Theft Without Loss

How much can one of your employees steal?

Building & Loan Secretary Embezzles Association's Funds to Pay Extortionist.

Stole his employer's money to pay note guaranteed by his employer.

Benefit Association Officer Embezzles $19,406.70.

Store Manager Loots Bank to Cover. Shortage.

Little faith in human nature has National Surety Corp., which insures companies against losses caused by dishonest employees, burglars, holdup-men and forgers. Little faith in corporate nature has many a stockholder and creditor of National Surety Co., predecessor concern of National Surety Corp. The Company did nicely calculating the odds on other people's employees' yielding to temptation, became the largest fidelity & surety insurance outfit in the U. S. In 1928 it took in $18,000,000 on its bonding business, made nearly $2,000,000 profit on investments, paid $1,500,000 in dividends. Meanwhile it had also gone into the business of guaranteeing real estate mortgage bonds and Federal, State and municipal bank deposits.

Depression sunk National Surety Co., not because thieving employees became more numerous but because bank failures and defaulted real estate mortgage bonds became so common. In May 1933, National Surety Co.. awash with $45,000,000 worth of guaranteed real estate mortgage bonds, went into the hands of George S. Van Schaick, at that time New York State Superintendent of Insurance. The Company was then succeeded by the Corporation. Directors & management of the Corporation bore a strong resemblance to directors & management of the Company,* but the Corporation abandoned the business of guaranteeing mortgage bonds and bank deposits, went back to its original fidelity and surety business. Holders of mortgage bonds guaranteed by the Company yelled loud & long, since the guaranteed bonds were not taken over as liabilities of the Corporation. But the Court decided that the reborn National Surety should be given a fair start in life, since its stock might become a valuable asset to be disposed of in the creditors' behalf.

By last week the Corporation, under the jurisdiction of State Insurance Superintendent Louis Pink, had made encouraging progress. When Commissioner Pink offered to sell the stock (100,000 shares) of National Surety Corp. to the highest bidder, seven bids ranging from $6,545,000 to $10,031,000, cash, were made. High bidder was Henry Ittleson's Commercial Investment Trust Corp., big financier of automobile and other installment purchases. Superintendent Pink considered the C. I. T. bid adequate, recommended its acceptance. Some creditors & stockholders protested, estimated the value of the stock up to $27,000,000. Opinion on William Street (Manhattan's insurance centre) was that the C. I. T. offer would eventually be accepted. Mr. Ittleson said that, if he did take over National Surety Corp., it would continue to operate under its present management.

The fidelity business of the company consists of bonding employees. The foregoing quotations in italics are from a "sales kit" used by National salesmen to convince employers of the necessity for bonding employees. One harrowing case history tells of a bank with deposits of $101,000 from which the cashier stole $93,000. Another told of a publishing-house cashier, a "weak, vacillating individual dominated by an extravagant wife," who stole $67,490 to keep up his social standing. Salesmen are instructed to emphasize the dangers of under-bonding, to cite the case of a tobacco company cashier who was bonded for $10,000, stole $147,000. Then there was the case of the branch manager of a sewing machine company who indulged in padding his payroll, retaining cash collections, forging endorsements on checks, appropriating money received on sale of second-hand machines and keeping the proceeds of checks drawn on his company. He combined these misdemeanors for 50 months before being caught.

Cost of bonding, paid by the employer, varies, but in general six or more employees, bonded for from $30,000 up to $500,000 in the aggregate cost from 27 1/2-c- to 55-c- per $100 per year. The greater the bond, the lower the cost per $100. Thus $100,000 of protection would cost, in annual payments, $330. On this basis, embezzlement is rated as about a 300-1 chance. Pawnbrokers come high at $1 per 100. So do real estate agents and property management companies at $1.50 per $100. Fidelity insurance brings in about 40% of National's total business.

Surety bonding turns upon the completion of contracts. This business covers everything from the delivery of lumber to the painting of a house. National Surety also writes all manner of burglary business, insuring private homes, stocks of merchandise, paymasters, even covering the breakage of plate glass windows, doors, and glass signs. It does not handle any accident insurance, fire insurance or life insurance. Last year National Surety Corp. took in $9,134,000 in premiums, paid out $3,424,000 in losses. It made $959,000 on its policies. It also made $302,000 selling securities, received $458,000 from interest, dividends and real estate. Securities still owned appreciated by $358,000.

* Company Director Alfred Emanuel Smith is also a Corporation director.

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