Check Kiting

Check kiting is a crime. The underlying premise requires a customer to gain access to deposited funds before they are collected from the institution on which they are drawn. Kiting involves making deposits and writing checks against the accounts before the deposited checks clear the banking system, creating a "float" of money out of nothing more than the lag in time while checks clear and post to their respective accounts. Here is a simple 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.

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

• Checks clear much quicker
  
• Internal controls at banks prevent depositors from drawing against uncollected funds
  
• Bank computers and internal controls flag suspicious activity
  
• The Office of the Comptroller of the Currency has issued guidelines for all national banks to follow to reduce the risks posed by fraudulent activities such as illegal check-kiting
  

Source: Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore.