Kiting

Written by Fmi.Online Friday January 6, 2023
Kiting, also called check kiting, is a fraudulent scheme that uses checks to embezzle money from a business. Kiting is usually committed by a bookkeeper or someone else with access to company checks and the ability to forge checks, but it can also be used by the company.

Explanation :

The concept of kiting is quite simple. It uses the float or time it takes for checks to clear to buy time before the actual money is withdrawn from the account. Kiting turns checks into more of a form of short-term credit than an actual check or order to pay. Bookkeepers can perform check kiting if they have access to the checks, perform the bank reconciliations, and record the checks in the accounting system. This might sound like a complete violation of the segregation of duties concept. Well, it is. Many small companies can’t hire extra people and the owner’s don’t want to bother doing bookkeeping work themselves.

In a nutshell :

  • Kiting involves the illegal use of financial instruments to fraudulently obtain additional credit.
  • Securities firms "kite" if they fail to follow SEC rules around obtaining securities in a timely way.
  • Check kiting targets banks or retailers through a series of bad checks, sometimes drawn on multiple accounts.
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