After Mr. Murray publicly suspended the examiner in this case he detailed another examiner to make an investigation for the purpose of determining whether or not the regular examiner should have discovered the defalcation. After an exhaustive report, which reviewed in detail the manner in which the defalcation was effected and concealed, the degree of responsibility of the examiner for not discovering the shortage, and the accountability of the directors for the conditions which were found to exist, the examiner summarized the situation into the terse statement that it was the same old story of directors failing to direct and leaving the affairs of the bank to be managed by a single officer, who allowed the bookkeeper to keep the individual ledger, balance pass-books, and to do everything else that afforded an opportunity to steal and to successfully conceal the embezzlement from detection by any other means than a complete audit of the bank, or by accident. He stated further, that if the examiner in this case was culpable of negligence or was incompetent, then ninety per cent, of the examiners in the service were equally culpable, negligent or incompetent, as they were making the same kind of examinations and could not reasonably be expected to do what was not only impracticable but impossible under the then fee system of compensation - call in and balance, or verify the pass-books of individual depositors, which in this particular case numbered over eight hundred.

The foregoing is only one of the many similar cases that could be presented to illustrate the mistaken impressions that are entertained as to the scope of an examiner's duties and the responsibility resting upon him to discover everything that goes wrong in a bank. There is not a bank examiner in the employ of the Government, no matter how expert or efficient he may be, who is not liable at any time to be confronted with a similar condition as that which existed in this Cambridge bank. And such will be the case until examinations partake of the nature of an audit or the directors of banks have an annual audit made of their institutions. A few hundred dollars spent in payment for an audit is a cheap insurance against wrong-doing, and is more economical than a loss of several thousand dollars through the dishonesty of a trusted officer or employee.

Realizing the opportunities for embezzlements and the successful concealment of the shortage through the manipulation of the individual ledger, Comptroller Ridgely at one time instructed examiners to make a limited verification of individual deposits by taking off at random a dozen or more of the balances due depositors, as shown by the individual ledgers, and verify each such balance by correspondence with the depositor. But these instructions were almost immediately countermanded because of the injurious effects the attempted verification had upon the banks and the trouble it occasioned otherwise. Silent runs were made upon some banks because of the impression conveyed to the mind of the depositor who received a communication from the examiner, that there was something wrong with the bank and that the examiner was endeavoring to locate it. Other depositors became indignant and informed the examiner that it was none of his business how much of an account they carried. In some instances the circular of the examiner fell into the hands of the wife or husband of the depositor and disclosed the amount of his or her balance. Then there was trouble. A circular addressed to the mother-in-law of a banker disclosed to him that she had an account in another bank, which gave him the impression that his mother-in-law was afraid to trust him, or his bank, with her funds because of his connection with it. More trouble. Two sisters had accounts in the same bank; one received a circular from the examiner and the other did not. The latter assumed that the books did not show any balance due her, and she wrote the Comptroller asking that an examination of her account be made. Numerous instances of a similar nature could be cited to show how extremely sensitive bank depositors are and how very careful an examiner must be in making inquiries in regard to a bank's affairs. Yet, if a bank were to fail, or meet with a heavy loss through the manipulation of the individual deposit accounts, no one would be more severe in criticising the examiner and the Comptroller's office for not verifying the individual deposit accounts than these same depositors who objected to having their deposit balance verified.

The second qualification necessary to an intelligent and satisfactory discharge of the duties of an examiner is a thorough knowledge of the national banking laws and a good knowledge of the laws and recognized practices governing negotiable instruments, contracts, and commercial transactions generally. While it is not necessary that an examiner should be a lawyer, a good knowledge of the law is helpful to a man in whatever occupation he may be engaged.

It is essential that an examiner should familiarize himself with all forms of contracts, obligations or agreements in order that he may be able to intelligently pass upon and determine their legality in form and execution. He should know the difference between notes, bills of exchange, commercial paper, certificates of deposit, checks, drafts, negotiable and non-negotiable instruments. He should know the rules governing accommodation paper and legal and illegal considerations, renewals, or extensions and their effect upon the endorser. He should know the degree of responsibility of a bank as a collecting agent and its liability for neglect or failure to protest notes or give notice of dishonor. He should be familiar with the difference in the powers or authority of a public and private corporation to incur liabilities or obligations, the legal capacity of married women, minors, or irresponsible persons to enter into contracts or incur liabilities, the difference between a guaranty and an ordinary suretyship, the forms and varieties of acceptances, and the effect of material or immaterial alterations of negotiable instruments.