3. I have not received any evidence regarding the claim of £1 4s. shown as paid in respect of sickness benefit. 4. No vouchers have been submitted in respect of salary, £57 10s., commission, £72 12s. 6d., part rent, £6 56., and part petty cash disbursements, £5 Os. 5d. I consider, however, these amounts were properly paid. 5. I am of opinion that the method of recording the industrial branch receipts is unsatisfactory, and that steps should be taken whereby each individual receipt is recorded against the relative policy number. In the present instance I have had to rely upon monthly totals certified by your secretary, Mr. Henderson, but no evidence has been furnished which would enable me to say that the percentage apportionments transferred from General to Management Fund Account are absolutely correct. Subject to the foregoing remarks, I certify that the General Statement for the year ended 31st December, 1922, which bears my signature, is correct, has been duly vouched, and is in accordance with law. The point which stands out most clearly from the evidence is, that from the inception of the society until the date of my inspection its affairs were conducted with no regard to the interest of the persons who became members, and that the only person who has benefited in any way from the society is J. E. H. Henderson, the secretary. This man informed me that he had had 18 years' experience of industrial assurance business as a representative of the City Life Assurance Company, Limited, the City of Glasgow Friendly Society, the Liverpool Victoria Friendly Society, the Hearts of Oak Assurance Company, Limited, and that he was immediately before starting this society an agent of the National Alliance House Purchase and Investment Company, Limited, which went into compulsory liquidation on the 31st March, 1921. None of the persons who were associated with him in the formation of the society had had any previous experience of industrial assurance business, and there is no question that he was entirely responsible for the promotion of the society, and that the other persons were guided by him in the conduct of its affairs. When Henderson realised that the National Alliance House Purchase and Investment Company, Limited, would have to go into liquidation, and that he would then be without employment, it occurred to him to start this collecting society as a means of livelihood. To start the society Henderson found it necessary to raise a certain amount of money, and he induced the under-mentioned persons, some of whom had been contributors to the National Alliance House Purchase and Investment Company, Limited, to provide what cash was necessary and to join with him in applying to register the society and to act on the committee:William J. Bone, Asher Silberstein, William Charles Morgan, Daniel Ferrer, Sidney Ewart Bone, Arthur Dudley Fowler, Albert Victor Britton. Besides signing the application to register the society, these persons formed the first committee, but at a later stage W. J. Bone, A. Silberstein, D. Ferrer and A. D. Fowler resigned, and Arthur Stanley Bone was appointed. None of these persons, all of whom were induced to join by Henderson, appeared to appreciate that a friendly society should be a voluntary association for the purpose of the mutual relief of its members. They had had no insurance experience, and regarded a collecting society as a business proposition which, if successful, meant a fortune for the founders. A variety of reasons were given by them for their having consented to act. One mentioned that a sum of £40 paid by him to Henderson as agent for the National Alliance House Purchase and Investment Company, Limited, had not been paid over by Henderson to the company. When this fact was discovered, Henderson gave an I.O.U. for the amount to the contributor, telling him that he was fortunate that the amount had not been paid to the company as it was then in liquidation, but that he was unable to return the amount. Henderson then promised that if he would act on the committee of the City Mutual Assurance Collecting Society which he was forming, he would get his money back, and make a good thing out of it. In these circumstances he decided to accept Henderson's suggestion, and, according to his own statement, did so in order that he might not lose sight of Henderson. Another of the committee consented to act because Henderson persuaded him that there was much money to be made out of the society, and that they "would all be riding about in motor cars" shortly at the expense of the society. These people, having been duped into acting on the committee by extravagant promises as to what they would get out of it, operations were commenced in July, 1921, but, fortunately, only a comparatively small number of people were victimised. The annual return for the year 1922 shows that on the 31st December of that year there were only 173 members. The annual return for the year 1921 shows that the society collected from members £263 8s. 2d., of which £2 18s. 6d. was paid in benefits and £235 3s. 8d. spent on management, including £118 8s. 4d. salaries and commissions paid to officers, collectors and others. Henderson admitted that the whole of the amount shown as "Salaries of secretary, clerks and servants, £33 18s. 4d." was received by him. I questioned him as to