wound up. The responsible officers should themselves be the first to suggest such a course in these circumstances. I must add that the present deficiencies disclosed in the accounts represent only to a small extent the actual deficiency, even from the purely accounting standpoint. The society had actually incurred a deficit of about £10,000 when the transfer to the National Standard Company was under consideration. As this transfer did not take effect, and the members practically retained their membership in your society, it would appear that most, if not all, of this sum should have been brought into the accounts, so that these members might be fully aware of the fact that their contributions for some years had been expended in management expenses.

In my opinion an immediate dissolution is the only honest and proper course."

You subsequently emphasised in a number of letters that in your opinion the society should be dissolved. It is clear, therefore, that by this time the officers had realised their responsibilities, as they appeared to you, and equally clear that they intended to continue the business of the society however bad the position might be from the point of view of the members. Their capital had been invested, and they were determined not to lose it by dissolution, but to derive such advantage as they could from keeping the society alive.

The officers contended throughout that they were justified in continuing the society, and in defence of their action put in a written statement supplementing their evidence. It would be impossible for me to deal either with the statement or the evidence in detail in this Report, but the officers sought to justify their contention under five main heads, namely:

(1) That during the period of their control there had been an improve-
ment in the figures relating to the expenses of management.
(2) That (in their own words) "a system of purification" of the
business of the society had taken place. They explained this
as meaning that in addition to the alleged reduction on
management expenses they had relieved the society of liabilities
under a number of contracts in respect of policies entered into
before they took office, which they suggested should never have
been undertaken.

(3) That if the society had been dissolved the members would have
received nothing, whereas they have compromised the unsound
contracts entered into by their predecessors by payments of
25 per cent. on endowment policies and 50 per cent. on death
claims with paid-up policies for the balance maturing in three
years.

(4) That the business of the society is worth not less than £15,000 to £20,000 by reason of the fact that it has an income of about £6,000 a year.

(5) That the society is one of the most cheaply managed societies in

the country.

I will now deal with these matters in order, and in so doing have given due consideration to the whole of the evidence, but have only brought to your notice such details as appear to me to be material.

(1) That during the period of their control there had been an improvement in the figures relating to the expenses of management.

At the end of 1918 there was a management deficiency of £4,254 4s. 34d. In 1919, by the transfer of 75 per cent. of the advances of £4,797 made by the British House Property and Investment Corporation, Limited, treated as premiums on the one year endowment policies issued to directors of the corporation and their nominees, to which I have made reference above, about £3,600 was taken to the management fund, and as a result

a sum of £1,218 12s. 7d. was written off the deficiency. The rules of the society do not provide for the issue of one year endowment policies, and no such policies were in the ordinary way of business issued to members for a shorter period than 10 years.

The transaction was admitted to have been in fact a loan by the corporation to the society, and policies were issued only to cover up the real nature of the transaction. If the real nature of the transaction had been made to appear in the accounts, they would have shown that the management fund deficiency was greater to the extent of £3,600, whereas by passing the loan through the benefit fund under the guise of a proportion of premiums properly applicable to management purpose, the true deficiency was concealed.

To illustrate the utter absurdity of the course adopted by these persons, which they asked me to find improved the position, their scheme was, proportionately, for a single premium of £100 to issue an endowment policy for £105, payable at the end of a year, and to take £75 of that premium for management purposes, leaving £25 in the benefit fund to produce £105 within a year. Their only answer to my criticism was that the liability under the policy would be met from the contributions of new members.

I am satisfied that the improvement shown by the accounts was entirely fictitious, and that the management fund was in reality placed in a far worse position as a result of the transaction. The accumulated deficiency in the management fund shown by the officials in the annual return for 1922 was £3,280 ls. 84d. If the sum of £3,600 taken from premiums on the single year endowment policies is added, the actual deficiency is £2,626 more than it was when the present officers took over.

