Mr Neal, of Messrs Agar, Bates Neal & Co (the Bank's Auditors), attended a meeting of the Bank Committee on January 15th 1940.
Reports by Mr Neal and the Bank's General Manager (J P Hilton) were presented to the Committee as a consequence of a deficiency created
by a member of staff: William John Woollons.
Three reports were presented and approved by the Committee:
Falsification of
Accounts - W J Woollons (by J P Hilton, dated January 10th 1940)
Branch Bank Inspection and check (by J P Hilton, dated January
13th 1940)
Interim Report to Committee on deficiency at Brandwood Branch (by the Auditors, dated December 18th 1939)
Falsification
of Accounts - W J Woollons
On the 18th December 1939 I was acquainted of the fact that Mr Oldham, the Manager of Billesley Branch,
was unable to balance his statistics of open accounts, etc, and that on examining the ledger accounts he had found certain entries
which he could not understand, made during the time Mr Woollons was the Manager of the Branch.
I visited the Branch in company
with Mr Ellison, and, after inspecting the accounts in question, endeavoured to get into touch with Woollons, but without success.
Being
convinced the matter was serious, I decided to look into the position at Brandwood Branch, where Woollons was in charge. After obtaining
duplicate keys, I opened the premises in the presence of Mr Ellison, Mr Parsonage and the Cashier of the Branch (Wilner). We checked
all cash and cash orders, and verified the correctness according to the day's position.
Further efforts to find Woollons being
unsuccessful, I proceeded with my investigations at both Brandwood and Billesley, and came to the conclusion that there was a deficit
of £183. 0. 3d, and that I had sufficient grounds for calling in the Auditor to make an investigation. I was unable to get into touch
with Alderman Barrow, but I received authority from Councillor Martineau to call in the Auditor, to whom I reported my suspicions.
He promised to commence investigations the following morning.
Independently of the investigations by the Auditor, I proceeded
with my own investigations at several Branches where Woollons has acted as Manager, with a view to tracing the commencement of his
operations.
Woollons adopted a method of creating deposit entries in ledger accounts without any corresponding cash book entries
until the end of the Bank year or an intervening date when he was transferred to another Branch. He was thus able to obtain cash represented
by the false deposit entries which apparently met his position for a time, but at the end of March, or whenever he was transferred,
he rectified the position. He varied his operations by using (1) his own accounts; (2) closed accounts of other depositors; (3) dormant
accounts with a small balance, and (4) by opening fictitious accounts. He appears to have extricated himself from time to time by
drawing on his personal account with Barclays Bank, and quickly replenishing such drawings by sums obtained from the Municipal Bank.
Woollons'
body was found hanging from a tree at Earlswood on the morning of the 19th December. His family had no reason to suspect anything
wrong; he had given no indication of worry or anxiety, and had been his normal self. Those with whom he had worked, and who have known
him intimately as a colleague, had not noticed anything to arouse suspicion. His absence during the afternoon of December 18th and
the night of December 18th-19th was a painful experience for his wife and relatives. His father and brother assure me there was no
need for Woollons to be short of money at any time. They have no knowledge as to whom he was indebted, nor can they offer any explanation
as to why he should have obtained money from time to time. He was not known to gamble or drink, nor has he lived in any extravagant
way. He came to the Bank as a boy in 1923, and throughout his service has not had an adverse report from any Branch Manager under
whom he served or from any Senior Officer since his promotion to a Managership.
In a separate report I make recommendations for improving supervision and checks.
Branch Bank Inspection and check
In view of the investigations into the transactions
by W J Woollons (deceased) when acting as the Branch Manager, I have considered what steps might be taken to strengthen supervision
of and checks upon Branches.
So far as actual cash checks are concerned, the present system is adequate. It provides for one
officer signing as correct the cash in hand at the close of the day, and for another officer counting the cash on the following morning
and signing the book as being correct. The Branch Manager locks the cash in the safe in the strong room, and holds the key of the
safe. The Assistant locks the strong room door and holds the key, so that it always requires two persons to be present to obtain access.
So
far as book-keeping checks are concerned, the present system provides a check which is effective when observed, but it is evident
from the nature of the transactions by Woollons, that the check can be evaded. At Branches staffed by two officers the Branch Manager
keeps the cash book and the Assistant posts to the ledger from deposit slips or withdrawal receipts. At the end of the day (or the
following morning) the Assistant enters on an extraction sheet the numbers only of the worked accounts as shown by the cash book.
The Manager then enters on the extraction sheet the actual postings made in the ledger by the Assistant. That constitutes a good check,
but where a Manager ignores the instruction, and enters items in ledgers and on extraction sheets without the knowledge of the Assistant
(as Woollons did) it is difficult to evolve a system which would prevent such action. Nevertheless, I think it may be laid down as
constituting an offence for any addition or deletion to be made to worked account numbers taken out by the proper officer, unless
both Manager and Assistant are agreed that such addition or deletion is necessary, in which case both officers should initial the
same. Further, the Manager and Assistant should be required to vouch the casting of cash book entries and extractions, and initial
same.
