After the recovery process was completed from a $7 million loss due to a kiting scheme, The Bank (Birmingham, Ala.) decided to implement a tough, new anti-kiting solution in order to prevent future loss. The $1.1 billion institution's existing systems did not alert The Bank that the scheme was underway until it was too late - when a $1.3 million check was returned to the institution for insufficient funds in August 1999.
After becoming aware of the kiting scheme, which involved a group of used car dealers who were floating checks among seven other financial institutions, The Bank decided to take the necessary measures to prevent the crime from happening again, according to Randy Hall, senior vice president and director of corporate security, The Bank.
Kiting is an insufficient-funds scheme that exploits the float. It involves a customer writing a check from one bank, depositing it to a second bank, then writing a check against that deposit before Bank No. 2 has a chance to collect the funds from Bank No. 1 - all before anyone knows there are insufficient funds to cover the initial check. The checks are constantly chasing themselves and give the appearance that sufficient funds are available for collection, keeping the scheme in motion, describes Hall.
The Bank eventually recovered $3.1 million after seizing assets from the offenders and reduced its overall loss to about $3.9 million, Hall says. About six months after The Bank dealt with the kiting recovery, it began evaluating new vendors and eventually chose an anti-fraud and anti-kiting solution from VECTORsgi (Addison, Texas), a transactions processing payments solutions provider.
According to Hall, The Bank was looking for a single solution that would contain all the capabilities of detecting a kite scheme. "We were looking for one system that could put all of the pieces of the kite together for us - all of the different pieces to calculate what a potential kite looks like," he explains. VECTORsgi's solution uses information from the bank's demand deposit account (DDA) system to automatically identify accounts that need to be analyzed and researched further.
The Bank interviewed and met with a number of different software vendors and ultimately chose Vector because the vendor supplied everything the institution needed from a check-fraud and check-kiting solution in one page, says Hall. "As you are working, pretty much everything you need is right in front of you." Additionally, VECTORsgi's interface caught the attention of The Bank.
"What sold me on Vector was the presentment of the information on one screen with point-and-click technology," continues Hall. VECTORsgi not only allows bank personnel to look at an account when it is identified as a probable kite suspect, it pulls up the necessary information without having to access any other system. According to Hall, by simply clicking on a link in the system, The Bank can examine recent deposits, debits, credits and other information regarding an account.
Since the solution was implemented in 2000, The Bank has already realized a return on its investment and continues to prevent kiting from happening every day, asserts Hall. "Since we installed [VECTORsgi] and began operating, we have shut down a very large amount of kites that would have been unnoticed, to a point that it would have been a major debt to deal with," he adds. "We have already proven with the assistance of the Vector kite program that kiting did not go away. We continue to shut down kites, pretty much on a daily basis."
Institution: The Bank (Birmingham, Ala.).
Assets: $1.1 billion.
Business Challenge: Prevent future losses from the recurrence of kiting schemes and other check fraud.
Solution: VECTORsgi's (Addison, Texas) anti-fraud and check-kiting solution.