If association in a general way than the officers of that one association who have knowledge of only the association in which they are interested. While an examiner may not have the intimate knowledge of each loan he is able to form a pretty reliable opinion as to the general character of the loans that an association is making. The first great care of an examiner is, of course, to see that the loans of an association are valuable assets, that it is making proper loans. The solvency of every association depends on the value of its securities. Sometimes it is necessary for an examiner to do some work in the field in order to get a knowledge of the loans an association is making -such work is valuable in connection with the examinations. Loans of a speculative character, excessive loans to officers of the association, excessively large loans, loans on manufacturing establishments or properties not readily salable, are all open to the criticism of an examiner of building and loan associations. But in addition to a scrutiny of the loans of an association an examination should include other things. Care should be taken to see that the cash of the association is not mis-applied by any officer, that the funds are at all times intact. An association through ignorance or failure to keep proper accounts may be maturing stock too early or too late with the result that some stockholders are being preferred at the expense of others. stock is being matured at too early a date the association will in time find itself embarrased. An association may be conducting its business at too great an expense-its officers may be obtaining all the benefits for themselves in the way of salaries and commissions at the expense of the stockholders. This should call forth the criticism of the supervising officer, who in this case represents the interests of the individual stockholders. Accounts may be kept in such "slip shod" fashion that an accurate statement of the condition of an association cannot be obtained. Accounts may be purposely kept in such manner that they conceal the true condition of as association. There may be a lack of proper protection for the association's loans by insurance. An association may not be maintaining the legal contingent fund or reserve which the laws require as an added protection against losses. There are numerous ways in which it may be violating the laws provided for the control of such associations. The above are only a few of the contingencies which might require supervision. Let me emphasize here the importance of one point I have mentioned above, that an examination, or inspection, or audit, is of little value unless there is legal power permitting the supervising officer to require an improvement of conditions where there is necessity for improvement. Building and loan association men should insist on strict supervision of their associations because of the good they will receive in the added confidence the public will have in them because they are supervised. People nowadays hesitate to put their savings in unregulated institutions-they recognize perhaps better than the officers of associations the need for regulation. Investors are more ready to put their savings in association when they know that well-adapted laws exist for the regulation and control of such associations, and that the laws are rigidly enforced. The stricter and more intense the supervision the better the associations prosper-this is the attitude that some wise association men take. They find that the people who come to them with their savings or to save to get a home know that there is strict supervision and believe that their savings are therein best safeguarded. No stronger advertising phrase can be used on the circulars of an association than the words: "Under the supervision of the state banking department," when that means an efficient administration of the supervisory laws. It is not necessary that an association shall after each examination receive a certificate from the supervisor that its condition is satisfactory-such is not always the case-but the member can rest assured that the supervising department is doing everything possible to maintain the associations in a safe and sound condition, and that if conditions are not as they should be in certain associations such conditions will be improved if the supervisor has the power to compel correction. Building and loan men should favor supervision, therefore, because of the increased business it will bring them, the standing they will obtain by being classed among the governmentally-regulated institutions. One quite prevalent notion that the public has in regard to examinations of financial institutions is that such examinations are for the sole purpose of ascertaining whether there has been mis-application of funds. It is true that this is a valuable part of the work of supervision, and a part of the work that the public hears about only when some offender is apprehended and brought into a court. It is, of course, not possible to absolutely at all times prevent wrongful and criminal mis-appropriation of funds. Building and loan associations are not as a rule wrecked by such mis-application, but supervision minimizes mis-application and its effects upon an association. It probably is true that no official ever abstracted a large sum unless he acquired the habit by taking small sums. A supervising department should be insistent in its requirements that association's funds shall at all times be kept entirely separate from private funds. Let me say here that in my own experience as an examiner I have been instrumental in requiring restitution of misappropriated funds probably equal to the cost of examining the associations in my state. It is easier to require restitution of small amounts than of large sums. No one can say how far an offending official will go in illegal practices when he is not prevented from personal use of the funds of an association. Examinations at frequent intervals, at unexpected times and without notice, is helping to prevent losses to associations through abstraction of funds. Where these have been detected and the officers called to account their almost universal excuse has been that it was their intention to replace the funds "before the examiner got around." Restitution of the funds is the main consideration of the examiner, removal of the offending officer is always insisted upon. Prosecution is not always resorted to because of the harm that might be done the association by the undesirable publicity and in some cases because it might prevent restitution. Probably no other class of accounting