The statement put in on behalf of the committee refers to my opening remarks to the effect that the expenses ratio for the whole period of the society's existence was 625 per cent. of the total contributions. I find on closer examination that this was the percentage for the period 1919 to 1922 inclusive, and I accept their figure for the period 1909-1922, which is 706 per cent.

The committee's statement gives the ratio of expenses for the period 1919-1922, calculated on the basis of contributions received, as 551 per cent. I cannot accept this figure as representing the true position, because in arriving at it they have treated the loan from the British House Property and Investment Corporation, Limited, as premium income. The correct percentage, excluding this transaction, is 625 per

cent.

The following Table shows that even the excessive amount available under the rules for management has been over expended by the present officers of the society and that the ratio of expenditure as compared with the amount available, although less in 1920 than in 1919, has increased since 1920. Having regard to this increase, I am at a loss to understand the optimism expressed by the officials as to the future prospects.

* Excludes £3,597 being Commission at 75 per cent. on £4,797 one year Endowment Policies actually Loans.

Another point raised by the officers as showing economical management was the closing down of their agencies in the following districts on the dates respectively mentioned :

Although economy was effected in this way, I give below a statement taken from the annual returns showing that as the cost of commission and remuneration of agents was reduced, those of the head office staff were increased.

At first sight the decrease in commission and remuneration to agents, &c., appears to be considerable, and the increase in salaries of clerks and servants not unreasonable, but the proportion of the total expenditure on management under the head of salaries was from 7.2 in 1918 to 276 in 1922, while the decrease in commissions showed no appreciable reduction in the years 1918 to 1920, and only dropped from 64.6 to 55-6 during 1921 and 1922.

In all these circumstances I find that there was no effective improvement in regard to the cost of management, and, as the annual returns show, the deficiency in the management fund has continued to increase.

(2) That (in their own words) a "system of purification" of the business of the society had taken place.

The "system of purification," in so far as it consisted of relieving the society from onerous contracts, was, from the evidence, nothing less than the wilful failure on the part of the officers to meet claims in respect of their contracts as they matured, as an alternative to dissolution, either by ignoring or compromising such claims.

Numbers of complaints had been received by the registrar, Members of Parliament, stipendiary magistrates and the police from members that matured claims had not been met. I prepared a list of these, and having been informed by the officers of the society that Harry Martin, the manager, was the official most qualified to reply to questions in regard to them, I took him through a number of them. I had previously sent a list of these cases to the secretary, and, following the usual practice when referring a question in regard to a policy to an industrial assurance company or a collecting society, gave the number of the policy where it was known to me. In other cases I gave the name and address of the assured. Although Harry Martin has been the manager of the society for over four years, he told me that it was impossible for him to trace a case from the number of the policy if it was issued before the date when the present officers took office. This, in spite of the fact that the agencies in which the bulk of the policies in question were taken out had been closed down and contributions had been received for a long period at the head office of the society. As Harry Martin and the other officers had maintained throughout the course of their evidence that they considered the business of the society was improving and that they were amply justified in continuing it, I asked him whether he had any idea as to the commitments of the society under its policies, and, for example, whether it would surprise him if on the following morning he found in his office claims in respect of matured policies to the amount of, say, £1,000. He told me that it would not surprise him, and in answer to further questions admitted that the society would not be in a position to meet even 25 per cent. of such claims, the basis of settlement which they had adopted. In spite of this, he still contended that they were justified in continuing business, and when I asked him how he would propose to meet these claims he replied that they could be met from the premiums which they would receive from new business. Having regard to the fact that the premium income has steadily declined since 1919 and the society has no tangible assets beyond the premium income as it is received, and considers itself liable on the endowment policies representing the loan which have matured or will shortly do so, I am at a loss to understand how even 25 per cent. of claims amounting to £1,000 could be met in the way suggested, or how anyone with any pretence to honesty could be a party to inducing new members to join the society under such circumstances.

