How do you cancel an application? If you are not going to proceed with the application, then you need to deny it - as it is not expressly withdrawn by the applicant and you cannot consider it incomplete at that stage. You do not get a do-over because of a lender error. I am not sure what the regulators will say when they find this fact out, but I can guarantee you, it will not be a pleasant conversation.
As Randy stated this will not be a pleasant conversation with your regulator and whoever the person this idea belongs to may be prepared for some potential retribution. That practice is an outright deliberate and knowingly violation of the regulation. The bank might want to get their checkbook ready for allowing it to happen.
I"m not sure what the excuse is for not meeting the timing requirement but you would be better off delivering them late than to do what are you are doing. However constantly delivering them late will establish a pattern and practice for non-compliance.
Sound like you have a procedural issue to work out, but this practice needs to stop.