Cheque kiting? I have an idea!!

Author:Cenap Ilter
Position:College of Business Administration and Public Policy, California State University Dominguez Hills, Carson, California, USA
Pages:589-597
SUMMARY

Purpose The paper aims to explore the present cheque clearance system in the USA and its possible misuses in the practical sense. Cheque kiting has been a way of creating fictitious cash balances on the balance sheet, which is a fraud. This practice can be prevented by a different accounting treatment. Design/methodology/approach The paper compares the cheque clearance system in the USA with the author’s own experiences from Turkey. It purports the riskiness of... (see full summary)

 
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Cheque kiting? I have an idea!!
Cenap Ilter
College of Business Administration and Public Policy, California State University
Dominguez Hills, Carson, California, USA
Abstract
Purpose The paper aims to explore the present cheque clearance system in the USA and its possible
misuses in the practical sense. Cheque kiting has been a way of creating ctitious cash balances on the
balance sheet,which is a fraud. This practice can be prevented by a differentaccounting treatment.
Design/methodology/approach The paper compares the cheque clearance system in the USA with
the authorsown experiencesfrom Turkey. It purports the riskiness of the present cheque clearance system on
the nancial statements and suggests a practical accounting application to prevent possible nancial
statementmisrepresentations.
Findings The paper explores thatif the present accounting treatment is changed both for thebanks and
the businesses, the possibility of chequekiting and misrepresentation of cash balances on the balance sheet
will end. Basically,cash is the amount that can be used by the customer, the rest is not cash, it is cheques in
collectionandit should be treated as an account receivable untilit is collected.
Practical implications Financial statements are vital for the business world. Based on these
statements, banks lend money, governments collect taxes and people buy and sell stocks. They need to be
presented fairly. The present accounting application on cheque clearance is not transparent enough in the
USA, and this might lead to misrepresentation of nancial statements. The paper suggests a practical
solution to this problem. By changing the accounting treatment,the companies will only show cash in their
cash accountsand not the cheques in the collection process.
Social implications Fair treatment is the motto forany situation we face in our daily lives. One may be
a poor or rich person but the treatment should be fair unless he/she is a fraudster.A rich persons cheque is
deposited in his/her bank account the next business day,and a poor persons cheque might take days to be
credited. Thisis not a fair treatment. The paper suggests that there mustbe a one-way accounting treatment,
regardlessof the depositorsnancial situation.
Originality/value This paper has been prepared based on the authors past business experience in
Turkey and his study of the US cheque clearance system, comparing the two. It reects the real-world
examplesof cheque kitingand its negative consequences in the USA and proposes a solution.
Keywords Fraud, Cheque kiting, Misrepresentation of nancial statements
Paper type Research paper
Introduction
A few years ago, my niece lost a couple of thousanddollars due to cheque kiting fraud. She
wanted to rent her apartment in Washington D.C. through an internet site. The so-called
renter (!) sent her a couple of cheques covering a few monthsrents in advance.Within 24 h
of her depositing the check to her bank, her account showedthe checks were credited. A few
days later, the renterasked $2,000 from my niece for his/her urgent needs and saidthat you
were covered since you had my cheques.My niece wired the money electronically to the
renters account.A few days later the cheques given by the renter were dishonoredand there
was no way for my niece to recover the money.This is a true story, with many other similar
cases that have taken place in the historyof fraud.
The notorious carpet cleaner boy Barry Minkow and his business called ZZZZ
Best”–is another example of cheque kiting. He discovered that cheque kiting was a good
method to keep his business bank accounts high. The following excerpt is from
Cheque kiting
589
Journalof Financial Crime
Vol.25 No. 2, 2018
pp. 589-597
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-05-2017-0036
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm

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