Cheque kiting? I have an idea!!
College of Business Administration and Public Policy, California State University
Dominguez Hills, Carson, California, USA
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 differentaccounting treatment.
Design/methodology/approach –The paper compares the cheque clearance system in the USA with
the author’sown experiencesfrom Turkey. It purports the riskiness of the present cheque clearance system on
the ﬁnancial statements and suggests a practical accounting application to prevent possible ﬁnancial
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
collection”andit 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 ﬁnancial 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 person’s cheque is
deposited in his/her bank account the next business day,and a poor person’s 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 depositor’sﬁnancial situation.
Originality/value –This paper has been prepared based on the author’s past business experience in
Turkey and his study of the US cheque clearance system, comparing the two. It reﬂects the real-world
examplesof cheque kitingand its negative consequences in the USA and proposes a solution.
Keywords Fraud, Cheque kiting, Misrepresentation of ﬁnancial statements
Paper type Research paper
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 months’rents 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
renter’s 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
Journalof Financial Crime
Vol.25 No. 2, 2018
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