how does the auditor detect kiting course hero

In looking at the possibility of kiting, the auditor gets a bank cut-off statement and seeks evidence of all inter-bank transfers around the end of the year. Each of those transfers is scheduled so that the auditor can ensure that all appropriate receipts and disbursements have been recorded in the appropriate time period.

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How to detect lapping and kiting in an audit?

Auditor Techniques to detect Lapping and Kiting The following audit procedures would be used to uncover lapping: < Confirm accounts receivable and give close attention to exceptions made by customers about payment dates.

What is kiting and how can I identify it?

Kiting involves checks from other institutions that appear to be drawn on an account established by the same account holder. Certainly, not all checks of this nature are kiting schemes. But alert tellers always watch for potential kiting.

What is kiting and how can alert tellers prevent it?

Kiting involves checks from other institutions that appear to be drawn on an account established by the same account holder. Certainly, not all checks of this nature are kiting schemes. But alert tellers always watch for potential kiting. When kiting takes place, the financial institution stands at risk.

What is credit kiting and how to avoid it?

Kiting can be described as an illegal means of obtaining unauthorized bank credit or avoiding debts involving fraudulent activity like issuing false financial instruments like a cheque, a cheque amount more than a bank balance, etc.

How do you detect audit kiting?

Signs of Check Kiting Matching dollar amounts for debits and credits. Checks drawn from a bank account owned by the account holder at another financial institution. Covering overdrafts with personal checks rather than payroll checks or direct deposits. A large volume of account balance inquiries.

Which procedures should the auditor perform to detect lapping?

How to Detect Lapping Schemes. A lapping scheme can be detected by tracing how cash receipts have been applied to customer accounts. If there is evidence that cash receipts are routinely being applied to the wrong customer accounts, then there is likely an active lapping scheme in progress.

When auditing contingent liabilities which of the following procedures would be least effective?

When auditing contingent liabilities, which of the following procedures would be least effective? Examining customer confirmation replies.

What is kiting in audit?

Kiting is the fraudulent use of a financial instrument to obtain additional credit that is not authorized. Kiting encompasses two main types of fraud: Issuing or altering a check or bank draft, for which there are insufficient funds.

What is lapping how can it be detected by an auditor and how can it be prevented?

Lapping scheme can be detected by tracing ways in which cash receipts have been applied to customer accounts. A sign of lapping includes an increase in the aging of accounts receivable. This scheme is capable of hiding the theft temporarily. Eventually, the shortfall gets revealed and is recorded as a loss.

Which of the following audit procedures would be best for identifying unrecorded liabilities?

Correct answer is option c Explanation: Auditor most likely vouch a sample of cash disbursements recorded just year-end to receiving reports and vendors invoices as it can provide the evidence for unrecorded liabilities if occurred.

Which of the following is the best procedure for determining the existence of unrecorded liabilities at year end?

Examining selected cash disbursements in the period subsequent to the year-end is the best audit procedure for determining the existence of unrecorded liabilities.

Which of the following auditing procedures is ordinarily performed last?

Obtaining a management representation letter. Issuance of a management letter is the last auditing procedure that is carried out by an auditor.

Which of the following audit procedures would most likely detect lapping?

A practical and effective audit procedure for the detection of lapping is: Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank. Which of the following is not a control that generally is established over cash receipts?

Which audit test is designed to detect the monetary misstatements directly affecting financial statement balance?

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.

In which stage of an audit are analytical procedures not performed?

Which of the following procedures are frequently performed in response to the auditor's assessment of the risk of material misstatement? In which stage(s) of an audit are analytical procedures not performed? a. In the planning stage.

Which of the following is ordinarily designed to detect material dollar errors on the financial statements?

Which of the following is ordinarily designed to detect material dollar errors on the financial statements? Risk assessment procedures are performed by the auditor to assess the risk of material misstatement in the financial statements.

What is check kiting?

