The treasurer of an entity makes checks payable to the bank and comes in once a month to cash them. However, on the business' books, these entries are all recorded as loan payments. After years of siphoning funds, the business discovers the fraud and sues the bank. The bank finds itself liable for a large sum of money.
IF the bank is the payee, it's the bank's money. Why would the bank give its money to someone else? And does a teller have the authority to give the bank's money to someone else?
Customer comes in with a past due notice for a 458.67 installment loan payment and a cancelled check for $458.67 payable to the bank as evidence the payment was made.
Your bank records show the check was offset by a cash out in the same amount; i.e. the check was cashed. Customer says he has no control which little piece of paper you put next to his check on your side of the counter; he gave your employee a check and an installment loan coupon.
Translated, he's saying the teller took the check, threw away the installment loan coupon, replaced it with a cash out and took the cash out of the drawer so the drawer would balance at the end of the day; I.e. the cash went into the teller's pocket. Unless the transaction is on camera, it's the customer's word against the employee's, but the bank's policy of cashing such items made it all possible.
If you're unwilling to protect your bank, protect your employees.
P.S. Brian's anecdote came from a real court case. The customer was a CPA firm. As indicated, the bank lost.