With regard to cheques and the check register, it might also be well to require the Manager and Assistant to verify entries
in the register with the Bank paying-in slip, and both officers to initial the day's total of such cheques.
I am satisfied that
the transfer of all closed account or small dormant account ledger sheets to Head Office will not help. This was done in the early
days, but resulted in too much traffic in sheets. Last year 6,374 closed accounts were re-opened.
Prior to 1933 we had a system
of Inspectors visiting Branches throughout the year, making test checks, comparing receipts, etc. The shortage of Branch Manager of
a suitable age to take charge of larger Branches, however, resulted in these men being placed in charge of such Branches. Later, on
the suggestion of the Auditors, we appointed two clerks as Audit Clerks to check all withdrawal receipts, and make test checks of
deposits and other transactions. This was in force until the outbreak of war, when the Audit Clerks were placed in charge of Branches.
The
absence of independent internal checks since September has given me concern, and the operations by Woollons, now brought to light,
convince me that the position must be dealt with. It is impossible for Mr Carver, as Controller of Branches, to supervise the work
of 60 Branches in an efficient manner, and I am of opinion the time has arrived when this very necessary supervision should be divided.
I therefore recommend Mr Carver being placed in control of all Branches on the north side of the City, and Mr Parsonage in control
of all Branches on the south side of the City. Both officers receive the same salary, viz, £800 per annum, and there is no need for
any variation to be made.
In place of Mr Parsonage in charge of Head Office Savings Bank Department, I recommend Mr Chapman (Branch
Manager). Mr Chapman receives a salary of £570, and I recommend the same being increased to £600. To replace Mr Chapman as Branch
Manager I recommend W A Camwell (Cashier) on trial for twelve months at his present salary, viz, £270 per annum. In place of Camwell
I should engage a female clerk at £140 per annum.
With regard to the two Audit Clerks, one to work under Mr Carver and one under
Mr Parsonage, I recommend F M Thompson and H G Williams (Cashiers) at the salaries they will receive in April next, viz, £270 per
annum. In their place two female clerks will be engaged at £140 per annum each.
The increased cost of these proposals will be:
|
|
£ |
|
Mr
Chapman |
30 |
|
3 Female Clerks |
420 |
|
|
450 |
Interim Report to Committee on deficiency at Brandwood Branch
On instructions
received from the General Manager, we have now made a close examination of the transactions of the late Manager Mr W J Woollons, which
resulted in a deficiency at this Branch of £183. 0. 3d. Following on this examination we have investigated also at each Branch where
this Manager was employed, in order to ascertain as far as possible whether any further deficiencies existed.
The result of our
investigations which are complete with the exception of the Branches - Lozells and Stirchley, is that no further amount is deficient
other than the £183. 0. 3d. referred to above. We propose however, to file a complete Report in due course with detailed Schedules
of all the transactions which have resulted in the above deficiency.
The methods adopted by this Manager have been as follows:
(a)
By withdrawing money from Cash and delaying the posting to his own Ledger Account until either his salary or the legitimate credit
was available to put to his account.
(b) By entering in a Ledger Account a posting for a Deposit which was non existent in Cash
and then making withdrawals from the Account, the book-keeping for which was entered correctly and repayment vouchers supplied.
(c)
The creation of new Accounts in a fictitious name subsequently operating as in (b). One account was opened in this way with a genuine
Deposit.
(d) By using dormant Accounts, and entering fictitious Deposits from which subsequent repayments were made.
(e)
By reviving closed Accounts with similar entries as above.
(f) By making a repayment from an open Account (his Mothers), and
subsequently rectifying by a Deposit.
We have at the seven Branches already visited, carried out the following work to trace
as far as possible any deficiency arising from the above methods:
(1) All closed and dormant Accounts have been scrutinised.
(2)
Postings to open and closed Accounts in Ledgers fully tested for the appropriate periods.
(3) Examination of some of the open
Accounts which have shown entries after some long time of inactivity.
(4) Examination of all new Accounts opened during the period
of Management by Mr Woollons.
As a result of this examination, we have in hand a Schedule of the detailed transactions and have
asked for certain Pass Books to be obtained for comparison with the Ledger Accounts.
So far as we can see the Cash withdrawn
has been made good in each case with the exception of the final deficit at Brandwood. If other open Accounts have been falsely operated
as the one mentioned on (f) above, any further deficiency will be revealed only when Pass Books are presented at the Bank. From the
methods however adopted we think that any further loss occasioned in this way is improbable.
These transactions have been carried
out over a period extending from September 1935 - December 1939, during which time the Employee was a Manager and has been able to
control the book-keeping entries, either by delaying postings to the Ledger, or withdrawing the necessary vouchers from which Ledger
postings have been made by another Official. He has, as Manager, had the control of the Check on Ledger postings, and therefore any
original false entry by him in the Ledgers has not been entered on the extraction pads. On the occasion of his transfer to another
Branch, or the annual balance being extracted, he has been able to replace any deficiency.
Unless every Ledger posting could
be checked independently with the Cash Book, defalcation of this nature can be carried out, and more easily at the small Branches
where there is no machine posting. Such a complete check however, would involve internal audit on a very big scale and would not be
justified nor do we recommend it.
