HAMMOND--CRACKNELL CRASH

NZ Truth, Issue 834, 12 November 1921, Page 5

HAMMOND--CRACKNELL CRASH

SHORTAGE OF £%000 IN SEVEN YEARS £100 A Week That "Walked Away" AUDITING OF TRUST ACCOUNTS~-LAX SYSTEM CRITICISED

There were something' like seventy creditors, including women, present at the Chamber of Commerce when the adjourned meeting considering the af.■fairs of the bankrupt estate of Hammond' and Cracknel!, solicitors, was held. Amongst those present were several persons who had lodpod money with the bankrupts for investment. The meeting was 'held by the official assignee, Mr. W. S. Fisher. A statement dealing with the private affairs of the bankrupts set out that m Arthur Cracknell's personal estate the deficiency was about £200, and that oJ.' his late partner, Frederick J.. Hammond, £800, but there was a bank claim on a guarantee of £1000, which might increase the apparent, deficiency to £1800An interim report by Ivo ,B. Esam, accountant, dealing with the affairs of the firm, so far as he had made investigation into the books and accounts, was also read. In the report, Mr. Esam said that the books were m a neglected state and at no time had a proper balance been made of the accounts of the partnership. The book-keeping side of the business showed a general neglect. The cash-book had been reconciled with the bank, but there had been no other balancing of the books. Since the firm's inception only one bank account, the general trust account, ha,d been operated on. Because of the incompleteness of the records it might •be necessary to adjust some of the figures submitted to tho meeting after the accounts had been gone into with the firm's clients.

THE POSITION DISCLOSED by the investigation into the books of the partnership so far as it had gone was: (1) Trust- moneys received on behalf of clients and not represented by securities, or accounted for, £46,171 8s 4d. (2) Ordinary trade creditors, £239 7s 7d. (3) Credit balance m trust account at bank, £316 15s lOd. (4) Book debts, £12,5?0 12s lid. Continuing, Mr. Esam's. report read: With respect to trust moneys held by the firm on behalf of clints, 1 have, included only moneys which have been handled by the firm. There are some instances m which claims may arise m cases where properties have been sold, and the loans not paid up. A great many of these loans were made m the time of the former partnership of Burton and Hammond on unregistered mortgages, and m some cases the sales of properties have been made after the dissolution at that partnership without any provision being made for repayment to the lenders. In all cases the firm of Hammond and Cracknell has continued to pay the interest to the mortgagees with the result that the omissions have been concealed- These claims will be a matter for subsequent investigation by you. No allowances have been made by me for interest on trust moneys on which the firm has been paying interest after the dates to which interest 'has already been paid. "It appears several clients of the firm have received satisfacton of portion of their claims by the firm finding other securities immediately prior to the bankruptcy. The amount of this, so far as I have been able to ascertain, Is £5504 14s 3d. "The book debts include considerable advances made to clients out of the trust account without security, and interest paid to mortgagees on the regular quarter-days, and not m <hand at the time .of payment. Notes referring to special circumstances are attached to a few of the book debts. There is a doubt with regard to book debts totalling £1893 13s 3d. Mr. Cracknell cannot state the exact position of these without reference to the clients." 'Mr. Esam's report concludes: "I draw attention to the audit of the trust account. This audit, to which clients are entitled to look for protection, has, so far as I can judge, NOT BEEN PROPERLY CARRIED OUT. Had a correct balance of the books been insisted upon, the irregularities would have been disclosed many years ago." After reading the report the assignee said that the claims proved so far totalled £21,996, and a number of the claims ■were quite provisional. It would be about three weeks before Mr. Esam would be able to complete his investigations, and he (the assignee) proposed to make arrangements to give up the offices m that time, and call for tenders m the estate's interest m the goodwill of the leaseA creditor asked the date of the dissolution of the Burton-Hammond partnership. The assignee replied, January, 1914, and added that the present investigations went back beyond that date. The creditor; Are you inquiring into affairs m Mr. , Burton's time? The Assignee: Yes, we are. ■ Are you inquiring from borrowers ? — Yes, we are only too glad to- avail ourselves of any hint or help we can get. . Mr. W: H. Brown then said that the bankruptcy had brought up the serious question of the audit ii% of trust aej counts. Many people m lending money to solicitors, relied upon" the fact that I the Government was supposed to audit the accounts. He would like to know if it, was possible for the meeting to pass a resolution .urging the Government to amend the law so that people lending their money might have a reasonable assurance that the money was properly lent out. The Assignee: I think a resolution should be passed urging that the auditj ing of trust accounts should be put on I a more satisfactory footing. Mr. Brown then moved: ! That this meeting- of creditors is strongly of opinion that the state .of affairs disclosed m this bankruptcy calls for more stringent regulations for the auditing of trust accounts. A creditor: The audit, is very stringent already. Isn't it rather that the auditor m this case has failed m his duty? Another creditor: Has the assignee seen the auditor? The Assignee: It has been stated to me that he has been very ill since this bankruptcy- It appears to me the present system is at fault m principle. The position of the auditor depends on the goodwill of the firm for which he is working, and I don't think we shall get any proper system of auditing until that weakness is done away with. I don't agree with a system m which

