So? What makes you think you are entitled to know who your customers are paying? Aren't your customers entitled to any privacy? There is no reason why you should know who received the funds. A properly endorsed check made out to "cash" is the equivalent of a Bearer Bond--so called because it is payable to the "Bearer"--ie, whoever happens to be presenting it! It is the equivalent of cash. Which means if the intended recepient should drop it on the street and someone else finds it, that someone can come into your bank, present the check, and get the money. This is not unusual. If the intended recepient had been paid with a $100 bill, accidentally dropped it on the street, someone finds it and comes into your bank and asks for 5 $20s--would you require him to sign the back of the $100 and show ID? Of course not.
The person issuing, and the person receiving, a check made out to "Cash" assume all the risk, should the check be lost. However, by refusing to honor a properly endorsed check issued by one of your customers (assuming there is sufficient funds in the account to cover the check) you open yourself (&/or) your Bank up to a host of legal liabilities.A check made out to cash, endorsed on the back by the signatory, is the same as cash, and should be treated accordingly.