Bank Deposit Standards of Care
As a former banker, I can’t stress enough the importance of “simple stupid” procedures regarding deposit accounts. It is imperative that bank customers open their statements monthly and review them.
Recently, I had an inquiry looking for a banking expert regarding deposit standards of care. A condo association had a property manager write checks payable to the condo association, and then the checks were deposited into his personal account at another bank. This went on for some months.
The standards for all checks with corporate payees is that they may only be deposited into accounts of the same name, and may not be double endorsed (pay to the order of) or cashed. So far this supports the condo association’s position.
However, there is also a standard in the industry that errors must be reported promptly. Most banks require that errors be reported within 30 days. That means that it is crucial that statements be reviewed monthly. Probably 60 days would be OK. In the case discussed the defalcation was discovered by the condo association accountant 6 months later. So yes, if the issue was discovered and timely reported, one bank or the other would be responsible. Under the circumstances, had the customer acted in a timely manner, perhaps some of the losses might have been prevented. With the late discovery, I believe that the condo association would be out of luck in recovering money from any bank in this matter.
Be sure that your clients open and review monthly their bank and brokerage account statements!