who were the collectors, and he gave me the names of four persons, and swore that there were no others. At a later stage he admitted that he personally received "possibly half the sum of £73 7s. 6d. shown as commission paid to collectors." I then called for the books, and as a result of further questioning, I elicited from Henderson that, of this amount, he received, himself, £60 at least, and when I asked him how he could justify the payment of this amount to him at all, having regard to the provision of Section 8 of the Collecting Societies and Industrial Assurance Companies Act, 1896, which prohibits a collector from holding any other office in the society, his reply was that he agreed a collector could not sit on the committee, but he saw no reason why a committee-man should not be a collector, and suggested that, in any event, it would be absurd to refuse commission on business which he had introduced. I hardly think any comment is needed from me in regard to this wilful evasion of the statutory restriction. At the end of the year 1921 the society had spent the whole of the 89 per cent. of its income which under its rules it could apply to management, and the return showed that it had retained £24 3s. in the benefit fund. In the year 1922, Henderson admitted that the whole of the amount paid by the society in salaries, £57 10s., was received by him, and that of £72 12s. 6d. shown as paid in commission to agents and collectors, he received at least £50, thereby again ignoring the restriction imposed by the Collecting Societies and Industrial Assurance Companies Act, 1896. The management fund accounts for the two years show that, having taken from the total amount collected from members the maximum amount allowed under the rules for management purposes, amounting to 70 per cent. of the total amount collected, Henderson could put nothing more into his own pocket without creating a deficiency on the management fund, and misapplying benefit funds. He then went to the committee and persuaded them that the amount he had received in salary and commission was not sufficient to live on. They seem to have overlooked the fact that the work which Henderson was doing in connection with this small society could not justify a whole-time salary. At any rate, they fell in with the somewhat ingenious proposal which he put to them. On the 1st November, 1921, Henderson had taken out two policies in the society for £50 and £100, respectively, and on the 1st September, 1922, another policy for £150. The table in the rules of the society under which the policies were taken out provides that a cash loan may be made to a member up to half the amount of the sum assured. Rule 12 provides that any such loan may be made out of available funds, subject to such sureties or security as the board may deem necessary. A loan of this nature can, of course, only be granted to a person who has been a member for one year in accordance with the provisions contained in Section 45 of the Friendly Societies Act, 1896. On the 31st October, 1922, two months after the policy for £150 was taken out, Henderson received a cash loan of £75 upon it, having paid a premium of £8 19s. 9d. At this time he had been a member of the society for one year less one day in respect of the other two policies. On the 28th November, 1922, he received another loan of £25 on the £50 policy taken out in 1921, and on the 6th December, 1922, a loan of £50 on the £100 policy taken out in 1921. The total amount of premiums which he was credited as having paid on these three policies at the date the loans were obtained, was as mentioned in the auditor's report, £54 3s. 7d. I ascertained, however, that the amount actually received by the society was only £40 12s. 9d., and that the balance of £13 10s. 10d. was retained by Henderson as commission on this business. I questioned Henderson as to whether he gave collateral security or provided sureties. He admitted that he had not done so, and the members of the committee whom I questioned stated that they thought this was unnecessary. Henderson admitted that he was entirely dependent on his receipts from this society, and that he was not in a position to repay the loans until the society had increased its business, and he was receiving emoluments out of which he could afford to repay them. Finally, in regard to this transaction I would draw your attention to the fact that Henderson, having paid to the society £40 12s. 9d. by way of premiums, and having received a loan of £150 on the security of the policies, was in a position to discontinue the payment of premiums and to allow his policies to lapse. In that event, the only remedy of the society would be to bring an action against him for recovery of the loan, which he admitted to me he would be unable to repay. The explanation given by the members of the committee as to their part in this transaction was that they accepted Henderson's representation that he was unable to live upon the salary and commission which he drew from the society. They accepted his suggestion that, unless he received more, he would be unable to carry on the business of the society, and that if he was unable to carry on, they would lose what they had paid into the society. The effect of the transaction was that, with the exception of the cash in the hands of the