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Tax Guru-Ker$tetter Letter
Tuesday, March 20, 2001
Get Your Checks Back

Many banks are allegedly making things more convenient for their customers by no longer returning their cancelled checks to them, and instead providing a photo-copy of the fronts of the checks. This is really just a cost saving scheme for the banks and will cost their customers huge sums of money in the end because the front isn't the only side of a check that is important.

I can assure everyone that this concern isn't due to any fear of change or an indicator of my anal-retentive personality. There are very valid reasons why this is a dangerous idea.

Unless the bank's printed copies show both sides of the checks, this will do a great disservice to their customers. As a CPA who has to frequently work with checks, I often find it essential to refer to information on the backs of cancelled checks. With payments to IRS, this is absolutely crucial for tracking down where payments have been applied. IRS prints tiny code numbers on the backs of checks identifying the account number and tax period to which payments have been applied in their system. Almost every week, I have to send IRS a copy of the back of a client's cancelled check in order to locate a payment, normally of several thousand dollars. If banks no longer provide copies of the backs of checks, it will be impossible for us to locate these payments. With IRS matters, the burden of proof is on the taxpayer; so if we can't prove a payment, IRS won't locate it for us.

I have also handled several fraud investigations over the past years where the endorsement signatures and other information on the backs of checks were critical for determining the perpetrators. Not having the backs of checks returned for examination will make this kind of detection impossible to do and could encourage embezzlers to steal more. I'm positive other CPAs will agree with this concern. It will also make normal audit verifications impossible.

If your bank tries to institute this kind of policy, you need to let them know that it is not acceptable. If they refuse to budge, change banks. In fact, I hope banks that will return actual checks will publicize that fact so that potential customers can take notice.

When our main bank, Regions, tried this scheme on our accounts over a year ago, I insisted on receiving the actual checks back, which they do send. We just received a notice from Sherry's bank, First Federal, that they will no longer be returning actual checks. Their notice, which they titled "The Better Checking System," doesn't give any option to continue to receive checks. I wrote to the bank explaining what I have discussed here, with the hope that they modify this new policy. We'll see if it has any effect. Otherwise, we will be changing banks.


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