'The Crump Affair'
Auditors' Reports
(1) October 24th 1924

AGAR, BATES, NEAL & C                                                                                                        II0, EDMUND STREET

CHARTERED ACCOUNTANTS                                                                                                    BIRMINGHAM


                                                                                                                                                            24 Oct 1924


The Chairman of the Committee of Management

Birmingham Municipal Bank



Dear Sir


We now beg to submit our report on the recent defalcations which have occurred at the Duddeston Branch. Our investigations up to date show that Mr Crump, the late Manager, has fraudulently obtained from the Bank approximately 550, to which must be added the interest due to the Depositors on the various sums making up this figure.


We should like at the outset to state by way of reassuring your Committee that in our opinion the system in operation for recording the transactions of the Bank is an excellent one, and that even in face of these irregularities we see no reason to advise you to make any radical alterations in your system. We should also like to say that, regrettable as is the incident of these defalcations, it is desirable to see them in their right perspective. The Staff of the Bank is now a large one and we are afraid that, judging from our experience, cases such as Crump must unfortunately now and again occur. From our knowledge of your Staff however, we regard them as a body of thoroughly honourable and trustworthy servants, carefully trained, and in practically every case quite competent  to perform the duties entrusted to them, but unfortunately circumstances may of course arise which may cause them to be unmindful of their trust, notwithstanding their previous training and records.


We will now set out in detail the Depositors' accounts which Crump has operated to his own advantage and to the loss of the Bank:


CASE 1         D & N Ex-Service Men's Club

                       Rabone.         Rent per F J Dormer


20 is shown in the pass book for which there is no credit in the ledger. Crump has therefore evidently misappropriated this amount.


CASE 2         Mrs A Hardy


                                   The Pass Book shows                               253  18  7

                                   The Ledger account shows                         130   8   7

                                                                       Difference               123  10  0


The difference of 123. 10. 0 has evidently been misappropriated by Crump.


CASE 3          Thomas Henry Bird


                                   The Pass Book shows                                587   2 11                                                                          

                                    The Ledger account shows                         387   2  11

                                                                       Difference                 200  0   0


The difference of 200 has evidently been misappropriated by Crump.


CASE 4         Mrs Alice Hutchins


                                   The Pass Book shows                               270   0   0                                                                            

                                   The Ledger account shows                         100   6   1

                                                                       Difference               169  13 11


The difference of 169. 13. 11 has evidently been misappropriated by Crump.


CASE 5          D & N Ex-Service Men's Club

                                   Mr S Robins deposit per F Dormer


The Pass Book shows a deposit of 10 for which there is no entry on the Ledger. This amount has evidently been misappropriated by Crump.




                       Case 1             20  0  0

                       Case 2             123 10 0

                       Case 3             200  0  0

                       Case 4            169 13 11

                       Case 5                10  0  0

                                   Total   523  3  11 plus Interest adjustments


We would now direct the attention of your Committee to the fact that broadly speaking there is no method of book-keeping which could possibly lead to a detection of these defalcations. Any dishonest member of the Staff will find little difficulty in making his books and accounts balance, and so arithmetically correct. This is shown by Crump's action in Case 4, viz: that of Mrs Alice Hutchins. Having taken 60 of this woman's money on various dates, the withdrawals were duly entered in the cash book, but paid to himself, and then properly entered on the Daily Extraction Sheets. The only thing then wanting to balance the books was an entry in the Ledger to Mrs Hutchins' account, and this at a later date Crump entered himself, and moreover he entered it prior to any examination of the ledger balances either by Inspectors or Auditors, so that when the balances were taken out they were, in the book-keeping sense, quite accurate.


The only way these irregularities could be discovered is by a comparison of the Depositors' Pass Book with the Ledger account at the Branch. The cardinal check for the detection of fraud in the Bank centres, in our opinion, almost exclusively on this examination of the Depositor's Pass Book with the Ledger. By this means evidence as to the accuracy of the Depositor's Ledger account comes from an entirely reliable and independent source.


It will of course fall to the lot of the Management in consultation with your Committee, to consider how far this comparison of the Depositors' Pass Books with the Ledgers is practicable, bearing in mind the class of Depositors the Bank deals with. On the one hand some Depositors are no doubt pleased to see evidence that their transactions with the Bank are subject to strict audit; on the other hand many of the Depositors are of a reticent nature and resent what, in their opinion, is an excessive prying into their private affairs. But the fact remains that in many cases direct application to the Depositor for his Book would have to be made.


