because Trust Companies act as Trustees, without investigating the corporate property, to ascertain if it is worth the bonds to be issued, or if the companies will be able to pay interest.

Every corporation proposing to issue bonds, increase the Capital stock, or ask accommodations of banks, should have its accounts, property and financial affairs examined, by a competent, disinterested Public Accountant, whose report should show the true financial condition, and be exhibited to all parties interested. If banks would require such statements, their losses would be considerably less. Trust Companies, before accepting the trusteeship of the bonds of any corporation, should have a thorough examination made by their own representatives, for the protection of investors.

To make an efficient examination as above referred to, you must not only be an expert accountant, but must have a thorough knowledge of property values of every description.

To make an expert examination of the accounts, property and franchises of a Street Railway company, I would make the following suggestions:

You should be clothed with your authority to enter the company's offices and property, with free access to everything necessary to make your examination complete.

The Articles of Incorporation should be examined with the greatest care and accuracy, and be compared with the charter received from the State Department, noting particularly the sections of the Statutes under which the company is incorporated.

In a recent examination made by the writer, it was found that the Articles of Incorporation were drawn under one section of the Statutes and the Charter granted by the Secretary of State under another section. It was an easy matter, however, to show the pure intent of the Incorporators, while the error was principally on the part of the Secretary of State. Otherwise it would have given rise to a very serious complication.

In your report you should give the Articles of Incorporation and the Certificate of the Secretary of State, to show that the company has been legally incorporated.

You should then give your attention to the Minute Book, Subscription, Stock Ledger, Certificate of Stock Book, etc., to see what resolutions have been adopted by the company, by whom the stock

was subscribed, to whom issued, etc.; while it is not your duty to audit the books, you must compare the Balance Sheet for different periods with the books to ascertain if they are correct. In your report you should exhibit the Trial Balance for the last month previous to your examination.

The Operating Receipts should be examined for a period of two or three years, likewise the Expenses for Operating, Maintaining and Fixed charges, Tabulating the monthly totals, as will be shown in the Report.

Following the statement of Earnings and Expenses, should be given the Assets and Liabilities in detail. Although they are represented in the Trial Balance, they should be given separately.

The Trial Balance, statements of Assets and Liabilities, Operating Receipts and Expenses, having been prepared after a careful examination of the books and records, you should then examine the records in the County Clerk's and Recorder's office, to ascertain if there are any unsatisfied Mortgages, Liens or Judgments on file or record against the company, not shown on their books. You should report the findings of this investigation, and obtain a certificate of each officer to verify the same.

The real estate owned by the company should be examined, not only from the deeds, etc, but the property itself. Examine carefully the value of the same on the books, and compare vacant or unimproved property with the considerations mentioned in the deeds. Sometimes it might be well to get the price of the property from one having a knowledge of its true value. This information must be obtained, however, without creating any suspicion.

After the property has been examined, each piece should be described separately, the same as it appears upon the records. You should also make a plat of it, showing dimensions, location, boundaries, etc.

You should next examine the company's franchises; usually all companies have a copy of each, but if they are not certified to by the city, township or county clerk, as the case may be, you should not make use of them. A copy of each franchise can be obtained of the city, township or county clerk, with their certificate that they are correct. This will incur some expense, but they must be had.

After procuring copies of the franchises, study them carefully, and compare them with the road to see if all conditions have been complied with. The franchises and certificates may be inserted in your report just as they are received from the clerk. Although they

are usually numerous and lengthy, I prefer to copy them for the sake of uniformity.

In order that the franchises may be more easily followed, I prepare a map upon tracing cloth, of the whole road, showing all streets, avenues, and highways, in which the company's tracks are laid, whether single or double, weight of rail, etc., also show the location of real estate. In large cities these maps can be purchased, but in smaller places they cannot be had, unless the company has had one prepared by their engineer, in which case, all you will need to do is to copy it. Now you are ready to examine the construction and equipment, which will require close inspection and good judgment. You should have the Superintendent go with you over every foot of the company's. road for the purpose of giving information; you should ask questions. upon every important point and make notes. The Superintendent can tell you the size and weight of the rail used, the kind and size of ties, their distance, etc.

You should give particular attention to the ballast condition of the track and pavement. This is one of the most important points to be considered, because the franchises may require the company to. keep the pavement in repair, and if the road is rough and rail badly. worn, it may require a vast amount of money to put the same in good condition.

The overhead construction should receive your attention at the same time, noting whether wood or iron poles are used, and give the size, height, depth and condition. Give the size and make of trolley, feed and guy wires and appurtenances. The condition of switches, crossings, turnouts and sidetracks, should be examined carefully, as it is very expensive to replace them.

The road having been carefully examined, you should then go. through the power house, barns, etc., here the Superintendent can give you full information regarding their system of operation, electric and steam machinery, motors, cars, trucks, etc.

Now that you have been over the whole property with the Superintendent and have received full information upon every point, you are ready to examine the property for yourself, which should be done about as follows: First get a pass and go over as much of the road as you think proper, in order to learn the condition, you should converse with the conductors, motorneers and gripmen about the condition of the cars and track, and the feeling between the company and the men.

These men know more about the condition of track and cars than,

the officers, and if they are handled properly, you can get all the information you desire.

You should then press the Line and Track Foremen into service, with them you can examine the overhead construction and track. In conversation with them, you can learn what is needed and where the defects are.

When you examine the steam and electrical machinery, you can get all the information you desire by conversing with the engineers and firemen; if there is any defective or worthless machinery you can get the details from them without any trouble. You should make a complete record of all of the machinery, giving the style, size, number and make of each. This is necessary, because it may be required by the attorney to insert in the mortgage.

The power, engine and boiler houses, shops and car barns should then be examined, noting the condition, material, fire protection, etc. Your description of this property should be complete, and shown upon a plat as has been stated.

Your attention should then be given to the motors and cars, noting in detail the number, style and condition of each motor, car and truck. The number and make of Motor cars, number of Trailers and Open cars.

Having examined the company's incorporation papers, accounts, earnings, assets, liabilities, real estate, overhead and surface construction, machinery and equipment, then you are ready to prepare your report, which should be plain and to the point; you should give all descriptions and explanations as shown by the records, so that the mortgage can be drawn without further examination. A report based upon the following sketch will be found to meet most requirements.

Articles of Incorporation.

Make a complete copy of the Articles of Incorporation.

Charter or Certificate of Incorporation.

Under this head, make a complete copy of the Charter or Certificate of Incorporation. This will show that the company has been legally incorporated.

List of Stockholders.

A list of the stockholders should be given, showing the number of shares owned by each, and the amount paid in.