We have a couple of businesses who have started writine checks on a regular basis to Petty Cash. I don't have a problem providing cash if the person presenting the check is an authorized signer on the account, however, they are not always being presented by a signer. How should we be handling these situation?

We maintained lists (updated very frequently) of people for each business that were authorized to cash checks for the business made out to 'petty cash'. We documented their ID's as we would any cashed check, and would take a thumbprint if the check casher didn't have a relationship with us.

We just explained to the businesses that we wanted to maintain these lists for the convenience (not having to verify checks all the time), and for both of our protection...

If they make the check payable to " petty cash", it becomes a bearer instrument (UCC 3-109). Whether the presenter is an authorized signer on the account is a moot point.

And as usual ... keep an eye out for altered check amounts. Lots of fraud opportunities surrounding petty cash from a business customer's perspective.

Although not required ... I know of several banks that require the bearer to endorse "petty cash" checks when they are presented for payment. If the check bearer showed any signs of hesitation and/or refused to endorse the check ... then the bank would later follow-up with a call to the business customer to ensure everything was legitimate.

"I know of several banks that require the bearer to endorse "petty cash" checks when they are presented for payment."

How else can you legally process the check without an endorsement from the bearer of the instrument?

Randy ... it has always been my understanding that checks payable to cash are bearer instruments and do not require endorsement.

I did a little research on the BOL website in response to your comment and found the following Q&A by Ken Golliher:

http://www.bankersonline.com/compliance/gurus_cmp051203c.html

I cannot find the legal reference at the moment ... but I assume it's available somewhere if Ken mentioned it as such in his response ...

The legal reference that supports Ken's Q&A article is included in UCC 3-201. For a bearer instrument (e.g., check payable to cash) ... it may be "negotiated by transfer of possession alone." No endorsement is required.

http://www.law.cornell.edu/ucc/3/article3.htm#s3-201

Yes - you are correct and my statement was in error. However, without an endorsement, I do not believe that you would have any recourse against the presenter.

Another way to handle petty cash needs is to make the check payable to the individual bringing the check to the bank, and annotating the check that it's for "Petty Cash." Then you have to get an endorsement.

In some cases, the business calls in the request in advance, particularly if the petty cash request is more like a "coin order." That also addresses the question of whether the check amount might be altered.