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Audit: What type of embezzlement scheme might this be?

5.8 The auditor of a bank is called to a meeting with a senior operations manager because of a customer's report that an auto load payment was not credited. According to the customer, the payment was made at a teller's window using a check drawn on a account in that bank. The payment was made on its due date, May 5. On May 10, the customer decided to sell the car and called the bank for a payoff on the loan. The payment had not been credited to the loan. The customer came to the bank on May 12 to inquire about the payment and meet with the manager. The manager found that the payment had been credited the night before the meeting (as of May 11); the customer was satisfied because no late charge would have been assessed until May 15. The manager asked if the auditor was comfortable with this situation.

The auditor located the customer's paid check in the deposit department and found that it had cleared as of May 5. The auditor traced the item back through the computer records and found that the teller had processed the c heck as being cashed. The auditor traced the payment through the entry records of May 11 and found that the payment had been made with cash instead of a check.


What type of embezzlement scheme does this appear to be, and how does that scheme operate?

Solution Preview

The scheme is called 'kiting', or 'working the float'.

What has actually happened is that the teller was able to illegally 'borrow' funds from a customer by not applying the payment to the loan. By changing the recording of the payment to cash instead of check, the teller could take the cash from the teller drawer and pocket it.

Because the loan payment was not overdue until May 15, there was a 10 day period during which the teller could have the use of the customer's funds with no one being the wiser. What could a teller hope to accomplish ...

Solution Summary

The 380 word cited solution fully explains the two parts to this scheme.