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History of the Bank of Nova Scotia 1832-1900
The Forman Defalcation

THE following minute is entered in the Directors’ Book under date of 28th July, 1870: “At a meeting of the whole Board this morning the President informed them that it had been discovered that the Cashier, Mr. James Forman, had been guilty of making many fraudulent entries in the books of the Bank, by which he had abstracted a large amount of its funds.” This state of affairs had been reported to the President by the Accountant, Mr. J. C. Mackintosh, who had been endeavoring for two or three years to check Mr. Forman’s balances—a very difficult matter, as all the important books were written exclusively by the latter; in fact were taken home by him at the close of business each day.

The keys of the vault were at once given to Mr. Mackintosh, who was thereupon appointed Deputy Cashier. The cash was found to agree with the stated balance, but the checking and adjusting of the Ledger accounts, which occupied many months, ultimately fixed the deficiency at the figures hereinafter given. Through the lax methods of the President, who held joint custody of the cash with Mr. Forman, it was an easy matter for the latter to help himself: indeed, it is stated that Mr. Forman was frequently allowed the use of the President’s keys. It is worthy of remark that time and careful investigation have proved that the note circulation accounts were not tampered with.

A meeting of the Shareholders was called for August 9th, and a joint committee of Directors and Shareholders then formed to examine into the Bank’s affairs. After trying with small success to straighten the tangled accounts, this committee recommended that a banker of long experience and known ability, having no previous connection with the Bank, should be engaged, so that an independent report might be presented to the Shareholders, and necessary changes made in the Bank’s methods. Acting on this suggestion, the Directors appointed Mr. W. C. Menzies, of the Bank of British North America, Cashier, on October 31st, 1870.

According to the report of the Cashier, Mr. Menzies, at the meeting in 1871, the deficiency was $314,967.68. The property transferred to the Bank by Mr. Forman was estimated to be worth $179,296.45—though realization has proved this estimate excessive — and the amount due from his bondsmen was $28,000. The net loss was found to wipe out the Reserve Fund of $80,000, the earnings of the Bank for the first half of the year 1870, and to impair the capital stock by the sum of $27,671.73. Under the authority of the Dominion Act of 1871, $56,000 (or ten per cent.) was written off Capital Account at a special meeting of Shareholders held October 11th, 1871, and set aside as a contingent fund to provide for this and other losses. The capital stock was thus reduced to $490,000, and each individual share to $175.

Mr. Forman’s health broke down under the strain of these exposures. There was so much sympathy expressed for him that he was never prosecuted; he removed to London and died a short time afterward.

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