Building society staff face inquiry on `kiting'

The First National Building Society has confirmed that an internal investigation is underway at a Dublin branch into what appears to be a breach of its procedures by three staff members over so-called "cheque kiting". The investigation was begun before Christmas into the activities of three staff who have been placed on paid leave pending the outcome. However, a spokesman said that there was no question of any loss to the society or to its customers. "Prima facie, there is a breach of procedures," he said.

Cheque kiting typically arises where cash-flow is enhanced by rushing cheques through an account before they are officially cleared.

A spokesman said he could not comment on the amount of funds allegedly involved. But there was no evidence of any loss to the society so far.

"We are very happy on that score at this time . . . We are regarding it as a breach of procedures and it is being investigated on that basis, and we have not yet completed our investigations," he said.

Mr Sterl Grenhaugh, of Network Security Management, a London-based company which provides a consultancy service on secure financial management, said that the most common measures to guard against cheque kiting were to disallow withdrawals on uncleared funds, and to be vigilant of a cheque being drawn on insufficient funds.

According to Independent Banker magazine, kiting can only be prevented by refusing to allow cheques to be drawn on uncollected funds.

"However, as a practical matter, competitive conditions often lead officers to approve such practices. Therefore, even the best-run banks will be at risk from some losses to kiting."

Earlier, the society's group managing director, Mr John Smyth, refused to comment on the issue, saying it was an extremely sensitive one.

"You are talking about individuals employed by the organisation and it is not a subject that I can comment on," he said.

Mr Smyth addressed the Leinster Society of Chartered Accountants on the changing marketplace and the society's move to demutualise. He said the society's organic profits would not provide sufficient capital to meet its strategic targets. The conversion of the society would benefit its members and give opportunities to raise equity capital.