Canceled Checks – Auditor and IRS Requirements

The days of receiving a stack of canceled checks back with your bank statement have passed, thanks to the Check Clearing for the 21st Century Act. You have probably been receiving scanned images of the cleared checks along with your monthly statements but in certain cases, you may not even be receiving those.

The IRS will usually accept a scanned copy of the canceled check during an audit but if there is some suspicion that there is a problem with the copy’s integrity, the IRS is going to need more information from your bank. The same is true during a financial statement audit and this is why it is important to understand your record keeping obligations and what your bank does and doesn’t do.

Because of technological advances and the Check 21 Act, your bank may not ever see the actual paper copy of the original check but if they do, depending on your customer agreement, they may be allowed to destroy the paper copy. There is no retention requirement for original documents for any specified length of time that the bank must follow.   The bank records will instead maintain an electronic substitute check that is legally the same as the original check if all information is accurately retained.

The burden of documentation is on you, the bank customer, not the bank. Make sure to download and protect the copies of checks that accompany the bank statements and make sure you understand the terms of your customer agreement with your bank.

Read more about the Check 21 Act here.