I recently asked the person who handles AR checks to document her procedures, and was surprised by two things she does ...

Q. (cont.) When we receive a check made out to another company, if the documentation or the amount indicates clearly that it is a payment meant for us she deposits the check. When the written amount is accurate, such as, $45.23, but the dollar amount is incorrect like $45.00 she “corrects” the numeric dollar amount before depositing the check. Are these practices legal?

A. According to consultant David W. Hay, who spent 40 years in international banking, finance and computer services and outsourcing, it is illegal to deposit a check made out to a third party when the check is not payable to your company. By depositing the check, you are liable for fraud charges. (You may also be subject to escheatment issues if the company designated as the check’s payee reports it missing and/or asks for a replacement check.) The only exceptions would be if the payee was a name that your company previously used or the name of one of your company’s subsidiaries, or if the third party endorsed the check over to your company. So depositing a check that has an incorrect payee is not something you want in your standard operating procedure! (Even if the bank has been negligent in failing to note the discrepancy.) Contact the customer and have them issue a correct check.

On your second question, however, it is legally acceptable to change the numeric (advisory) value on a check, Hay says. Section 3-114 of the Uniform Commercial Code states: “If an instrument [check] contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers.”

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