Polaris allows you to charge the overdue fines with the bill or when the item is returned. It sounds like your system is configured to either charge when declared lost or charge with a bill, since the patron appears to be getting both late fees and replacement fees at once.

If you don't want patrons to be charged an overdue fine on lost items, you could update that configuration to charge when returned. This means patrons will still be charged overdues for items they return before the lost item period. But items that are declared lost or billed to lost will not charge an overdue on the patron's account. Only the replacement fees. Unless the item is found/returned, in which case the overdue fees would be charged.

Here's a couple documentation topics that might help:
https://documentation.iii.com/polaris/7.8/Default.htm#PolarisStaffHelp/Patron_Services_Admin/PDPfines/Overdue_Fines_on_Lost_Items.htm?Highlight=overdue%20charges

https://documentation.iii.com/polaris/7.8/Default.htm#PolarisStaffHelp/Patron_Services_Admin/PDPfines/Set_the_lost_item_recovery_default_actions.htm

Basically the patron is being charged for both and ideally we'd like for the late fees to automatically drop once the item has been out long enough for the replacement charge to kick in.

"The lost item recovery settings may also need to be configured so the system can do things like automatically waive the Overdue charges if the replacement charge was paid by the time the item was returned."
This is exactly what we'd like to happen.