Question

Suppose you are the CEO of a company and one of your manager confessed to kiting $1,000. What is kiting? How do your company do to prevent it? How would you respond to the confession?

Answer 1

In a kiting scheme, cash is created using the lag between the time a check is deposited and the time it clears the bank. For example a fraud perpetrator opens accounts in banks X, Y, and Z. The perpetrator “creates” cash by depositing a $500 check from bank Y in bank Z and withdrawing the funds. If it takes two days for the check to clear bank Y, he has created $500 for two days. After two days, the perpetrator deposits a $500 check from bank X in bank Y to cover the created $500 for two more days. At the appropriate time, $500 is deposited from bank Z in bank X.

Kiting Scheme can be detected by analyzing all inter bank transfers.

When the employee confesses, the company should immediately investigate the fraud and determine the actual losses. Employees often "underconfess" the amount they have taken. When the investigation is complete, the company should determine what controls could be added to the system to deter similar frauds and to detect them if they do occur.

The Employers should consider the following issues before pressing charges:

What effect will adverse publicity have upon the company's well being?

What social responsibility does the company have to press charges?

Does the evidence ensure a conviction?

Can the publicity increase the incidence of fraud by exposing company weaknesses?

How will prosecuting the case impact the future success of the business?