treasurer, the whole of the funds of the society as at the 31st December, 1922, were handed over to the secretary and manager for his personal use without any security. With regard to the cash, amounting to £51 Os. 10d., shown by the annual return for the year 1922 to be in the hands of the treasurer, S. E. Bone, it was in evidence that this amount had been paid by Bone into his own banking account. The amount due from him at the date of my inspection was said to be approximately £36, but he admitted to me that the balance standing to his credit at Barclay's Bank was only £2 or £3. I think I have said enough to show that this is a society promoted and carried on by one irresponsible individual for his own ends, and that he should not be allowed to continue to receive contributions from the public. Out of £611 paid into the society Henderson has received £350. In these circumstances, I beg to recommend that an award for the winding-up of the society should be made forthwith, and that included among any directions which you may think fit to give should be a direction to the treasurer to hand over forthwith all moneys of the society in his hands, and to the secretary to repay forthwith the amount of the loans which have been made to him. LEGAL CO-OPERATIVE COLLECTING SOCIETY. (REG. NO. 2107, GLAM. COLL.) To the Industrial Assurance Commissioner. SIR, ON the 27th September, 1923, you appointed me, pursuant to Section 17 of the Industrial Assurance Act, 1923, to examine into and report on the affairs of the above-mentioned society. With a view to shortening the proceedings I caused an investigation of the books of the society to be made at the registered office on Monday, the 8th October, in regard to certain matters arising upon the accounts which it appeared would have to be the subject of investigation. I held the inspection on Tuesday, the 9th October, and the following day, at the City Hall, Cardiff, when Mr. T. W. LANGMAN, instructed by Mr. D. J. DAVIES, of Cardiff, appeared for the officers of the society. I examined upon oath the following persons to whom I had given notice to attend: : Name, Address and Office held in the Society. Felton Hunt, 65, Claude Road, Cardiff, General Manager and Member David John Davies, Solicitor, 67, Queen Street, Cardiff, formerly Richard Rowland Morgan, Solicitor, 1, Windsor Place, Cardiff formerly Trustee. Joseph Lewis, Solicitor, 23, St. Mary Street, Cardiff, formerly Trustee. Rees William Nicholas, Solicitor, 31, Queen Street, Cardiff, formerly John Cynddylan Jones, D.D., Minister of Religion, Minavon, Whit- James Boyle, M.B., C.M.. 6, Hickman Road, Penarth, Trustee. 53067 D Samuel Joseph, 6, Edward Terrace, Cardiff, Trustee. Monmouth. James Brammer, Silverdale, Hawarden Road, Mrs. Annie Hunt, 65, Claude Road, Cardiff. Members of the Committee. I also gave notice to attend to Ernest Leonard Hunt, of 65, Claude Road, Cardiff, the secretary of the society, but found it unnecessary to call upon him to give evidence, and to Ebenezer Jones, M.A., Clerk in Holy Orders, late of 39, The Walk, Cardiff, but now of 13, Larn Terrace, Ilminster, Somerset, one of the trustees of the society, who was not present owing to the fact that he did not receive the notice. In opening the enquiry I informed the officers of the society that you had reason to believe that certain offences had been committed, and having regard to the grave position disclosed by the annual returns, had decided that, in the interest of the members and the public generally, an enquiry into the affairs of the society should be held. Firstly, there was reasonable cause to believe that the society had committed an offence against Section 28 of the Friendly Societies Act, 1896, in that it had not during the first five years of its existence caused its assets and liabilities to be valued, and sent a copy of the valuation and of the valuer's report to the Registrar. The attention of the society was drawn to the provisions of Section 28 of the Act as long ago as the 22nd January, 1923. Secondly, there was reason to suppose that the officers had committed an offence under Section 87 (3) of the Friendly Societies Act, 1896, in that they had wilfully applied part of the property of the society to purposes other than those expressed or directed in the rules of the society. The assumption that these offences had been committed was amply confirmed by the admissions of the witnesses, and there can be no question that certain of the persons responsible for promoting the society and carrying on the business wilfully ignored the provisions of these sections of the Friendly Societies Act, 1896, which are specifically framed for the protection of the members. With regard to the misapplication of the funds, the annual returns showed that during the period from the date of registration, 8th February, 1918, to 31st December, 1922, a sum of £855 17s. 11d. allocable under the rules to the benefit funds had been improperly applied in paying management expenses. The figures extracted from the annual returns in the statement below show that in each year the proportion of the contributions allowed under the rules to be spent on management was exceeded. Statement covering period from date of Registration, 8th February, 1918, to 31st December, 1922. Total 11,719 18 3 1,727 15 4 2,627 4 2 7,838 13 11 10,544 11 5 |