AUDITOR SUED.

Auckland Star, Volume LX, Issue 287, 4 December 1929, Page 10

AUDITOR SUED.

BALANCE-SHEET FALSE.

WAS NEGLECT SHOWN ?

EVIDENCE BY DEFENDANT

(By Telegraph—Own Correspondent.) HAMILTON, this day,

The case in which Victoria Buildings, Ltd., are suing Frank William Luxford for "£4OB, loss alleged to liave been suffered by the defalcations of the secretary to the company, one Harry Craeknell, was continued in the Supreme Court yesterday. The allegation was that Luxford, as the company's auditor in 1926, signed a balance-sheet which was incorrect, in that moneys shown as accrued rent had actually been paid to the secretary, and that an item oi £108 shown as cash in hand was not \n hand or in the bank.

Mr. N. Johnson appears for plaintiff. Mr. G. Warbrick for defendant, and Mr. D. Seymour for the firm of Cracknel] and Crimp, since dissolved. v Giving evidence yesterday afternoon, Gordon Sydney Crimp, public accountant, said that in August, 1923, he joined Cracknell (who already was in practice in Hamilton) as an accountant. The partnership was dissolved by witness on December 24, 1928, because of irregularities which he had discovered in connection with the Victoria Buildings account. Crackneil had attended to the books of that company and had always collected the rents. The vouchers showed that the Government paid the rent regularly. Just before Christmas, last year, as a result of certain suspicions, he searched the company's' books, which he found locked in Cracknell's private drawer. He broke open the drawer and after a perusal of the books he communicated with the directors and called in Mr. English. As a result of his investigations witness' took over Cracknoll's assets. At the preent time those amounted to approximately £359, and the known shortages totalled £542; At March 31, 1926, Cracknell's assets would more than cover his then shortages. Archibald Morris Seaman, public accountant, Auckland, gave expert evidence on an auditor's duties. He said he would certainly have demanded proof of the existence of the cash in hand, and an explanation of the accrued rents before signing the balance-sheet. Charles Bishop Smith, valuer, said he was appointed first chairman of directors of Victoria Buildings, Ltd., and remained chairman until July, 1927, when he sold his shares to Mr. Crimp.. At the fourth annual meeting of shareholders on February 24, 1927, the bal-ance-sheet, certified to by Luxford, was adopted. Luxford at no time discussed the figures with him. It was his duty to see that things were all right. That was what the company paid him for. It was just a small company, which received only 12 payments a year. Mr. Swarbrick: Mr. Luxford will say that after he had perused the balancesheet, he saw you before the annual meeting and said there was a couple of items in the balance-sheet about which he had received explanations from Crackneil, with which he was not satisfied.

Witness: I have 110 recollection of it whatever.

Mr. Swarbrick: Luxford's evidence will be that he asked Cracknell about the cash in hand and.that Cracknell ex-

plained that the cash was not in hand; that certain vouchers had been sent to Wellington to be f renewed. Witness denied that such was ever said to him. It was also untrue that Luxford had mentioned the amount of accrued rent to him, and tliat he (witness) would see into it. This closed the evidence for plaintiff. Douglas Edgar Malins, auditor in partnership with defendant, said ho audited the 1926 balance-sheet. He was then in Luxford's employ. Cracknell brought over the books and witness personally went into the correctness of the balancesheet. He queried the two items, accrued rent and. cash in bank. Cracknell called subsequently and witness asked him the position with regard to these two items. His explanation was that the Department had not been regular in its payments and that he had not kept the books up to date. He said he had omitted to cash the Post Office warrants, with the result that they had become stale and that lie had sent them to Wellington for renewal. Witness told Luxford this. Smith called before the annual meeting and left the written memo (produced) for Mr. Luxford. Witness said he had posses'sion of the books for a few days. His Honor: And you accepted his statement that he had kept these warrants until they were stale? Witness: I referred the matter to Mr. Luxford. His Honor: But what explanation did he give for having kept them?—He saidj he had been a bit dilatory. I And you accepted that?—l had no suspicions that he was not telling the truth. His Honor: But this statement that there was certain cash in hand was false? Witness said "cash in hand" did not always imply actual cash in hand. Defendant Frank William Luxford, public accountant, said he had been practicing his profession for about 20 years. His clerk, Mr. Malins, drew his attention to the Victoria Buildings balance-sheet. This would be about a week or ten days before the annual meeting. Witness went and saw Cracknell, who said the payments came through from Wellington bywarrants, which he had to cash within a limited time. He had not kept the books up to date, and when he was getting the books ready for the audit, just before he took them to witness' office, he discovered some stale warrants. He had entered these up in the books and had returned them to Wellington to have fresh warrants issued. This was his explanation o| the cash in hand. Witness

asked where the new warrants were, arid, lie saicl they had not yet been returned from Wellington. So far as the outstanding rent was concerned, lie said the Department made its remittances irregularly, which accounted for the amount outstanding. Witness saw the chairman of directors, Mr. Smith, tlic following 01 second day afterwards. Witness told him he had seen Craekncll about these two items. Witness said it seemed that Cracknell had been a bit careless, ana although witness' suspicions about his honesty were not aroused, he thought it desirable to pass on Cracknell's statement to him (Smith) as chairman. Smith said he would look into the matter and see witness about it again. It was at that interview that Smith mentioned he had shares for sale. A day or so afterwards a note, which Smith had loft placed on witness' desk. This was the memo produced. This was before witness signed the balance-sheet. After the receipt of the note, he saw Smith again and told him lie had received the note. Smith said he had gone into the matter with Cracknell and was quite satisfied everything was in order. Defendant said he then got Cracknel to draw up a new balance-sheet separating the hank balance and the balance in hand. Mr Johnson: Did not the circumstances strike you as extraordinary that the Government owed 11 months' rent? Mr. Johnson: Why did you ask Smith to go into these items? —To enable hnn to satisfy himself. Mr, Johnson: But it was for you to satisfy him. , I Witness said lie had not been suspicious of Cracknell's honesty. Counsel: Did you make a note of all this ?—No. His Honor: When Smith made the statement thnt.all was in order, it would have been a simple thing for you to ha\e verified the statement. Don't you thin* it was your, business to have done so?-— I thought I was right in accepting the chairman's assurance. , Mr. Johnson: Do you not realise that your duty is to the shareholders and not to the chairman or the secretary?—^ es - This concluded the evidence for the defence. i The case was at this stage adjourned for the day. The Auckland Aero Club leads all the other aero clubs in New Zealand in that so far it has trained 14 pilots for the year which ends next March, according to a statement made by the director of an services, Wing-Commander Grant Dalton. The Hastings Club is well up in the list with a total of 11 pilots, including one woman,