From the Chip Rack #8:

"Checks (chips) are canceled so they may no longer have any monetary value and can no longer be redeemed"

There are several ways it is done; hole drilled through chip, edge notched, over printed with a hot stamp, scratched, etc... If someone tries to cash in a canceled chip, the cancellation should make it obvious to the cage personnel that it's no good & not redeemable. Hope this helps.
Regards
Bill R-4581