So far as we as Auditors are concerned, we shall welcome very much an extension of this Pass Book examination, and should recommend that over an extended period it should be found possible Branch by Branch to report an ultimate comparison of all Pass Books with all Ledger accounts. At the same time we do not think that this one case of defalcation should necessarily mean that drastic and radical changes should be made, likely to disturb the excellent relationships which now exist between the Bank and the Depositors.


We have to report that we have now made the following examination of Pass Books at Duddeston:


Total Pass Books examined to 22nd Oct 1924 2852              representing in gross amount       130147  15  3


Total Pass Books not examined                      2544                                    do                                     6695  4  3


                       Totals                                         5396                                    do                              136842  19  6



Of the 2852 Pass Books examined 2115 had each a balance of 5 and over representing a gross amount of 128876  2  8


Of the 2544 Pass Books not examined about 98 only had each a balance of 5 or over representing a gross amount

of 4729  7  5


Of the 2446 Pass Books not examined each had a balance of less than 5 representing a gross amount of 2165  16  10


In connection with the matter of Pass Books, we should like to re-iterate what we discussed with your Management some two years ago, namely the registration of the issue of the Pass Books themselves. We have always been of opinion that these should be, in the first instance, kept in a locked-up safe as received from the printers, and as they come in from the printers should be registered in a book for that purpose. The printers should print consecutive numbers on the books. As they are issued they should be marked off the register and initialled by a responsible officer, so that we as Auditors could always ascertain the destination of all Pass Books issued. When a book becomes full and a new one is necessary, a Pass Book should be issued to a Depositor bearing as a subsidiary marking to the consecutive printed marking the same number as the original. We trust the Management will see their way to introduce the registration of Pass Books, because we regard as one of the most serious items of this defalcation the fact that some Pass Book was put in front of a member of the Staff by the Manager for initialling, thus showing that Crump had a store of Pass Books to deal with as he thought fit.


While we regard the examination of the Pass Book as a very important item, there are other subsidiary matters concerning which we think the Staff rules might be tightened up. We recognise that the rules governing the Staff must emanate and take their authority from the Management itself, and as Auditors therefore we only offer the Committee our opinion with a view to helping you to come to your decision.


SUBSIDIARY ITEM NO 1   Division of work amongst the Staff


We recommend an insistence on a strict division of work among Members of the Staff at each Branch, so as to ensure that the recording of certain vital transactions are done by separate Members of the Staff, and not by one Member making two or more entries relating to the same transaction.


SUBSIDIARY ITEM NO 2   Depositors who make a mark


We recommend that the witnessing of the mark should never be by a Member of the Bank Staff, but that the Depositor should bring with him, or her, a person who at the Bank will witness the making of his or her mark.


SUBSIDIARY ITEM NO 3   Payments to Depositors


We recommend that cash should only be paid to a Depositor by the Cashier from the cash desk.


SUBSIDIARY ITEM NO 4   Remittance by post repayment forms


We recommend that when cash is sent it should be by registered post, and the registration receipt attached to the repayment form signed by the Depositor. Such Depositor should be requested to acknowledge the actual receipt of the cash, and that an official form of letter should be used by the Staff when writing to the Depositor who is being paid money through the post.


SUBSIDIARY ITEM NO 5   Inspectors' Internal Check


We do not recommend any increase in the present checking of figures beyond a recommendation that your own Inspectors should now and then, and at no fixed date, check the Extraction Sheet with the Ledger and Cash Book. We think that the moral effect on the Staff of the possibility that at any time an Inspector may drop in to do this work will be good, and may deter tampering with the figures in the way Crump did in the matter of Mrs Hutchins. To our mind it is impracticable and unnecessary for your Inspectors to make a complete check of these figures, and we do not recommend it.


In conclusion we might once more emphasize our opinion that there is no cause for undue anxiety by your Committee as to the conduct of the Staff in general. The checks put on their work are reasonable and effective, but naturally if a man makes up his mind to rob the Bank, as evidently Crump did, he can do it no matter what clerical checks are made in the book-keeping itself.


Your inspection, and our audit, must serve the twofold purpose of rendering the commission of irregularities as difficult as possible, and the detection of them as speedy as possible.


Yours faithfully,


Agar Bates Neal Co



The Crump Affair
Report (2): November 4th 1924