When an examiner satisfies himself that the books of original entry are correct and the assets found in the bank are equal in value to the amount called for by the books, he is bound to assume that the original individual credits which go to make up the grand total are correct, and he cannot know otherwise except by a complete audit of the books, unless errors or false entries are discovered by accident or otherwise.

There is only one way of determining the absolute accuracy of an individual ledger or a certificate of deposit register, and that is by calling in and balancing or otherwise verifying all of the depositors' pass-books and by verifying each individual certificate of deposit. It would require weeks of time to do this. No examiner could undertake such a task, and is not expected or required to perform such services.

An audit of a bank calls for the performance of this work and similar detail. An examination does not. Yet when a defalcation is disclosed, which has extended over a period of several years undiscovered by the examiner, the latter is invariably charged with incompetency or superficiality in the performance of his duty, and in most cases unjustly so because of the failure of the critics to discriminate between an examination and an audit.

Every bank in the system should receive a thorough audit at least once a year by qualified accountants not connected with the management of the bank in any way. Many of the best banks have such audits regularly made. But these are institutions so well managed and systematized as to require them the least. The fact, however, that such audits are made, has a wholesome effect upon the officers and employees of the institution who handle its funds in that the certainty of discovery deters them from wrongdoing. It is opportunity that makes the thief. It is rarely that a bank is forced to close its doors as a result of a sudden loss of a large sum of money through the dishonesty of one of its officers or trusted employees. Failures from this cause, or large losses, are usually the result of accumulated dishonesty extending over periods of varying length and adroitly concealed from the examiner for an indefinite time. Failure in most instances to discover shortages of this nature is no reflection upon the skill or efficiency of the examiner, but usually is directly chargeable to the defective methods employed in the management of the bank, which afforded not only the opportunity for embezzlement in the first instance, but the means of successful concealment.

No method of bookkeeping, however perfect, will prevent dishonesty on the part of officers or employees of a bank, but the opportunity to steal and the means of concealing the theft can be minimized by the adoption of such methods in the conduct of the bank's business as experience has demonstrated will go far toward protecting the most vulnerable accounts from manipulation by those who are tempted to dishonesty through the opportunity afforded by the faulty systems employed.

It is no reflection upon an examiner who fails to discover a shortage which is the result of the pernicious practice which prevails in some of the smaller banks of permitting the individual ledger bookkeeper to receive deposits and make entries in and balance pass-books, or a receiving teller to make entries in the ledgers. A shortage due to the opportunities afforded by this objectionable practice may remain concealed for years unless revealed by accident, and can be discovered only by balancing or verifying the pass-books.

It is incumbent upon an examiner, in addition to seeing that the business of the bank is conducted within the provisions and limitations of the banking laws, to satisfy himself that every dollar that has been paid into the institution, as shown by its books, is properly accounted for. But it is the business of an auditor to determine by balancing and verifying each and every account whether the books show correctly every dollar received. If a teller receives a deposit and credits the depositor on the books of the bank with a less sum than the amount received, the examiner has no means of detecting the shortage. The auditor will discover it by calling in and balancing the pass-books or otherwise verifying each individual balance. If a cashier or other officer issues a certificate of deposit and credits the depositor with a less sum than the amount received, the examiner cannot detect the false entry, but the auditor, by verifying the account with the holder of the certificate, will discover the shortage.

The only way, therefore, of verifying the absolute correctness of the books of a bank, is by a complete and thorough audit of each and every account, and this a bank examiner cannot and should not be expected to do under any system of salaried compensation. This is a duty which devolves upon the directors, who are the trustees of the funds placed in their custody for safekeeping or investment, and it is incumbent upon them to adopt such safeguards in the conduct of the bank's business as will prevent peculations, embezzlements or other wrong-doing by any of the officers or employees, and insure the correct accounting for every dollar that comes into their hands. Defalcations and embezzlements can be minimized, if not prevented, by proper systems of checking and handling of the cash and accounts of the bank. It is always the trusted officer or employee in whom the utmost confidence is reposed, who proves to be the culprit. An officer or employee who does not possess the confidence of the directors, is never placed in a position of responsibility or trust. It is false economy to save a small amount in operating expenses at the risk of large losses and consequent discredit to the institution through dishonesty resulting from the employment of loose or defective methods, inefficiency or lack of sufficient clerical force to properly conduct the business of the bank and safely guard its funds.