Check Review Threshold - What Is the Standard?

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Question:

We are facing a potential loss because of a bookkeeper stealing checks from their employer and forging our customer's signature. Our customer's attorney alleges that we were at fault for not spotting the signature variations on checks over $2,500 (the bank's policy) that were reviewed by us. The alleged fraud dates back to March 2000. My question is: Is there a standard threshold amount that most banks use when reviewing incoming/inclearing on-us checks? Is $2500 a reasonable threshold? What process is used to determine that a signature is irregular? Is the customer contacted? Does the branch get involved?

Answer:

I'll take your questions one at a time! Standard threshold most banks use ... depends a great deal on where you are located, how big you are, and what the standard is in your area. In Kansas and Nebraska I've seen it as low a threshold as $500! In New York City it varies from $25,000 to $50,000! $2500 may or may not be reasonable in your area - check around. You may be better than most.

Process to determine if a signature is irregular?... our bookkeepers are not signature experts. If it is a fairly good forgery, they may not catch it. If the name is altogether incorrect, they should.

Should you contact the customer? If you suspect the customer's account is being violated, you should definitely contact the customer. But your security officer knows that care must be taken. You could be contacting the very person who has perpetrated the forgery. Contact, in the case of suspected forged signature, should be handled carefully. The branch, then, should get involved, because your people there most likely know the principal on the account.

My question goes back to the original claim. The new UCC definitely addresses negligence on the part of the customer as being a factor in determining liability. How did this go on from March to November without anyone knowing about it? What kind of audit procedures were in place there? Where were the checks kept? What kind of safeguards were in place? I'd fight this one down to the wire!

First published on BankersOnline.com 1/7/02