BUILDING SOCIETY MISCHIEFS.
HE accounts, which have been appearing almost from day to day till now, of the distress produced by the failure of the Liberator Building Society are most painful reading. They should be all the more so to any who reflect that such cases only exhibit in a concentrated form what must be going on all over the country in scattered instances through the constant failures of the small terminating building societies, too insignificant to attract anything more than local notice, and often not much of that. No doubt, the quasi-religious tone originally assumed by the " Libera- tor," gives a peculiarly unsavoury character to the frauds alleged to have been perpetrated. But in all likelihood, similar frauds have been, and are in course of being, per- petrated on a small scale in too many cases. And until the law is strengthened, they must continue to be perpetrated.
Not that the strengthening of the law can of itself stop the frauds, unless the members of such societies are watch- f ul over their own interests. Frauds are—by no means un- frequently—committed. in registered Friendly Societies, or Co-operative Societies. But whenever they do take place, it is next to impossible that the defrauded members should not share the blame, as the penalty of their own supine- ness. If they are alert and watchful, the law ensures to them, it may be said, the means of prevention, of discovery, or in the last resort of swift prosecution. For a Building Society such means are almost wholly wanting, unless provided by its own rules. For in- stance, any member or person having an interest in the funds of a Friendly Society has the right to in- spect the books, at all reasonable hours, at the registered. office of the Society, or at any place where they are kept, except that only an officer of the Society, or member or person interested, when specially authorised by resolution of the Society, may inspect another member's loan account without his written consent. In a Co-operative Society, this right of inspection is subject to such regulations as to time and manner as may be made by a general meeting. The refusal to allow such inspection is, in either case, an offence, for which the Society itself, and every officer, bound by its rules to allow such inspection, is responsible ; or if there be no such officer, then every member of the Committee of Management, unless proved to have been ignorant of, or to have attempted to prevent the commis- sion of, the offence ; and every continued offence con- stitutes a new offence every week. The penalty is from ..t1 to £5, recoverable at the suit of the Chief Registrar of Friendly Societies, or of any person aggrieved. In a Building Society, there is no such right, unless provided by rule, and consequently no remedy for refusing to allow inspection of the books. No member, therefore, in the absence of an express rule of the Society, has any means of telling whether, and to what extent, if any, the officers are falsifying the books. Let us now suppose that a member of a Friendly or Co-operative Society, by using his right of inspection, has discovered matter of suspicion which he wishes to bring to the knowledge of the members at large. for which pur- pose a special meeting has to be called, and that either the rules do not allow of this being done, or the Committee of Management refuse to call one. If he can find one-fifth of the members to support him, or one hundred members when there are one thousand members, or not more than ten thousand, or five hundred members when there are more than ten thousand, that number may apply to the Chief Registrar, or, in the case of Societies whose opera- tions are confined to one of the sister-kingdoms, to the Assistant-Registrar for such kingdom, who may call a special meeting at any time and place he may think fit, and direct what shall be discussed and determined on at the meeting, which will have all the powers of a meeting called according to the rules, and can appoint its own chairman, notwithstanding any rule to the contrary. In a Building Society, no special meeting cam be called unless in accordance with the rules, which may, of course, easily be framed so as to prevent any being called inde- pendently of the management. But suppose the member whose suspicions have been aroused does not sufficiently trust the intelligence or independence of his fellow- members generally if assembled at a special meeting, or that, having succeeded in getting one called, it has failed to grapple with the mischief,—in a Friendly or Co-operative Society the same proportion or number of members which could call for a special meeting can apply to the Chief Registrar or Assistant-Registrar of the country for the appointment of an inspector, who will examine into the affairs of the society and report upon them, with power to require production of all books or documents of the society, and examine on oath its officers, members, agents, and servants, so that light must be thrown on the pro- ceedings of the management. There is no power of the kind under the Building Societies Acts. Suppose, again, that, either as a result of one or both of the former pro- ceedings, or simply of the patent disorder in the society's affairs, a dissolution becomes inevitable, and, owing to party. spirit or other causes, it is feared to trust the winding-up to any one within the society or appointed by a Friendly Society the same proportion or number of members may, by setting forth that the funds are insufficient to meet existing claims, or the rates of con- tribution to cover the benefits, and the grounds of the allegation, may obtain an investigation into the affairs of the society from the Chief Registrar—a much cheaper pro- ceeding than a winding-up by or under the supervision of the Court—which may be followed by an award of disso- lution, directing the division or appropriation of the assets. There is no such power in a Building Society, nor, it must be added, in a Co-operative Society, except that in the latter the appropriation or division of the funds may, by the instrument of dissolution, be left to the award of the Chief Registrar.
These are but a very few of the cases in which the law provides securities for vigilant members of a Friendly or Co-operative Society, which are wanting in a Building Society. Yet really, the causes of failure in the Building Society are fewer than in, at all events, a Friendly Society. Apart from actual fraud, they resolve themselves almost en- tirely into insufficiency of securities, depreciated properties being kept on the books at their original value. This is vii.. tually matter of account, to be dealt with by a sufficiently stringent audit. Here, again, Friendly and Co-operative Societies have an advantage over Building Societies. They can call in the services of a Public Auditor,—not a Govern- ment official, but an accountant authorised by the Treasury,. and working on a specified scale of fees. Building: Societies ought to be able to avail themselves of the ser- vices of these gentlemen, and the right to call them in should probably be extended to a specific proportion at the members. All Building Society auditors should be bound to require at each audit production of all mortgage deeds and other securities, accompanied, perhaps, by a statutory declaration on the part of, say, two directors as to the minimum value of the securities generally.
Could the law go further, and prescribe a Government audit of at least the largest Building Societies ? The pre- cedent would be a very dangerous one. The ablest auditor is sometimes deceived, and, in case of failure after a Government audit, the State would be held responsible. Moreover, if a State audit were required at all, it would, rather be for the smallest than for the largest Societies, as having the least means of providing the proper safe-- guards and selecting the best man. Nor can any reason• be suggested why Building Societies should be selected for such treatment. It must be admitted that they have no- moral deserts like those of Friendly and Co-operative Societies. They are simply investment societies, large or small, composed mainly of the middle class, though re- sorted to by the better-to-do working-men ; and it must he - admitted that their members are too often the greedy.
rather than the thrifty, and the less prudent among the - latter. The ruined widows of the Liberator are, after alF,. those who have preferred its .23 or £3 15s. per cent. interest to the absolute security of the Post Office Savings Bank, with its facilities for investment in Consols, or for the purchase of a Government annuity.
At present, Building Societies are, to a large extent,. lotteries ; what is needed, is to turn them all into serious business concerns, which some of them are, no doubt, already. It is understood that the present Home Secre- tary has a, new Building Societies Bill under his con- sideration. It is to be hoped that it will be drawn in accordance with the recommendations both of the late and of the present Chief Registrars, so as to assimilate as far as possible the Building Society to the Friendly or Co- operative Society.
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