I am told that the auto refund feature can fail if the status is edited in the item edit screen. There should be some protection in place to keep this from failing so easily and quietly.
Possible solutions might be:
1) Prevent status from being edited if a fee has been charged for that item.
2) A warning and confirmation of action when the status is being edited and there is a fee involved.
3) An authorized override for such a change.
4) A note in the patron account lines indicating status was change and an auto refund will not be possible.
5) The ability to auto refund, even after the status has been altered.
I am marking this as a bug, because I cannot see how the current behavior could be a desired function. Failure is not an option.