What is kiting?
Kiting uses float, the gap between when a payment is deposited and when it actually clears, to make it look like money exists when it doesn't. The fraudster writes a cheque from Account A (with insufficient funds) and deposits it into Account B, then writes a cheque from B back to A before the first clears, repeating the cycle to inflate balances.
Types of kiting
- Cheque kiting: between two or more bank accounts.
- Retail kiting: writing a bad cheque to a retailer and getting cash back.
- Credit card kiting: using one card's cash advance to pay another.
Why it matters for businesses
- Kiting is illegal and treated as bank fraud in most countries.
- An employee may use it to hide theft or cash shortfalls.
- Faster electronic payments have reduced, but not eliminated, the risk.
Warning signs
- Frequent transfers between company accounts with no business reason
- Deposits and withdrawals of round amounts on the same days
- Unexplained items in [bank reconciliations](/glossary/bank-reconciliation)
- Account balances that look healthy but often go overdrawn
Prevention
- Reconcile all bank accounts monthly, including transfers.
- Separate duties for writing cheques, recording and reconciling.
- Review inter-account transfers for business purpose.