Please use Perl's built in support for encodings. Read perlunitut to find out all about Perl's Unicode strings.

sub decode_utf8_latin1 {
    my ($encoded) = @_;
    my $decoded;
    while (length $encoded) {
        $decoded .= decode("UTF-8", $encoded, Encode::FB_QUIET);
        $decoded .= substr($encoded, 0, 1, "") if length $encoded;
    }
    return $decoded;
}
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If CHECK = coderef worked, you could just write decode("UTF-8", $encoded, sub { chr shift }, but alas, it doesn't work.