What Happens When an Employee Embezzles Money by Forging the Employer’s Signature on Company Checks?

Tell me if this sounds familiar: Jane works as an bookkeeper for Jim’s company. She is not an accountant, but she manages invoices, receipts, and bills for the business. Jane has access to  company checks, but Jim still has to approve and sign every payment. One day, Jim is reviewing his bank statements and notices $130,000 has been deducted from his account for several checks he does not recognize. He discovers that Jane wrote the checks to herself and forged his signature. Jim fires Jane, and learns she has a big gambling problem. The police tell Jim that they do not investigate employee embezzlement cases under $1 million, and suggest that Jim hire an attorney to file a lawsuit. But the money is gone and Jane is broke. Can Jim get his money back?

Yes, from his bank.

It may seem old-fashioned, but your bank has a duty to recognize your signature and only pay checks actually bearing your signature. When Jane deposited the forged checks, Jim’s bank violated its duty to only pay checks that are “properly payable,” i.e. not forged. (Comm. Code, § 4401.) However, if the bank sends out monthly statements, Jim has 30 days to review those statements and report a possible forgery to the bank. (Comm. Code, § 4406, subd. (d)(2).) If Jim reports a forgery within 30 days, the bank must refund his money. 

However, if Jim forgets to review his bank statements and discovers the forgery after 30 days, the bank will only have to pay back the money if it acted negligently. (Espresso Roma Corp. v. Bank of America (2002) 100 Cal.App.4th 525, 528-529.) Proving the bank’s negligence will usually require a lawsuit against the bank. Moreover, Jim must immediately report the forgery and there is a one-year statute of limitations to sue the bank for improperly paying those checks. 

The important thing to remember is this: always review your bank statements and report any suspicious payments right away. But even if you do not report the payments right away, you can still recover from the bank if you can prove it acted negligently. If that’s the case, report the embezzlement to your bank immediately and contact a lawyer. Either way, your claims could be lost if you wait too long, so it is important to act quickly.

Posted on March 19th, by reyfrancesco@aol.com in Uncategorized.

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