Twelve Factors to Monitor for Check Kiting

The Federal Bureau of Investigation defines check kiting as "a scheme which 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." 

Not everyone that writes a check and then rushes to the bank to cover it is kiting.  Kiting is a crime when the kiting steps over the line from practice to crime when the initiators of the activity intend to obtain something of value by trick, deceit, deception, or swindle.

According to law enforcement experts, check kiters generally have a professional appearance and manner. The professional check kiter usually has a good working relationship with his or her financial institution, regardless of whether the kiter has a legitimate or bogus business. This good relationship eventually works to the disadvantage of the bank because personnel are much less likely to be suspicious of "good" customers.

The American Bankers Association describes check kiting as "the process of floating worthless checks between accounts established in two or more banks." ABA goes on to state "a kiter is able to create the impression of having a real balance in each of the banks by carefully timing deposits and checks, and taking advantage of the time needed for checks to clear."

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What to look for:

1. A high number of deposits-usually several per day.
2. A high percentage of deposited funds coming from accounts under common control of the suspected kiter.
3. Checks in float many times greater than closing bank balances.
4. More "real" money is being taken out than put in.
5. Deposit and withdrawal activity conceals negative actual balances.
6. Total dollar debits and credits are almost equal.
7. Many deposit items drawn on the same bank(s) or many checks payable to the same payee.
8. Overdrafts covered with checks and not with cash.
9. Checks written in "round" dollar amounts.
10. Frequent inquiries regarding account balances.
11. Frequent use of different bank branches.
12. Frequent use of ATMs to make deposits.

Kiting involves checks from other institutions that appear to be drawn on an account established by the same account holder.  Certainly, not all checks of this nature are kiting schemes.  But alert tellers always watch for potential kiting.

When kiting takes place, the financial institution stands at risk.  If a kite goes undetected, the account holder may have numerous financial institutions involved.  When the kite stops "working," usually the last institution involved experiences a loss.

Here are steps to determine kiting and minimize risk in the interim:

1.   Alert management.

2.   Place special instructions on the account to alert other tellers.

3.   Contact the other institution(s) involved to confirm the funds are available.

4.   Never accuse or confront the account holder.

Financial institutions lose millions of dollars annually as a result of kiting schemes.  The strongest combination for deterring or stopping kiting is observant, alert tellers and the aid of the computer list of all items presented for payment that are drawn against uncollected funds.

The institution would be well-advised to have a kite-watch procedure where all "not on us" items of an established amount (i. e., $1,000 or more) are placed in a review bin so a designated deposit review person gives these items a second look.  Centralizing the effort allows a few "specialists" to become very familiar with depositors moving money from one institution to another, amounts, frequency, etc.  Also, this approach allows tellers to work efficiently and reduces the need to slow transactions down delaying the account holder at the window, as well as others in line.

Just as the first bank to identify a kiting scheme is usually the one to minimize their losses, alert tellers and close scrutiny of possible kiting transactions can effectively insulate your bank from crippling losses.

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