We recently had a lender who was issuing cashier checks and then not making the customer pay for the check until a week later, no loans involved. What are other banks doing to control their cashier checks so that this does not happen? Do you have one person to issue all checks and account for them, or do lenders get checks from a teller? Need some advice....

Our lenders do not issue Cashier's Checks; someone other than the lender must do this. Sounds inefficient but if you get other personnel involved then you can make sure both sides of the transaction are processed in accordance with internal controls. We had the same problem a few years ago, with one loan officer running through the check and not running the credit copy with the payment. We stopped this with the internal control changes.

Our loan clerks issue the checks and the loan officer signs them. As for any CC other than for loans, the customer has to go to a teller and they need to be signed by an authorized signer (usually an officer or head teller)

Just to let you know, in a past life, at a past bank, this practice was one of the items that led to the discovery of a MAJOR bank fraud by the bank president.

Your bookkeeping department should be balancing cashiers checks every day. When a debit side comes in before the credit - that's a problem. And not just for this situation, that will also identify counterfeits. Any time this occurs, the controller should get involved.

By the way, it is very common for lenders to hand a customer their cashiers check before they finish their paperwork and send the tickets with the credit copy through. (I said "common," not "acceptable.")

We had our float manager create a report that identifies cashiers checks paid for with checks drawn on other banks. This identifies breaches of our policy that says such checks can only be issued with an on-us contra. It can identify branches or departments that may be playing such a game. (We created the same report for wire transfers and helped to streamline that process while creating a valuable risk control.)

wouldn't they just circumvent that by depositing the check from the other bank and then paying for the cashier's check out of their account?

How can a cashiers check go through without a debit? We process all transactions online and every credit must have a debit to go with it. I guess if the check isnt required to go thru the system at the time it was issued it would be possible to send the check without a debit to back it up. How does this person get away with this? What happens if the customer never pays for the check? I would think that controls would put a severe stop to this process right away!

The scenario would be, either the example in the first post, or less ominously, one where the customer has closed a new loan and been handed their cashier's check (debit copy - I think your post has this backwards), but the officer doesn't submit the credit copy for whatever reason (gets a call that her house is on fire, isn't ready to turn the file over to loan processing, etc.).

Jokerman: wouldn't they just circumvent that by depositing the check from the other bank and then paying for the cashier's check out of their account?
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Our deposit system has a fraud detection system that allows us to identify suspicious activity not caught by a teller (e.g. depositing a check drawn on themselves at another bank into their account with our bank). If someone buys a cashiers check with a debit that isn't an on-us DDA or savings account, that sends up a flag to review the transaction. No cash or clearing account offsets are allowed. The objective is to make sure the cashiers check and wire transactions have an internal audit trail.

Okay, the first thing you would deal with is the whole issue of the debit (the cashiers check) clearing through the official checks account without the offsetting credit. Big red flag. Does it happen in real life when a loan closes at the end of the day but the loan docs don't make it back to be booked until the following day? Of course. Best case scenario altogether: cashiers checks are only issued to those departments that are authorized to issue them. If the lenders don't have checks to issue in the first place (like if your loan funding function has been centralized), then this is not a problem anymore on that side at least. Your accounting/bookkeeping/whoever department must reconcile the CC account daily-no excuses. This is an area with high fraud and the sooner it can be balanced and any issues identified, documented, and reported to your audit committee/BOD, the sooner those controls that have weaknesses in them can be tightened to prevent any funny business. This type of attitude is what internal controls are all about and they need to be reminded that you have systems and reviews in place to detect this type of unacceptable and unethical behavior and if you don't have them in place, your internal/external auditor and/or examiner will be happy to point these exceptions out to the BOD in your next director's exam or safety and soundness exam.