How To Spot A Kite

One of the greatest causes of loss to financial institutions today is the criminal act of kiting. Being able to recognize the signs of kiting is an important part of your job as a teller, because you are the first to be able to spot it.

A customer, usually a fairly new customer, approaches the teller to make what looks like a routine deposit of a check. It is a check drawn on another bank, being deposited into the customer's account with the teller's bank.

Deposit Ticket
Take a look at that deposit-be aware of the check or checks and the deposit ticket. Let's say that the customers name is Oswald Anybody. That name is printed on the deposit ticket, and, if you have the equipment at your window, it will appear on the screen in front of you.

Check
Now look at the check. Well, would you look at this-this check is drawn on another financial institution, and it has printed on the top of it the name of the account-Oswald Anybody (OR, also a common practice, the name on the top of the check is a business name-OA INC, or Oswald's Shoes International or some such thing). Now let your eye drop to the bottom of the check to the signature. Who signed the check? Odds are it was our friend Oswald Anybody.

Not Illegal
There is nothing illegal in having two checking accounts in two different financial institutions. Many people do. The problem arises when those two checking accounts are used to "rip off" the financial institutions that service them.

Let's go back to that deposit. Your records show there is $200 in Mr. Anybody's account at the moment. The check he is depositing with you is drawn on the bank across town, so it is a local check. It's for $5,000. Your availability schedule says that local checks are available next day. So tomorrow Mr. Oswald Anybody's account has a $5,200 balance in your bank. If he comes in tomorrow morning and cashes a check for $5,000, he will have available funds, and will be able to walk away with the cash.

But we have a problem here. For purposes of illustration, let's assume that Oswald Anybody's account at the other bank also has only $200 in it. Or at least it did until he left your bank after making his deposit with you. Chances are he got in his car and hotfooted it over to the other bank and deposited $5,000 into that account drawn on your Oswald Anybody's account.

$400 "Real" Money
Can you see that there is no $5,000 except in the paperwork and records of the two banks? The only real money is the $200 in your bank and the $200 in the other bank.

Tomorrow the check deposited into your account arrives at the other bank, and is posted against Mr. Anybody's account in the bookkeeping department. And that bank has a two day hold on local checks. So they're not going to pay the check. Sometime during the day, your bookkeeping department will get a call telling them that the check that was deposited the day before and sent over for collection is being returned unpaid-it's being "bounced".

The $5,000 Hold Won't Take!
Your return items area will immediately try to put a hold on the $5,000, and may find that you have already put a hold on it, and cashed out a check for that amount.

What is the status of the account now? It's $4,800 overdrawn, and you are trying to locate Mr.Anybody.This, of course, is a fairly simplified version of what happens if a kite is perpetrated on your bank. There can be three or more financial institutions involved, and they may be in different parts of the country.

An important "loss prevention" exercise can take place at both the teller's window and the new accounts desk in making sure you are not the victim of a kite scheme.

Tellers need to pay attention to large deposits with the deposited item drawn on another financial institution and the deposit ticket for the account at the tellers institution bearing the same or similar names. If you see this kind of activity, make a note of it and point it out to your head teller or your manager.

New accounts personnel, if asked to open an account with a check from the applicant's account at another bank can ask the person why they are opening a checking account here when they already have one somewhere else. Even if they have a good reason, you may want to watch the activity on the account for awhile, just to protect yourself.

Red Flags
There are several signals that might indicate a kite:
Many deposits and checks with even dollars-i.e. $9,000 in, $5,000 and $4,000 out;$2,500 in and $2,500 out. When you look at the statement, all those "zeros" will hit you in the eye!

Balance at the beginning and end of the month almost the same, but thousands of dollars increase and decrease in balance.

Deposited items will bear same or related names to the name on the account. Most will be drawn on the same one or two financial institutions.

Checks drawn on the account will all have the same payee and be deposited into the same financial institution-possibly into an account bearing a similar name.
The account holder will ask, frequently, what the collected balance is on the account.

The best protection a financial institution can have against kiting is the alert teller. He or she has the best position for stopping a kite before it starts.

Copyright © 1992 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 2, No. 11, 2/92