Owing to Staff difficulties encountered after the outbreak of War, the Bank Internal Audit
has been discontinued. In our view, this should at the earliest possible moment be reintroduced. In October 1924 after the default
of a Manager we recommended in our Report that independent Bank officials, now and then should check the extraction pads with the
Ledger and Cash Book, and at no fixed date. Whilst this would not necessarily reveal a defalcation, the moral effect would be of value
and might deter any tampering with the figures.
We referred to this again in our letter to the General Manager of the 21st January
1938, as regards non-machine Branches. A point which could be borne in mind here, would be that postings could be checked in this
way for the period immediately preceding any Manager being transferred to another Branch.
In our view, the Cheques Received Register
should be initialled each day by Manager and Assistant, and checked with the Joint Stock Banks paying-in Slips when these are returned.
Independent Bank Officials should examine this Register from time to time.
On several occasions when this Manager made good deficiencies,
it was with his own cheques.
In conclusion, we feel we ought to point out that there has been no occurrence of this nature since
1924 and since then over 27,000,000 transactions relating to Savings Bank alone have been dealt with by the Bank. There is therefore,
in our view, no cause for undue anxiety by the Committee in regard to the reliability and efficiency of the Staff.
The tests already made of routine working and calls at the Branches without notice still constitute the real deterrent to irregular transactions, though they cannot necessarily reveal at once a default of this kind.
In this case it seems that the Manager could always replace
at any time sums taken, and this factor must delay detection. We attach great importance to the revival of the internal audit by the
Bank Officials, the programme for which should not follow routine too closely.
Our full Report with all details shall be completed
at an early date.
At a meeting of the Bank's Finance and General Purposes Sub-Committee on March 11th 1940, the final report
of the Auditors was received and entered on the Minutes. The Auditor's covering letter was dated March 4th 1940:
We have
now completed our investigations into the above case on which we prepared an Interim Report presented on the 15th January, 1940.
Since
that Report, the two Branches referred to have been dealt with and reveal no fresh matter or method.
There are three cases where
we have called for the Pass Books of certain Depositors, and in two of these a first request by means of a letter through the post
from the Branch Manager concerned, has resulted in no response from the Depositor. In the third case, the Pass Book was reported to
have been destroyed by the Depositor as the Account was now closed.
We therefore, attach Schedules numbered 1 to 12 showing how
the defalcations were made. This, together with our Interim Report, complete our investigations.
Final Report to the Committee
on the deficiency at Brandwood Branch.
18th December 1939.
This Final Report of the Auditors consisted of Schedules that
detailed transactions during the period September 1937 to November 1939. The transactions were made at seven branches that Woollons
managed successively in this period:
Moseley
Cotteridge
Shirley
Duddeston
Ladywood
Billesley
Brandwood
In addition to creating
false entries on five accounts in his own name (at Cotteridge, Moseley, Lozells, and Stirchley branches), and one account of a member
of his own family (at Shirley branch), Woollons manipulated six accounts:
Brandwood branch (A/c BD 487: Miss L V White) a closed
account
Billesley branch (A/c BY 1315: R J Brown) a closed account
Ladywood branch (A/c L 6563: George W Davis) a dormant account
Duddeston
branch (D 26881: Mrs Jane Austen) a fictitious account
Duddeston branch (D 7825: Mrs Alice Clara Bold) a dormant account
Cotteridge
branch (CE 5219: Peter James) a fictitious account
The balances on all of these accounts (except BD 487: Miss L V White), plus
those in the name of Woollons and his family, were corrected, either shortly prior to Woollons being transferred to another branch,
or shortly prior to the extraction of all account balances at the March 31st Annual Balance.
The transactions that incurred the deficiency of £183. 0. 3d. were detailed by the Auditors by reproducing the ledger entries for A/c BD 487, then summarising the three fictitious deposits that had been entered on the ledger by Woollons.
Account 487
Miss L V White,
231, Alcester Road South.
Account
closed 1st January, 1934.
|
1939 |
|
Principal |
Interest |
|
Sept. 13 |
Deposit not entered in Cash Book |
150 .0. 0. |
2. 5. 0. |
|
Oct. 16 |
Paid |
140.
0. 0. |
2. 2. 0. |
|
|
|
10. 0. 0. |
3. 0. |
|
Oct. 22 |
Deposit not entered in Cash Book |
30.10. 0. |
7. 6. |
|
|
|
40.10. 0. |
10. 6. |
|
Oct. 26 |
Paid |
40. 0. 0. |
10. 6. |
|
|
|
10. 0. |
- - |
|
Oct. 30 |
Deposit not entered in Cash Book |
2.10. 3. |
9. |
|
|
|
3. 0. 3. |
9. |
|
Nov. 3 |
Paid |
3. 0. 0. |
9. |
|
|
£ |
- - 3. |
- |
|
1939 |
|
|
|
Sept. 13. |
Deposit
in Ledger not entered in Cash Book |
150. 0. 0. |
|
Oct. 22. |
" " " " " " " " " |
30. 10. 0. |
|
Oct. 30. |
" " " " " " " " " |
2. 10. 3. |
|
|
Total |
£ 183. 0. 3. |