FIACCT 06-01_12: FINET – Non-Sufficient Funds Checks

Effective: July 1, 1998
Revised: December 1, 2019
Reviewed: December 1, 2019

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Purpose

This policy explains the procedures that agencies using FINET Receivables need to follow to account for and make collections on non-sufficient funds (NSF) checks in accordance with UCA 7-15.

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Policy

A. There are times when the service or goods provided may be revoked or returned instead of pursuing collection of the NSF check. In these circumstances the revenue may be reversed and the rest of this policy may be disregarded.

B. Agencies shall have all NSF checks processed twice by the financial institution before returning them to state agencies as NSF checks.

C. At the state agency’s discretion, NSF checks for $5.00 or less may either be directly written off against the original coding block or further pursued for collection as outlined in this policy.

D. Agencies will record the NSF check and a $20.00 service charge in FINET as a Receivable within five (5) business days of receiving the NSF check. In addition, agencies will mail the written NSF check notice to the issuer within five (5) business days of receiving the NSF check.

E. Due to the uncertainty of collection, all amounts added to the NSF check in FINET will be recorded in the Office of State Debt Collection (OSDC) budget in FINET. These amounts include the $20.00 service charge, $35.00 collection costs, and additional charges such as attorney’s fees, interest, and damages. If these amounts are collected due to efforts of the state agency, the revenue may be transferred to the state agency on an ITI/ITA transaction.

F. If damages are collected they will be returned to the agency to be deposited in the same fund and revenue type as the original check. For example, if the original check was deposited into the General Fund as restricted revenue, the damages would be deposited in the General Fund as restricted revenue.

G. Agencies may turn over the NSF checks to OSDC for further collection efforts at the time they are returned by the financial institution, or they may continue the collection efforts outlined in this policy for an additional thirty (30) calendar days. The thirty-day period commences with the mailing of the NSF check notice.

H. An additional $35.00 collection fee will be charged to the issuer if payment is not received within fifteen (15) calendar days of mailing the NSF check notice. The $35.00 collection fee will be added to the NSF check Receivable in FINET by the agency that is pursuing collection of the NSF check.

I. Unless a payment plan is in place, state agencies are to turn over the actual NSF check to OSDC after
attempting collection for no more than thirty (30) calendar days, along with a copy of the NSF check notice (if mailed), any return mail postal markings, and any other relevant documentation. Under some
circumstances, OSDC may grant permission for the agency to continue collection efforts on the NSF check. Contact OSDC for further information or clarification on needed documentation.

J. If payment is not made within thirty (30) calendar days of when the NSF check notice was mailed, additional charges may be assessed against the issuer of the NSF. These additional charges are to be added to the NSF Receivable recorded in FINET when the amounts can be determined, and if it is probable that they will be collected. The amount of these additional charges is normally not determined until there is a court judgement. The decision to pursue these additional charges will be made by the agency pursuing collection. These charges will be recorded in FINET by the agency that is pursuing collection.

K. When an NSF check is determined to be uncollectible, the actual check amount plus any additional charges will be written off against the original coding block in governmental funds. For information on when and how NSF checks can be written off see the Receivables – FINET – Write-Offs and Allowances policy in this section of the manual.

L. If a payment is received before July 1 on an old year Receivable and then that payment is returned after June 30 as an NSF check, a new year modification to the old year Cash Receipt should be processed on FINET, unless the NSF check exceeds $20,000. If the NSF check exceeds $20,000, contact the State Revenue Accountant in the Division of Finance for assistance.

M. When agencies turn over NSF checks to OSDC for collection using the RE document, the agency must
indicate whether or not the NSF check notice required by law has been sent. One of the following codes must be entered in the RE HEADER: GENERAL INFORMATION:DOCUMENT DESCRIPTION field at the time the NSF checks are turned over to OSDC. If an agency sent the NSF letter, enter “NSF-CHECK.” If an agency did not send the NSF letter, “OSDC-LETTER” should be entered.

