Systems and Procedures
A Division of The Corporate Controller's Office
IN

Procedure CR2002 - Processing Returned Checks

Office of the Corporate Controller

Policy Steward facilitating procedure: Associate Controller

Table of Contents:


GENERAL:

There are occasions when checks received as payment on student accounts for tuition and related charges may be returned by banks for non-sufficient funds or other reasons. Likewise, there are occasions when checks are received as payment for goods or services provided by a department (not student account-related) and also may be returned by banks.

For such occurrences, the Corporate Controller has authorized the assessment of specific fees. A $25.00 returned item fee will be assessed for returned checks that have been received for tuition and other charges which have been posted to the student account. For returned checks involving departmental charges for goods or services rendered, a $25.00 returned item fee may be assessed to the person issuing the check. All areas concerned must display a sign in a prominent location stating that a charge will be assessed for all returned checks.

The budget executive at each location receiving checks may waive the enforcement of these fees on an individual basis if, in their judgment, extenuating circumstances exist (such as a bank error). Likewise, if the budget executive feels that such a charge is not in the best interest of their administrative unit, they may choose not to assess a fee.

At all University locations, it is the responsibility of the Financial Officer/Director of Business Services (as applicable) to insure that the collection of monies, including the appropriate returned item fees, is pursued.

Good judgment should be exercised when applying this procedure, to assure that the cost of efforts toward payment recovery does not exceed the value of the returned-check fee and check amount. The ultimate responsibility for such judgments shall reside with the Financial Officer.

This procedure specifies the documentation, reimbursement/securing payment, handling of uncollectable accounts, auditing and record retention associated with the processing of returned checks. This procedure applies to operations at both University Park and non-University Park locations, unless otherwise stated.

NOTE: Certain areas are authorized to handle their own returned checks. Entities like the Bookstores, whose checks are made payable to Barnes & Noble, have checking accounts outside of Penn State and handle their own returned checks. Otherwise, all Penn State checks that are returned from the bank should come through the Bursar's Office at University Park. If no formal guidelines are in place for the handling of returned checks in these areas, this document should be used as a “best practices” guide to assure proper handling.

PROCEDURE:

DISTRIBUTION OF RETURNED CHECKS

When a check deposited with a designated University banking institution is returned from the bank for any reason, the bank sends all returned checks to the Financial Reporting Department, which notes the General Ledger account number on the documentation received from the bank, and forwards the documentation to the Bursar.

The Bursar forwards the check along with a Returned Item Memo or Charge Notification Memo (Exhibit “A"), as applicable, to the pertinent location so that collection of the amount of the check (plus the appropriate fees) can be pursued.

For returned checks involving student accounts, the amount of the check and a $25 returned item fee are charged to the student account, as stated in the Returned Item Memo.

For returned checks involving payments collected by a department (i.e., non-student account related), the Bursar charges the department budget via a monthly JVCN (Journal Voucher), but only for the amount of the check, using the account information from the restrictive endorsement on the back of the check. Notification of this action is done by means of a Charge Notification Memo (Exhibit “A"). These areas will determine if the $25.00 returned-check fee should be assessed or is forgiven (refer to “Waiver of Fees,” below).

Upon receipt of the returned check and applicable memos (Exhibit “A”), repayment procedures for the returned check will be pursued. If the returned check originated within the Financial Officer’s immediate area, collection begins in that office. Otherwise, the endorsement on the back of the check is examined to determine which department or area originally accepted the check, and the check is routed to that area.

SECURING PAYMENT FOR RETURNED CHECK AND FEE

General

If deemed appropriate, and if local banks accept returned checks, the returned checks may be re-deposited. If checks cannot be re-deposited, or if checks are re-deposited and subsequently returned, the repayment process must be initiated with the check signer.

Documentation

The originating department or Financial Officer may first attempt to make face-to-face or phone contact with the check signer to secure payment. If repeated attempts to establish personal or phone contact fail, the use of written notification is used as the method of initial contact. A Returned Check Notice (sample shown in Exhibit “B”) is prepared and forwarded to the check signer. A copy of the Notice should be maintained in an alphabetical file, preferably near each sales area so that any additional sales to the individual are denied until full payment of the returned check and fee is received.

The originating department or Financial Officer mails the original copy of the completed Returned Check Notice (Exhibit “B”) to the check signer, and forwards a copy to the Financial Officer (if applicable). The department retains a copy.

Past Due Checks

If a check remains unpaid for 30 days after the first notification, a Second Notice (sample shown in Exhibit “C”) is prepared and forwarded to the check signer. A copy is given to the Financial Officer (if applicable). The department retains a copy.

If the check was written by a student, a hold is immediately placed on the next registration, or, if the student is to graduate, on their diploma. Financial holds are subject to certain minimum dollar amounts (as established by the Corporate Controller), as well as to deadlines for processing requests. If the dollar amount involved (both the amount of the returned check and the fee) does not meet the minimum requirements, then the amount must be charged against the student’s General Deposit.

Repayment

In order to clear the returned check, the check signer must submit the amount indicated on the “Total Due” line of the Returned Check Notice. Payment must be by cash, a certified check, or money order made payable to “The Pennsylvania State University.” A personal check is not acceptable.