THE AUDITOR'S FUTURE ENGAGEMENTS. . may depend on his bringing- m a report which may suit the particular firm for which lie .is -working. Mr. Brown's resolution was put to the meeting and carried. In answer to a creditor who wished to Know if there was any information to show . what had become of the money, Mr. Esam replied that so far -as he could make out most of the money had gone m advances to clients without security, payment of! interest on those moneys which had been retained, and, so -far "as .he could judge, there were drawings m excess of the profit of the business for, three or four years. There was about £40,000 not account-

ed for and the accumulated interest regularly paid away on that amount would ent considerably into other money.

: Mr. Cracknell, m reply to a creditor, ! said that the firm's earnings each year were diminished considerably by money paid away each year as interest on a largo sum of money. Until the investigation was completed? he could not give any definite information. A creditor wished to know when the I firm's books would be open to inspection. The assignee replied the books would not be open for indiscriminate investigation. Mr. Esam : had a number which would be available for the use of creditors, and these would probably be posted them. .Mr. Perkins: In seven years about £33,000 has disappeared. It seems to me that about £100 a week has been walking away. I hope the auditor, With Mr, Cracknell's assistance, will be able to say where it has gone. The Assignee: It is extraordinary how interest on a large sum of money accumulates, but I do think the creditors are entitled to more precise information. Mr. Vaile: Does not the old auditor carry some- responsibility? Mr. Esam: The New Zealand Society of Accountants HAS TAKEN THE MATTER UP, and it is being dealt with by the general committee m Wellington. Tho Assignee: You can take it the auditor is not going Scot free. A creditor: Was there a shortage before the dissolution of the Burton and Hammond partnership ? The Assignee: Yes; that is included m the investigation. The meeting- was then adjourned to a date to be fixed by the assignee after the investigation by Mr. Esam had been completed. In a statement dealing with the separate personal estates of the partners, Cracknell and Hammond, the assignee, Mr. Fisher, said that so far as he had been able to ascertain, the position was that m Cracknell's estate the liabilities were set down nt.£4l7 2s Bd, and the assets £200. The latter included bankrupt's share m a motor car, assessed at £50, a book debt on an I-O.U. for £50, and an interest m two sections valued at £100.

Touching the estate of the late F. J. Hammond, the liabilities amounted to £84G 4k Gd (proved debts), and there was notice of a contingent claim by one of the banks on a guarantee given by the deceased for £1000, and this brought the total liabilities up to £1846 4s 6d. To date the only assets discovered was an interest m a property of .8% acres at Hastings, which had been valued at between £ 3200 and £3500. There were mortgages on the property for £3250, and with interest and rates due amounting- to £300, there was practically nothing for the creditors. The bankrupt also held a mortgage from Mrs. Potter, of Albany, on Avhich was owing £27, and anpther from Mrs. Mary Halnmond, whose whereabouts could not be ascertained, for £40. There were also a number of State cheques, a bill- of sale m his name, which 'had been ' hypothecated, so that the position m his, estate appeared hopeless.

Mrs. Cracknell claimed the furniture m her home as her own private property, it "having been acquired by her with her own money.

The creditors unanimously decided not to contest Mrs. Cracknell's claim to the furniture.