TN 38 (08-17)

A. What to do when a check becomes smudged or mutilated

A check can smudge or mutilate during the printing and mailing process. Additionally, a payee can smudge or mutilate a check prior to negotiation. The merchant or financial institution (FI) can refuse to cash the smudged or mutilated check even if it is legible. If the critical elements of a check are legible, the Field Office (FO) should advise the merchant or FI that the check is valid for negotiation. If a merchant or FI will not accept the check or the payee reports that a check is mutilated, use the following procedure to have the U.S. Department of the Treasury (Treasury) cancel and reissue the check. NOTE: For a mutilated check that is beyond recognition, use regular non-receipt procedures.

B. Critical elements for negotiating a check

A check contains the following:

• Payee's name;

• Check symbol and number;

• Date of check;

• Amount of check; and

• Legible micro-encoded numbers at the bottom of the check.

1. Field Office (FO) and Processing Center (PC) instructions for returned mutilated checks

When an individual reports or presents a smudged or mutilated check, he or she should have the same prompt replacement as other non-receipt situations, if applicable. As a requirement, document in the “Remarks” or “Special Message” field that we replaced the smudge or Non-receipt procedure or mutilated check to avoid fraud or duplicate payments for the same benefit month.

2. When the FO or PC receives a Title II mutilated check and some information is legible

Take the following actions:

1. Stamp the check “not negotiable.”

2. Issue a receipt (FO only).

3. Input the non-receipt claim as a B-stop, replacement before status; and wait for the Regional Financial Center (RFC) disposition code 01 to be annotated to the Payment History Update System (PHUS).

   RATIONALE: The code 01 indicates a valid non-receipt processed and then a courtesy check issued. The FO or PC will secure the returned check in a safe or locked file cabinet for 90 days.

4. After 90 days, if there are no additional inquiries, shred the mutilated check.

3. When the FO or PC receives a Title XVI mutilated check and some information is legible

Take the following actions:

1. Stamp the check “not negotiable.”

2. Issue a receipt.

3. Transmit return of the check with code 6- “Smudged, Mutilated But Legible” as described in SM 01315.042 and SM 01315.227. The Supplemental Security Income (SSI) payment system will follow the normal underpayment processing rules.

4. The system will reissue payment in the next system run if payment due to the claimant is less than $5,000, and there is no overpayment collection in process. Refer to SM 01311.661 for information about how to resolve a U2 diary to release underpayments of $5,000 or more.

4. When the FO or PC receives a Title II or Title XVI check and the information is beyond recognition (or a major of the check is missing)

Take the following actions:

1. For Title XVI, use the regular non-receipt procedure in SM 01315.155; for Title II, follow SM 00609.001.

2. Stamp the mutilated portions of the check “not negotiable” and the FO or PC will secure the check in a safe or locked file cabinet for 90 days per instructions in SM 01315.227.

3. After 90 days, if there are no additional inquiries, shred the mutilated check.

C. Instructions when the United States Postal Service (USPS) returns undeliverable mutilated Title II and Title XVI check to Treasury

There will be situations when checks are mutilated and undeliverable, and returned directly to Treasury by the USPS.

• The RFC will cancel the check immediately.

• If a stop payment action is in the RFC, Treasury will hold the check for 90 days and then shred it.

• If no stop payment action is in the RFC and correspondence attached, the RFC will forward the correspondence to the appropriate PC for Title II or Division of Benefit Certification and Systems Analysis (DBCSA) for Title XVI with an annotation, “Check Cancellation Due to Mutilation.” SSA will receive the funds as a returned check credit.

• If no correspondence is attached, the RFC will prepare correspondence for the PC or DBCSA stating, “Check Cancelled Due to Mutilation.” SSA will get a credit in the form of a returned check from Treasury. For Title II, REACT will process the returned check and it will appear on PHUS. Title XVI credit will post to the Supplemental Security Record (SSR).

D. Check mutilated after negotiation - Title II and Title XVI

If a check is lost or mutilated after, negotiation then:

• “Holder In Due Course” procedures as described at GN 02406.235 may apply, or

• See Endorsed Check Lost, Stolen or Destroyed, GN 02406.125E. and GN 02406.125F, Transmitting Loss of Endorsed Check.