Where is Fraud Likely? - Part 3 |
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Kiting is a very old scheme and is not as likely to happen as it once was, but any entity with multiple bank accounts should be aware of the possibility. For kiting to work, an individual must have complete authority over two or more bank accounts. The perpetrator must be able to sign and draw checks and must be the person reconciling the bank accounts.
The fraud starts when the perpetrator drafts a check on Bank A for a large amount (let’s say $50,000) and deposits it in Bank B. Before the funds clear, he draws a check for $50,000 on Bank B and deposits it in Bank A. The drawing of checks continues until a large float occurs. The perpetrator then siphons off a substantial balance of cash and deposits it in his own account to earn interest. The scheme can continue indefinitely as long as enough checks are drawn and deposited. The checks are never recorded on the books of the entity and the perpetrator destroys the bogus checks when they are returned with the bank statement. The best way to prevent kiting is never to give an individual the authority to sign checks and to reconcile cash. If kiting has occurred, it will be caught if the perpetrator has to take vacation for an extended period. A proof of cash will also catch kiting.
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