RDA Systems Inc

Returned Checks for Financial Receipts

Recommendations and Strategies

Phyllis Flowers

2013

Don't you just hate it when you receive the notice from your bank that a check for a financial receipt has been returned? As if you didn't have enough to do! Do you know that OpenRDA has files and processes specifically designed so that you can easily record and track those NSF checks? And, that it is integrated with the General Ledger? There are, of course, decisions you have to make when recording these. Do you immediately reduce revenue (or increase expense if the original financial receipt was an expenditure type receipt)? Or do you record as balance sheet only (crediting cash and debiting a receivable account)? And, how do you account for the returned check fees? --from Bringing You Flowers - November 26, 2013 blog posting. 

Since most people do not intentionally give you a check that is not “good,” it is very likely that it will be made “good” once you contact them and demand payment (along with your published NSF fee). Doing this (a demand letter) on a timely basis, however, is crucial.

The recommended strategies below assume that the organization has SW Bundle FM23 (Default Account Codes). OpenRDA Enterprise customers automatically have this bundle; it is optional for OpenRDA 101 customers (but is highly recommended as it not only facilitates these strategies but also, for a limited time, comes with SW Bundle FM31 for reclassifying receipts as revenue in prior fiscal year). 

In the first paragraph of this paper, I alluded to decisions that must be made when recording NSF checks into the software. My recommendation is that these be done as balance sheet entries so that receivables are impacted (increased when the returned check is entered; decreased when the returned check is made good). This not only allows these to be reflected in the general ledger but supports GASB 34 statements in regards to revenue recognition. If the check is not honored within a prescribed time-frame (check with your auditor for the “when”), journal entries will ultimately be necessary to reduce revenue as well as the receivable.

Setup steps in OpenRDA (Financial Management):

 ● Create balance sheet account master(s) for ACCOUNTS RECEIVABLE-RETURNED CHECKS (reference type of ACCOUNTS RECEIVABLE) for each fund for which financial receipts are applicable. 

 ● Create a Receipt Journal (Query, Receipt Journals) for RETURNED CHECKS (with description of RETURNED CHECKS-USED IN BANK REC). Default Account Type of Balance Sheet; Default Credit Code should be the balance sheet account master for ACCOUNTS RECEIVABLE-RETURNED CHECKS that is used in your general fund (separate receipt journals by fund are really not necessary as these are default codes only).

 ● Create a Receipt Journal for RETURNED CK FEE (with description of RETURNED CHECKS FEES). Default Account Type of Revenue. If you do not already have a revenue account code in Financial Management for NSF or Bad Check Fees, it is recommended that one be created for each fund for which financial receipts are applicable (separate receipt journals by fund are not necessary as these are default codes only). 

Bank Reconciliation module. Returns tab. 

● If you are indicating that the payment type is check and entering the check number at the time the receipt is recorded, select Financial Receipts and query on the Check Number. Once the record is located, select it and use the Record NSF Checks button (below the check number on the Main tab). This will cause all relevant information from the receipt record to “flow” to the add returned check screen. If you cannot query the receipt record because the receipt record doesn’t include the check number, you should use the Add Return Checks (Standard). 

● Regardless of the above method, use the RETURNED CHECKS journal identification for the returned checks entry. Insure that the account type reflects Balance Sheet. The credit code should be the same cash code (debit code) from the original receipt record. The debit code should be the receivable code for returned checks. The Amount should be a positive. The Statement Date should be the bank statement date for which this returned check will be included. The Returned Date defaults to the system date but should be changed to the actual date indicated as returned by the bank. The Fiscal Month should agree with the month in the returned date and statement date (the fiscal period will default to the current fiscal period in Financial Management; override as necessary). Set/enter the Notified fields relative to the Demand Letter. Enter Notes as desired on the Notes tab. 

● Verify (validate) the audit trail (review the entries and set flags). 

● Distribute the entries (review and set flags). Activity will create in Financial Management for posting.

 The taskbar in Bank Reconciliation contains options for redepositing the check. I believe the days of actually being able to redeposit the same check are in the past! So, what this is intended for is recording and creating a deposit record for the money provided to make the check “good,” and this is likely cash. But, it is also likely that this cash will be accompanied by a returned check fee. For this reason, my recommendation is that the “redeposit” be done as Financial Receipts in the Financial Management module using the RETURNED CHECKS journal ID with the fee recorded as revenue using the RETURNED CK FEE journal. That will then allow these monies to be deposited with other financial receipts. Using the Add Returned Check Redeposit option from the Bank Reconciliation module will make it appear as a single record on the Bank Reconciliation Report; that’s fine as long as you actually do make a separate deposit for the returned amount; otherwise, the report will not “match” the credits from your bank statement. You can always access (query) the returned check record (from Bank Rec module) and add notes as to when the check was made “good” as well as any other information relative to the record.

A future enhancement to OpenRDA will allow the accounting (as indicated in the receipt journal) to default when recording returned checks (similar to the way that accounting can default when adding financial receipts). I have also requested enhancements (new fields) so that some of the “original” values can be captured in the returned check record (journal identification, fiscal year, account code, credit code, transaction number); new fields to indicate whether the returned check is written off as uncollectible (along with date, time, and by); and new fields to indicate if/when the repayment is deposited via receipts in the Financial Management module.