Check Kiting – a Fraudulent Technique Slowed, but not Stopped.

Too frequently cash strapped businesses find it necessary to make payments when they have no funds to do so.  Some less than ethical business owners will attempt to create the illusion that money is available by depositing what appear to be “good funds” from other bank accounts owned by the same business (or in some instances from bank accounts owned by related companies).  For the bank receiving such deposits, it appears that those deposits are legitimate and more than enough to cover the checks being issued.

In the past, before many of today’s electronic banking services, one could use this technique and allow what otherwise would be NSF checks to continue through the system.  This continues until such point as funds would be deposited in the 2nd bank account to cover what otherwise would have been a bad deposit.  The ability to carry this out has been greatly reduced in that checks that previously took 5 to 7 days to clear, now clear almost instantaneously.

If the maker of the check does not cover the NSF deposit, the checks that have been issued will not be honored.  To protect yourself from being the recipient of potentially kited checks, if there is any concern about the issuer of the check, take the check immediately to the bank and deposit.  If at all possible, take the check to the issuing bank, and ask for a cashier’s check.

In some instances, internal employees may in fact use kiting type schemes to hide cash deficiencies.  In order to prevent this, a step in the company’s internal control process and procedures should be:  where a company maintains multiple bank accounts, an inter-intra bank transfer schedule should be updated concurrently with any related transfers, such that all internal transfers are recorded on the schedule. This support and analysis should be attached to the bank reconciliations as they are prepared so that all outstanding interbank deposits will be immediately recognizable.

We stand ready, willing and able to assist in these matters.  Whether to assist in protection against check kiting losses or to assist in recovery of  ”stolen” funds as a result of being victimized by a check kiting scheme, our team of professionals’ efforts are committed to providing the best outcome for our client.


Gerard A. McHale, Jr.,             Owner/President – McHale, P.A.

Susan M. Sprehn                       Partner – McHale, P.A.