Use of Nicknames

How do other banks handle situations where you have an individual who goes by a "preferred name" such as Lillian when their legal name is Lawrence? There is no legal name, identification or SSN change to show as evidence of identity but their place of business is making checks payable to the preferred name as well as their family members. My thing is - how do we know that these checks belong to Lawrence? It could possibly be a family members check.