Check Kiting

Check kiting is the illegal act of taking advantage of check float to make use of non-existent funds in another checking account.  The complex and elaborate fraud involves intentionally writing a check for a value greater than the account balance from an account in one bank, then writing a check from another account in another bank also with insufficient funds.  The second check serves to cover the non-existent funds from the first account. 

The underlying premise enables the check kiter to gain access to deposited funds before they are collected from the institution on which they are drawn by drawing against balances credited to uncollected checks. Here is an example of kiting:

You open an account at Bank A and at Bank B. If you don't have the money, you write a check against Bank A and deposit it into Bank B. Then you write a check out of Bank B and deposit it into Bank A to cover the bad check that you wrote.  

Some kiting scams involve using multiple banks in different parts of the country in order to increase the "float" time on checks. In the process of moving money back and forth, the perpetrator of this fraud will, in theory, have the use of the money for a day or two longer than they would otherwise. 

Check kiting is hard to get away with for several reasons, including these:

• Checks clear much quicker than in the past;
• Better internal controls at banks prevent depositors from drawing against uncollected funds;
• Bank computers and internal controls flag suspicious activity including activity that might indicate check kiting;
• The Office of the Comptroller of the Currency has issued guidelines for all banks to follow to reduce the risks posed by fraudulent activities including  check-kiting

© 2011 by Michael C. Dennis.  All Rights Reserved.  Michael is a consultant and author of "Credit and Collection Handbook."  Please contact him with questions at mcdennis13@yahoo.com