Training Bank Tellers to Detect Check Kiting

Check kiting is a form of fraud involving moving theoretical funds between two or more checking accounts.  A check written to the criminal from one bank is deposited, and more importantly credited, to an account at a second bank. Because that second bank now shows a positive balance, the criminal can withdraw enough money to deposit back into the first bank before the check bounces for lack of funds.

This form of check kiting may seem to be too complicated for such a small payoff, but flipping the funds back and forth between accounts can buy the criminal enough time to generate real money to cover any other outstanding checks.

Some people have been known to use this method, called payday kiting, when several checks on an overdrawn account may come due before a paycheck or other regular funds can be deposited. The payday kiting scheme depends on the bank’s delay between receipt of deposits and checks and their eventual processing, also known as “float time.”

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 take to determine kiting and minimize risk:

  • Tighten the review process on all funds deposited by an account holder that includes any item drawn on other banks that the depositor is the maker of the item, even if it involves a cashier’s checks or money orders where the remitter is the account holder.
  • Tellers are to alert management anytime.
  • The size or frequency of these types of items exceeds a certain conservative amount.
  • A quick review of the depositor’s account indicates withdrawals and deposits that are for the same amount.
  • Place special instructions on the account to alert other tellers.
  • Contact the other institution(s) involved to confirm the funds are available, if not, refuse the check or send the check for collection.
  • Alert the compliance officer of suspicious activity.

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

The institution would be well-advised to purchase watchdog software that overviews all potential kiting or to have a kite-watch procedure where all “not on us” items of an established amount (i. e., $5,000 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.

Still learning,

Honey


Looking for training on check-kiting and fraud? On Guard: Check Kiting & Other Scams is the program you need to remind existing frontline staff or bring new-hires up to speed on best practices and techniques that help reduce the threat of check kiting, identity theft, advance payment, counterfeiting, and new account fraud.