or bookkeeping is so complex and so many diverse systems exist as in building and loan associations. When I made my first round of examinations it seemed to me as if no two associations had systems alike. The different systems under the various plans of the different kinds of associations are enough to keep the most experienced and versatile accountant guessing. Banking practice is simple as compared to building and loan practice, and bank accounting is to a greater degree standardized. It is not practicable where so many systems exist to prescribe a uniform method of accounting for associations already organized. It is practicable, however, to require all new associations to conform to prescribed forms and systems. It is practicable to also establish certain requirements which may be observed by all associations. Uniform accounting can be obtained in a gradual manner without embarrasing any association through the efforts of an efficient examining force, by suggestion, by showing officers the greater simplicity or practicability of modern systems over their old systems. When greater uniformity in bookkeeping and accounting systems is brought about the meetings of building and loan officers will be of greater interest, closer ties will unite them, and discussions will be better carried on and better understood. The association with primitive methods and cumbersome books may well receive instructions and advice from an examiner who has the opportunity to see the best methods in use in the most highly developed associations. In this prepared address it is not possible for me to tell you of specific instances where state supervision has proved its usefulness in Wisconsin. But we have had numerous instances in our state where the aid of the department has been invoked to save associations and their members from loss. Supervision has certainly proved beneficial in Wisconsin, and in other states. And supervision has improved. A few years ago th eexaminations were not "followed up" as now, the examiners did not go into the more ethical questions involved in the conduct of associations. Interchange of ideas among the examiners of the various states has helped to increase the standard of examinations. The increasing importance of the associations has caused a greater interest to be taken in the work of examinations. Stronger and better laws capable of enforcement have been passed. I am informed that local associations in Iowa are not supervised. I think every building and loan man connected with an association in Winconsin would unite with me in urging you to ask for such a law as we have in Wisconsin, placing your associations under the supervision of the same state department as has supervision of your state banks, and providing for annual examinations without notice, by an examiner appointed by the supervisory head of the banking department. I am sure that the associations of Iowa would be benefited greatly by state supervision. MORTGAGE BUILDING AND LOAN ASSOCIATION, This association has issued a neat booklet, entitled, "THE STORY OF BUILDING AND LOAN ASSOCIATIONS," saying: "The purpose of this booklet is to tell you about our association, its methods, purposes and aims, so that if you are not a member you may be induced to join us and thereby benefit the community, yourself and the association; or, if you are already a member, you are invited to increase your holdings; or, if you have all the shares you can presently carry, you may, by your influence, induce others to join. We want you to know what we are doing and how and why we are doing it." W. Z. EDWARDS, Secretary. The business-like way of Making your Association grow is to adopt the same modern methods as other Advertise judiciously. I can serve you effectively in these efforts. For 12 years I have specialized in building association advertising. Good work and conscientious service has given me a National reputation. Send for booklet of credentials. C. R. Lippmann, Advertising Counselor, 37 E. 28th Street, New York. TWENTY YEARS' GROWTH. By FREMONT WOOD, San Francisco, Cal. N. B. Electrotypes of the above furnished for advertising purposes Correspondence. ADVERSE RULING OF COMMISSIONER OF INTERNAL EDITOR NEWS: REVENUE. WASHINGTON, D. C., November 10, 1914. Under date of November 5, 1914, the Commissioner of Internal Revenue has ruled that building and loan associations have no exemptions under the late war revenue act except as to stock and bonds issued by themselves. This surprising decision is directly contrary to the ruling of the Commissioner on October 11, 1898, published as Treasury Decision No. 20187 in the series of that year, and which ruling is expressly stated to be based upon an opinion of the Attorney General. From the wording of the ruling just made, it seems probable that the former ruling and the opinion of the Attorney General were not considered, and perhaps not known, to the author of the present ruling, and for that reason we may fairly hope for a reversal in due time. Meanwhile, the building associations will be put to much trouble and expense that some of us personally know were not intended by the chairman and members of the Senate Committee on Finance and House Committee on Ways and Means before whom some of our building and loan association representatives appeared. I suggest that beginning with December 1, 1914, the associations keep an account of the cost of stamps forced upon them and their members by this ruling of November 5, 1914, with a reasonable expectation of getting a refund. Very sincerely, CHARLES F. BENJAMIN, Secretary. EDITOR NEWS: KANKAKEE, ILL, October 23, 1914. Enclosed please find draft for $13.50 in payment of renewal of subscriptions to the News for our nine directors. I believe these subscriptions have been of great value to our association in keeping the directors in closer touch with the building and loan work AT LARGE, and believe every director of an association should be a subscriber. Very truly yours, ALBERT SCHMIDT, Secretary. THE BUCKEYE, OF BELLAIRE, OHIO. JOIN THE ARMY of depositors in The Buckeye Savings and Loan Company, More than five thousand belong to this army and have to They receive a good rate of interest-5 per cent per annum, compounded semi-annually. Their motto is "Forward, March." They have been marching to The Buckeye Savings and Loan Company with their savings for many years. Our motto is "Safety and Economy"-safety first. Every dollar is loaned on a first mortgage on improved real estate the best security obtainable. Less than 1 per cent of the earnings finance this, the largest financial institution in Belmont County. |