Check kiting is a form of fraud involving moving theoretical funds between two or more checking accounts. A check written to the criminal from one bank is deposited, and more importantly credited, to an account at a second bank. Because that second bank now shows a positive balance, the criminal can withdraw enough money to deposit back into ...

What is check kiting training?

Looking for training on check-kiting and fraud? On Guard: Check Kiting & Other Scams is the program you need to remind existing frontline staff or bring new-hires up to speed on best practices and techniques that help reduce the threat of check kiting, identity theft, advance payment, counterfeiting, and new account fraud.

What is payday kiting?

Some people have been known to use this method, called payday kiting, when several checks on an overdrawn account may come due before a paycheck or other regular funds can be deposited.

What happens when a kite stops working?

When the kite stops “working,” usually the last institution involved experiences a loss.

What does a quick review of the depositor's account indicate?

A quick review of the depositor’s account indicates withdrawals and deposits that are for the same amount.

What is check kiting training?

Looking for training on check-kiting and fraud? On Guard: Check Kiting & Other Scams is the program you need to remind existing frontline staff or bring new-hires up to speed on best practices and techniques that help reduce the threat of check kiting, identity theft, advance payment, counterfeiting, and new account fraud.

How does kiting affect financial institutions?

Financial institutions lose millions of dollars annually as a result of kiting schemes. The strongest combination for deterring or stopping kiting is observant, alert tellers and the aid of the computer list of all items presented for payment that are drawn against uncollected funds.

What is kiting in banking?

Kiting involves checks from other institutions that appear to be drawn on an account established by the same account holder. Certainly, not all checks of this nature are kiting schemes. But alert tellers always watch for potential kiting. When kiting takes place, the financial institution stands at risk.

What happens when a kite stops working?

When the kite stops “working,” usually the last institution involved experiences a loss.

What is check kilting?

The Federal Bureau of Investigation defines check-kiting as “a scheme which artificially inflates bank account balances, in accounts that are under common control, for purposes of obtaining unauthorized use of bank funds, through the systematic exchanging or swapping of checks between these accounts, in a manner which is designed to misuse the float that exists in the banking system.”

Is kiting a crime?

Kiting is a crime when the kiting steps over the line from practice to crime when the initiators of the activity intend to obtain something of value by trick, deceit, deception, or swindle. According to law enforcement experts, check kiters generally have a professional appearance and manner.

How Does Kiting Work?

It may involve writing cheques with insufficient bank balance or also, a person having two banks a/c may write a cheque on one bank in favor of the second bank for clearing its dues and so as to clear balance in the first bank, he writes a cheque in favor of the first bank on the second day creating virtual bank balance .

What is kiting in banking?

What is Kiting? Kiting can be defined as an illegal method of obtaining unauthorised credits in his/ her bank a/c by using fraudulent means like issuing a negotiable financial instrument without having sufficient bank balance or mentioning false amount, date or by misrepresenting already availed credit finance so as to obtain more funds.

What is a negotiable instrument?

Negotiable Instrument A negotiable instrument refers to the transferrable and signed written document whereby the payer guarantees or promises to pay a certain sum on a specific future date or as on-demand to the payee or bearer.

What should be closely monitored after identifying suspects?

Once after Identifying suspects, their transactions should be closely monitored to detect and prevent any suspectable fraudulent transaction.

What happens if a firm fails to receive securities within the settlement period?

In case a firm fails to receive securities within the settlement period, it needs to buy from open market for netting off the transaction. In the case where such firms knowingly fail to buy short securities, it will be considered as a delinquent act of kiting.

What happens if you check kite?

The consequences of check-kiting may be minor or severe, depending upon the size of bank/ FI and level of fraud. In a case where the money involved gets recovered – Bank may not suspend the Kiter’s a/c but may deprive the customer of some privileges like drawing/ depositing personal checks or process ATM transactions.

Can you charge someone for kiting?

Never charge off any person as involved in kiting until facts are wholly confirmed.