For years, the chauffeur for the Washington Teachers' Union routinely went to the bank to cash checks made out to him for amounts just under $10,000. He visited Independence Federal Savings Bank as often as several times a week -- so often that he got into the habit of calling ahead to the branch manager to make sure she had enough cash on hand.

He would walk out of the bank, his pockets stuffed with bills, then turn over most of the cash to the union's president or her assistant, keeping the rest for himself.

That is the account chauffeur Leroy Holmes provided to auditors working for the American Federation of Teachers, the union's parent, according to their report released Thursday. It was a routine that allowed Holmes and the two union officials to loot $1.2 million from the union's treasury over a four-year period, the audit said.

The private forensic audit, which said that more than $5 million in local union funds was diverted for personal benefit over the last seven years, raised questions about the bank's role in the misappropriation.

In a section of the report called "Unusual Actions by Personnel of Independence Federal Savings Bank," the auditors said that on several of the checks Holmes took to the bank, the payee's name was scratched out and Holmes's name was written in.

The audit said the bank, where the 5,000-member union had a checking account, consistently cashed such checks. It said that although the changes on the checks were initialed, the handwriting did not appear to match that of then-union President Barbara A. Bullock or then-Treasurer James O. Baxter II, "which raises serious questions as to who, in fact, had initialed those changes."

The audit, prepared for the AFT by Klausner, Dubinsky and Associates, also said bank officials have failed to turn over their complete records, even though the union's board has authorized the release of the information.

Several Independence Federal officials, including President and Chief Executive Officer Donna Fitzgerald Shuler, did not return phone calls yesterday. Bank spokeswoman Jeanne Viner Bell said Independence Federal will accept checks with the payee's name crossed out, but she declined further comment on the audit's findings.

"If the person who signs it says it's okay, then you do go ahead and do it," Bell said.

Holmes, who was Bullock's personal chauffeur, obtained the $1.2 million by cashing 228 checks from Oct. 9, 1998, to Aug. 29, 2002, most of them at Washington-based Independence Federal, the audit said.

Independence Federal, with assets of $260 million, is one of the nation's largest minority-owned thrifts. It was founded in 1968 after the assassination of the Rev. Martin Luther King Jr., at a time when most businesses were fleeing the city. The bank has five offices in the District and one in Maryland. Among its other clients are the city's Democratic Party and Mayor Anthony A. Williams's reelection committee.

Bruce G. Dubinsky, the lead forensic investigator who worked on the AFT audit, said the probe is continuing. "We're focusing on, among other things, the relationship of Independence bank and Leroy Holmes and others at the WTU," he said.

A spokesman for the U.S. attorney's office, which is investigating alleged misspending of union money by Bullock, Baxter, Bullock assistant Gwendolyn M. Hemphill and others, declined to comment on whether the bank's actions are under investigation. No charges have been filed.

On the altered checks that Holmes took to the bank, the name of the original payee -- Blue Cross/Blue Shield or American Express, for instance -- was crossed out, the audit said.

"In most instances, the payee name was literally scratched out and Holmes' name was written in," the audit said. "Nonetheless, Independence Federal Savings Bank (IFSB) consistently cashed these checks and gave the proceeds to Holmes. In fact, according to Holmes he was very familiar to the various tellers and branch managers at IFSB."

The union could seek damages from the bank for failing to assure that those checks were legitimate, said Fred Miller, a professor at the University of Oklahoma law school who specializes in a section of the civil code that governs such transactions. "There would be an initial possibility that part of the loss would be borne by the bank," Miller said.

Alex Wohl, a spokesman for the AFT, would not comment on whether the parent union plans to seek damages from the bank. "We're going to try to recover as much as possible from any and all involved responsible parties," Wohl said.

The audit said Holmes's transactions also were suspicious because many of the checks were for amounts just under $10,000.

Federal regulations generally require banks to report checks cashed for more than $10,000. The regulations also require the reporting of suspicious transactions of just under $10,000 that appear to be designed to evade the other reporting requirement.

A spokeswoman for the U.S. Treasury Department's Financial Crimes Enforcement Network, which maintains a database of banks' reports to authorities, declined to say whether Independence Federal had alerted the agency to Holmes's transactions.

The audit said Holmes's actions also were suspicious because "numerous" checks were cashed within days of each other.

It also said Holmes "had apparently established a close working relationship with some of the branch managers" at Independence Federal. At one point, Gretchen Calloway, manager of the branch on Georgia Avenue NW, sent a mysterious envelope to Holmes at the teachers union offices, the audit said. The envelope, sealed and heavily taped, contained Calloway's business card and a copy of three checks that Holmes had recently cashed at the bank, according to the audit.

The audit said that Calloway declined to be interviewed about the envelope and that other bank officials either could not or would not explain it. Calloway declined to comment when contacted by a reporter yesterday.

Holmes, asked yesterday about the account of his role described in the AFT's audit, would say only, "Don't believe everything you hear. There's another side of the story." He said the U.S. attorney's office had asked him not to comment.

According to the audit, Holmes told auditors that after he cashed the checks, he would keep a portion as his salary, which he said totaled $105,000 a year. The audit said that if Holmes's statements are accurate, he kept about $390,000 in cash and disposed of the remaining $810,000 by either giving it to Hemphill or depositing it into Bullock's personal bank account.

A lawsuit filed this week by the AFT alleges that Bullock also diverted more than $2 million in union funds by making improper credit card charges or writing checks to herself or others. The suit said Hemphill diverted more than $1 million through similar means. They allegedly used union funds to buy luxury items such as custom clothing, shoes, furs and silver.

Hemphill and Baxter have declined to comment on the allegations against them, and Bullock has not returned phone calls. All three stepped down in the fall after questions arose about union finances.

JAMES O. BAXTER IIBARBARA A. BULLOCK