What recourse do we have to represent an underecoded item? I assume we would have to appeal to the paying bank outside of the Fed to ask for the correct funds.

If you sent/received the item from Fed, you can initiate an adjustment back to Fed for the encoding error. If you sent/received the item from a correspondent bank you should also be able to initiate an adjustment to them for the encoding error. You can also go directly to the paying bank.