We caught a kite early, starting sending checks back and holding deposits. While we're still waiting for the dust to settle, I anticipate having a $10,000-$20,000 balance remain in the account becuase the other bank did not catch it in time and paid the checks. In this case where we may have excess funds, what do we do? We have frozen the account and basically closed it, but are waiting for any checks to be sent back. I'd hate to give the excess funds to the customer if the other bank lost, but what can I legally do?

contact the other bank involved and tell them you believe you've caught a kite, ask them to review their records, see if they would be willing to "adjust" items outside of the normal return window. If they are short, they will likely love to return the items and have you reimburse them.

And make sure you also contact the local police and/or district attorney as you move to prosecute!

If you do permit the other bank to "adjust" its losses as Happy suggests you consider doing, be sure to get a "hold harmless" agreement from that bank that will protect you if your customer attempts to push back legally, alleging late returns.