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Background

Agencies can substantially reduce the number of NSF checks by instructing financial institutions to process all checks twice before returning them to the state agency.

State law defines specific action that can be taken on collection of NSF checks. These policies have been written to comply with state law and improve collection of NSF checks. Agencies are required to notify the issuer of the action that will be taken to collect the NSF check. The amount of service fees and collection fees are defined in statute.

The collection, service, and other charges are added to the NSF check amount by the state agency or OSDC depending on who pursues the collection effort. The agency determines if they will pursue collection the first thirty (30) days or if they will turn it over to OSDC immediately upon return from the financial institution. All NSF checks and collection costs are turned over to OSDC after they are thirty (30) days old, unless OSDC has given the state agency permission to continue collection efforts, or if there is a payment plan in place.

If the NSF check remains unpaid after thirty (30) calendar days of mailing the NSF check notice, formal civil action can commence. At this time, the agency will be required to transfer the NSF check to OSDC. However, OSDC may grant permission for the agency to continue collection efforts on the NSF check. If civil action commences, the issuer will be liable for the check amount, the service charge, and the collection fee mentioned above, along with these additional charges:

1. Interest;
2. Court costs;
3. Reasonable attorney’s fees; and
4. Damages equal to the greater of $100 or three times the amount of the check, not to exceed the check amount plus $500.

The state agency or OSDC may allow the issuer to avoid civil litigation by paying the check amount, service charge, and collection fee, along with these additional charges:

1. Attorney fees up to $50; and, amount plus $250.
2. Damages equal to the greater of $50 or three times the amount of the check, not to exceed the check amount plus $250.

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Procedures

The procedures for handling NSF checks are divided into three areas as outlined below. State agencies should review the outlined descriptions to determine which area is applicable to their situation. Agencies should then refer to the applicable detailed procedure following the outline.

A. NSF ≤ $5.00
It is up the state agency that originally deposited the check to decide whether to pursue collection of these checks. If the agency decides not to pursue collection, the agency will write off the NSF check against the original coding block using the FINET Write Off (WO) document. If the agency decides to pursue collection, the agency should follow one of the procedures below.

B. NSF Related to RE
The agency will process a modification to the original Cash Receipt document, reduce the dollar amount by the amount of the NSF check, and select “NSFCHECK” in the Reason field in the VENDOR:P AYMENT INFORMATION section or in the Reason field in the ACCOUNTING :GENERAL INFORMATION section. If the payment type field in the HEADER:GENERAL INFORMATION section on the original CR was set to “check”, this will reverse cash, re-establish the Receivable, and include the $20.00 service charge. If additional charges occur, they will be added to the original RE by processing a modifying RE. Agencies have these options:
a. Immediately turn over the NSF check to OSDC for collection; OR
b. Retain the NSF check for a 30-day collection period.

C. NSF Not Related to RE
To reverse the cash, the agency will process a modification to the original Cash Receipt document, reduce the dollar amount by the amount of the NSF check, and select “NSFCHECK” in the Reason field in the VENDOR: PAYMENT INFORMATION section or in the Reason field in the ACCOUNTING: GENERAL INFORMATION section. The agency will also enter a Receivable for the NSF amount and create a line for the NSF service fee. If additional charges occur, they will be added to the original RE by processing a modifying RE. Agencies have these options:
a. Immediately turn over the NSF check to OSDC for collection; OR
b. Retain the NSF check for a 30-day collection period.

A. NSF check less than $5.00 or less and Agency Decides to Write Off

B. NSF Check Related To RE

NSF Checks to be Immediately Turned over to OSDC for Collection.
NSF Check Related to RE – NSF Checks to be Retained by an Agency for a 30-day Collection Period.

NSF Check Not Related to RE – NSF Checks to be Retained by an Agency for a 30-day Collection Period.