Sadie is the bookkeeper for the Binkly Construction Company. She makes out the payroll; prepares all of the payroll checks and reconciles the bank statements for the firm. She decides to increase her income by padding the payroll; accordingly, she makes out a check in the name of someone who does not exist. She then indorses the check with the payee's name and her name and cashes the check herself at First Bank where the company has its account. Under the fictitious payee rule, Binkly and not the bank will be liable for this check.

Question

Quizplus · Accepted Answer

The fictitious payee rule states that if an employee fraudulently issues a check to a non-existent person and endorses it, the loss falls on the employer, as the employer is considered to have authorized the issuance of the check.

Sadie Is the Bookkeeper for the Binkly Construction Company