Check Kiting
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The ABA in part defines check kiting as "the process of floating worthless checks between accounts established in two or more banks." I personally like the FBI's definition:
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"Check fraud artificially inflates bank account balances, in accounts that are under common control, for purposes of obtaining unauthorized use of bank funds, through the systematic exchanging or swapping of checks between these accounts, in a manner which is designed to misuse the float that exists in the banking system." |
However it is defined, during a recession there is less money "floating around" so kiting is a great way for companies and individuals alike to maximize the value of a dollar. Unfortunately, when a check fraud unwinds the losses can be staggering. Something I can confirm from personal experience.
In order to uncover kite fraud, a pattern must be detected that clearly shows a fully formed kite. Even then, the client will often claim that they did not know that they were doing something wrong. In fact, it is not unusual to hear from a company's bookkeeper that they were taught by a predecessor or may be even the company's Chief Financial Officer that kiting money between one or more bank accounts was "ok". In this case, check kiting has essentially become part of the company's standard operating procedure.
How does your bank detect kite fraud? There are a number of technology solutions on the market, yet some banks still rely on paper reporting. With paper-based systems and older technology, kiting seldom "jumps off the page†(although it can happen). More likely it will require research to "follow the money". Newer technologies are available that present kiting analysis in a more visual manner, making it easier to spot earlier, and provide forensic research in the same system so following the money is easier and faster.
I would love to hear from you regarding the following:
- Have you observed a spike in kite fraud? If so, what has your bank put in place to manage the risk?
- Do you use technology to detect kite fraud, or do you rely on paper reports?
- How many staff do you typically allocate to kite detection? What level of experience do they possess? Do you have kite specialists, or do the kite investigators also investigate other types of check fraud?
- How much time does your bank spend investigating business versus personal check kiting?