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Opportunities for Improvement in Returned Check Fees, Collections
Published February 11, 2025
Banks return about 2 percent of all checks received by King County without honoring them. These returns require staff resources and result in unpaid debts. Ultimately, unpaid debts — including, but not limited to, returned checks — may end up in collections, where customers face costs that are 31 percent higher than their original bills. Some county agencies have not reviewed returned check fees for years, despite changes in fee rates and payment options. This has increased the risk of inefficiency, inequity, and noncompliance. For example, King County Treasury Operations could increase General Fund revenues by $32,000 per year if it expanded returned check fees to electronic checks, which are an increasingly popular payment option. Similarly, county agencies have not reviewed nor documented collections processes following the profound disruptions of the COVID-19 pandemic. This has increased the likelihood that customers receive services on credit, despite state prohibition of this practice.
Audit Highlights
King County agencies have not reviewed returned check fees for years. This has increased the risk of inefficiency, inequity, and noncompliance. For example, King County Treasury Operations, which receives 74 percent of the County’s returned checks, only applied the fee to customers who wrote paper checks. Amid increasing popularity of electronic payments, this decision costs the County an estimated $32,000 in annual General Fund revenue and may disproportionately burden senior and low-income residents, who are more likely to write paper checks. We also found that price differences between fees in King County Code and King County Board of Health Code resulted in Public Health customers paying too much for returned checks.
County agencies lacked guidance in navigating the collections process, limiting consistency, accountability, and compliance. Just as agencies set their own returned check fees, they determine when and how to leverage the County’s collection’s vendor. For example, we found that Regional Animal Services of King County sent accounts to collections after they were 45 days past due without a clear rationale, while most other agencies waited 90 days. We also found that King County Parks and Environmental Health Services divisions lacked effective controls to ensure timely payments and referrals to collections.
We recommend that county agencies periodically review returned check fees. This includes determining the cost of processing returned checks and setting cost recovery goals that balance equity and fiscal responsibility. We also recommend that the Finance and Business Operations Division develop guidance to assist agencies in their review. Finally, we make recommendations to Parks Division and Public Health– Seattle & King County to document and implement standard operating procedures that ensure fair and consistent submission of overdue accounts to collections.
Banks return about 2 percent of all check payments received by King County. These returns result in unpaid debts and require staff resources to reverse old payments and request new ones. In recognition of this effort, state law allows the County to collect a reasonable handling fee for returned checks. King County Council raised the handling fee to $35 in 2010, after a staff report showed that the fee rate was too low to cover staff costs. Beyond establishing a fee rate, county code leaves it to agencies whether to charge customers the fee. Similarly, county agencies have discretion in whether they send unpaid debts to collections. Decisions about both returned check fees and collections affect revenue generation and customer cost burdens.