Upon repayment, a Pre-numbered Receipt or other authorized receipt must be prepared and distributed (per form instructions in GURU, and Policy FN01) to acknowledge the repayment of the returned check amount and the fee. The Pre-numbered Receipt must note the payment check amount and the fee. The Pre-numbered Receipt must note that payment is for a returned check.

The repayment is deposited in the appropriate University Depository in compliance with Policy FN01. The student account or departmental budget will be credited, as applicable: repayments involving the student account will be credited via a posting on LionPATH; repayments involving departmental budgets will be credited via completion of a new Report of Cash Receipts (ROCR). The name of the person who originally signed the check, and the Pre-numbered Receipt number issued are indicated on the details screen (screen 3 of 4) of the ROCR. Returned Check Fees are credited to Object Code 0029.

The IBIS document number of the ROCR is recorded on the original bank-validated deposit slip. Refer to Procedure CR2005, Depositing Cash Revenues, and Procedure CR2004, Accountability for Transfer of Items of Value (Except Equipment).

Notations to the Returned Check Notice (Exhibit “B”) are completed, to include the date paid, the amount paid, the Pre-numbered Receipt number, LionPATH posting information (as applicable) and the IBIS document number of the ROCR. A photocopy is made and is forwarded to the Financial Officer, if applicable. The original is retained by the department and placed in a closed file.

WAIVER OF FEES

If there is no justifiable reason, the check signer should be assessed the amount indicated on the “Total Due” line of the Returned Check Notice (Exhibit “B”), which includes any fees. If, however, a returned check and/or fee are forgiven, the budget executive must document this waiver in a signed memo or note written directly on the Returned Check Notice (Exhibit “B”). The Financial Officer receives a copy all documentation indicating such action.

UNCOLLECTIBLE ACCOUNTS

Any returned check outstanding for 30 days after the second notice should be afforded special attention. Phone calls, a personal letter, or a collection agency must be considered as the next appropriate step for check signers in this situation. If the originating department is handling the matter, the Financial Officer must be notified of the originating department’s action. If the use of a commercial collection agency is desired, contact with such an agency must be made through the Bursar’s Office at University Park.

If a returned check is determined to be uncollectible after all reasonable means of collection have been attempted, the Financial Officer has the ultimate authority and responsibility to terminate pursuance of the matter. If such action is taken, the Financial Officer must document this termination (such as a signed note written directly on the Second Notice- Exhibit “C”) and forward a copy of the notice to the department involved with the returned check. No further action is necessary, since, as was previously discussed, all adjustments for accounting purposes have already been made.

PROCESSING RETURNED CHECKS THAT WERE DEPOSITED IN AN OPERATING CASH ACCOUNT

Employee Repayment of a Cash Advance

If a non-sufficient fund check is charged to the Operating Account, the Financial Officer, by personal contact with the employee, should be able to clear up the matter. Other alternatives are withholding the employee’s paycheck, or submitting a payroll deduction.

AUDIT COORDINATION - FINANCIAL AND PROCEDURAL

On a periodic basis, an examination is made by the Financial Officer of the outstanding returned checks of the various departments or areas under their purview for problems which may require closer scrutiny. If, as a result of such a review, the Financial Officer finds that a check signer(s) has an unacceptable number of returned checks, they will alert their departments to refuse services to the check signer(s) until the problem is resolved.

The Financial Officer is responsible for ensuring that procedures pertaining to the accountability and safeguarding of all cash receipts, cash funds, and other assets are established and followed in accordance with approved University policies and procedures. Regular audits relating to advances, cash, travel, equipment accountability, and other expenditures provide a means to protect University assets. The Financial Officer is responsible for working with Internal Audit when audits are being performed in the administrative area, as well as performing an annual audit that is submitted to the Assistant Controller.

RECORD RETENTION, DISPOSITION AND DESTRUCTION:

Record retention must be managed in accordance with Policy AD35 - University Archives and Records Management, and records schedules approved by the Records Management Advisory Committee, Office of General Counsel, and Office of the President. These retention requirements are the University's retention criteria, either derived or based upon federal, state, and local statute or regulations, industry standards, and business needs. Retention beyond recommended time periods require justifiable reasons and warrant review by the Records Management Officer or designee. All documents must be maintained in such a manner so as to provide ease of access for review, and to provide a suitable audit trail for all transactions.

Upon expiration of a stated period of time, documents must be discarded and/or destroyed, unless permission is granted by Records Management Officer or designee to retain the records. Archival records created more than 20 years prior to the current date must be reviewed before destruction. Units should also contact the University Archivist before discarding any document which may be of permanent or historical value to the University. To safeguard the privacy of individuals, documents that contain salary information, personally identifiable information (PII), or student records must also be shredded. See Policy AD53 - Privacy Policy and AD22 - Health Insurance Portability and Accountability Act for additional information regarding privacy and the protection of an individual's personal information. For documents that must be shredded, departments may arrange for Blue Bag service by contacting the Blue/White Shredding Program of the Office of Physical Plant. Exceptions to the practice are as follows:

Additional questions may be directed to the University Archivist or the Records Management Officer.

EXHIBITS:

CONTACT INFORMATION:

For questions, additonal details, or to request changes to this procedures, please contact the Associate Controller.

CROSS REFERENCES:


Procedure Status:

Date Approved: 2/20/2009

Most recent changes:

Revision History (and effective dates:)