John wrote:

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If the employee insists there had truly been a loss of the check and the indorsement to the check casher had been a forgery, once the check is paid, the employer has control. If the employee signs a forgery affidavit, the check casher ends up holding the bag under his transfer warranty. He gets to chase the person who cashed the check with him, whether it's the real payee or a thief. Everyone's good, except the check casher.

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And Raymond wrote:

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As much as we all hate it, John's dead on right. Lesson for everyone to learn. Have employees sign affidavits of loss before reissuing checks.

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I must be missing something. How does having the employee sign an affidavit of forgery/loss protect the employer from a holder in due course check cashing company?

An affidavit of forgery from a crook (the employee in this long discussion) isn't worth a lot. We already know he's dishonest, so why would we believe he wouldn't lie again by signing an affidavit?

There is the possibility that an affidavit could be used to "pile on" charges of perjury if and when the perp is apprehended. I'm not so sure that fact would dissuade someone who's bent on stealing from you.

Of all the preventive tactics discussed here, I think the most effective would be the delay in both issuing the replacement check and placing the stop order.

I agree with John. As I recall we would not reissue a Bank Check (Expense or otherwise) for at least 60 days when the original was reported lost. We also required the payee to sign an Imdentification Agreement which held us harmless in the event the original item was negotiated, as well as an Affidavit of Lost or Stolen Item. I remember vaguely that we also required a Bond or placed a hold on an account for 3 times the amout of the item but not sure the time perod we required the hold to last

If you are sure the former employee defrauded the bank then I would also file a complaint with the local police dept. They may not run out an try and find this person, but if they were ever stopped for a traffic ticket it may show up that they are wanted. If nothing else it may cause this jerk some grief when they least expect it.

If the affidavit is true, and the employee did lose the check, then the party negotiating the check to the check cashing firm is a forger, and could not provide holder in due course status to the check casher.

Or, looked at another way, the check casher, by endorsing the check, warranted that all prior signatures were genuine and authorized. The affidavit trips the warranty.

If the affidavit is spurious, it will have to be the check casher that tries to prove it, and his case will rightfully be against the fraudulent employee.

I gave a payroll check to a new employee for the week ending 2/25. The check was postdated for Feb. 24. The employee left work on the 23rd and did not return to work. On the 24 in the am we stopped the check. The employee however cashed her check on the 23 at a check cashing establishment. The check cashing establishment cashed the check one day early. Are we responsible to repay them? In addition is the check cashing store responsible to call the bank prior to cashing a check?

Under the Uniform Commercial Code, anyone who receives a postdated check is not required to honor the post-date in negotiating the item. This means that you are respoinsible for paying the item.

No one who accepts the check is required to call your bank prior to accepting it.

If you placed a stop payment order on the check, why was the check not returned by your bank when it hit their shop?

Here's another fun twist to this situation. A customer of ours purchased a Money Order from a teller and mailed it to a relative in another state. The mail was stolen and the Money Order cashed at a check cashing establishment. In addition the payee had been altered.
The maker of the money order signed an affidavit of alteration and the payee signed an affidavit of forged endorsement. (We wanted to cover all the bases.) We then sent the item, affidavits, and letters to the depository bank who charged the check back to the check cashing establishment's account.
Of course we then received the letter threatening legal action as they were the holder in due course. In this case, I shot it back to them claiming "Breach of Warrenty" undeer UCC 4-208. This took place in September 2004, and I have yet to hear back from them and I have not been served with legal papers so I think in this case they are on the hook. If it makes anyone feel better, they don't always win.

I believe that "Holder in Due Course" is a class required by all new CCC employees. I'm pretty sure that is their battle cry.