I have given careful consideration to the possibility that the officials were honest in their purpose and were imbued with a sense of undue optimism. They constantly referred during the inspection to the vicissitudes of some of the large industrial assurance companies in their early days, and suggested that in all they had done they were only following precedent. Bearing in mind, however, that these persons, with perhaps one exception, were men of intelligence, and some of them had had considerable experience in industrial assurance matters, I find no single fact to suggest the least honesty of purpose.

Certain of the members had complained that when the agencies were closed down they received no instructions as to how their contributions were to be paid. From the evidence I am bound to conclude that these were cases of onerous contracts from the point of view of the society which the new officials thought it would be advantageous to cancel. In other cases the members were instructed to send their contributions direct to the head office. In some of these cases the contributions when sent were not acknowledged, and it was proved in one of such cases, in which the remitter had received no acknowledgments, that his Postal Orders had been received by the secretary, endorsed by him and paid into the society's account at the bank. On a complaint being made to the Registrar the society for the first time admitted the receipt of the contributions and stated that the papers had been inadvertently filed away. It is remarkable that when registered letters were sent to the society by the member asking how the matter stood, they should all have

been filed away inadvertently without replies, but that when the Registrar wrote the officials were able to trace the matter. I may mention that in this particular case the member was resident in Ireland, and was therefore at a safe distance from the point of view of the officials from the registered office.

A number of other cases illustrate that when claims matured in districts in which the agencies had been closed down, so that the member had nobody to whom to refer except the head office, all letters were ignored until the matter was placed in the hands of solicitors or referred to the Registrar or the police. There is ample evidence under this head to justify the assumption that claims were ignored in the first instance in the hope that they would be dropped by the member, and that the society in this way would escape from its obligation in respect of its contracts. In cases where claimants were persistent no effort was made to meet the claim in full, but the manager admitted that it was the practice in these cases to compromise the claim. This matter is dealt with more fully below in my comments upon the third contention of the officials.

Another group of complainants were the persons who had refused to accept the compromise offered by the society and had obtained judgment which they were unable to enforce. This matter is also dealt with below in my comments on the third contention.

A point made by the officers of the society was that any claims which had arisen in respect of policies issued after the present officers took over control had been met in full. This may be so, but no claims could have arisen in respect of endowment policies issued since February, 1919, and it is obvious that the number of death claims would be small during the first years the policies were in force.

My conclusions under this head are that what the officers of the society referred to as a system of purification" of the business was nothing less than an organised system of avoiding contracts. Premiums were received in respect of contracts which the officers knew perfectly well they would be unable to meet as they matured, and claims as they arose were, in the first instance, ignored. When the officers were driven to taking some notice of claims the members were practically blackmailed into accepting compositions, because they were told that if they refused to accept the composition suggested, and took legal action to enforce their rights, they would receive nothing. I refuse to accept the only excuse offered for this conduct, namely, that these particular contracts were contracts entered into by their predecessors in office. They knew or should have known that these contracts existed, and that they were binding contracts of the society. In spite of this, they elected to continue the business of the society for their own ends, contrary to your advice, and to the detriment of the interests of the unfortunate policy-holders. (3) That if the society had been dissolved the members would have received nothing, whereas the officials are compromising the unsound contracts entered into by their predecessors by payments of 25 per cent, on endowment policies and 50 per cent. on death claims with paid-up policies for the balance maturing in three years.

I accept the suggestion that if the society had been dissolved certain members, including the officials themselves, who have received a proportion of their claims, would have received nothing more, but what they have received has been paid out of the contributions of other members, which for the most part should have been accumulating to meet their own claims as they matured. Since the present officials took over the control of the society 9,600 new policies have been issued. Obviously none of these people were told when they were induced to join the society, neither did the accounts show that claims were being compromised and that the society had practically no assets other than the contributions which were being received from time to time.

In the cases before me in which the members refused to allow the officers to ignore their claims, the system was to offer a compromise of 25 per cent. of the claim in the case of endowment policies and 50 per cent.