Checks, Banks And Dishonest Employees!

Milk and cookies is a good combination. Your checks and a dishonest employee is a bad combination. In a recent case arising out of Los Angeles County, a Beverly Hills doctor discovered that his office manager and checkbook was not a "milk and cookies" combination!

In 1996, the doctor hired Naomi as bookkeeper and office manager for his medical practice. In this position, Naomi was responsible for accounts receivable, accounts payable, issuance of checks, bank deposits and other financial matters. Subsequently, the doctor employed Jacqueline as an assistant office manager.

During the period of their employment by the doctor, Naomi and Jacqueline, acting in concert with another, misappropriated 27 checks and insurance company drafts totaling more than $40,000. 15 checks and drafts made payable to the doctor were fraudulently endorsed by his employees and cashed or deposited into their personal bank accounts. 12 other checks and drafts were written from the doctor’s bank account, made payable to the doctor’s patients, and thereafter fraudulently endorsed with the names of the patients, and cashed or deposited into their personal bank accounts.

All of these fraudulently endorsed checks were delivered to Wells Fargo for collection. The Court of Appeal notes that each of the checks submitted contained irregularities such as

"utilization of a postal return address mailing stamp instead of a deposit or similar banking stamp, sloppily handwritten entries on business checks, and personal endorsements on large reimbursement checks from insurance companies."

The doctor sued his former employees and Wells Fargo Bank, the financial institution which collected the money for deposit to their accounts. The doctor undoubtedly sought to collect the lost funds from the bank since his chances of collection from his former employees were probably considered somewhere between slim and none, and "slim" left town!

The Court of Appeal concluded that the doctor could proceed to trial and recover if he could prove the the bank "failed to exercise ordinary care [in the discovery of such irregularities] and . . . that such lack of care contributed to the loss. . . ."

In another, earlier decision, a brokerage company suffered a loss of $638,598 at the hands of an employee who obtained 18 checks made payable to various individuals, forged the endorsements, and presented the checks with the forged endorsements to his bank which then deposited the check funds into the employee’s personal account.

In litigation between the brokerage firm and the bank, the courts determined that the bank "proceeded at its peril when it failed to take reasonable steps to investigate [the employee’s] authority to negotiate the checks and to deposit the collected check funds in his personal account." The court noted that the employee was to benefit from each transaction and the checks were of significant amounts, namely from $10,000 to $81,598.

The moral of the story? The cost of a background investigation for an employee who will have access to your bank account will be less costly than the fees of the attorney you later retain to chase your money!

[This column is intended to provide general information only  and
is  not intended to provide specific legal advice; if you have  a
specific  question  regarding the  law,  you  should  contact  an
attorney  of your choice.  Suggestions for topics to be discussed
in this column are welcome.]


Reprinted from New Era Magazine
Myles M. Mattenson © 2001-2002