Check fraud is usually no longer considered a serious concern, assuming modern payments have made it irrelevant.
But the data tells a different story.
Check fraud remains a persistent issue, with 65% of organizations reporting incidents in 2024, according to the AFP Payments Fraud and Control Survey data.
Fraudsters continue to exploit checks because they're still common in business and easy to manipulate. The good news is that most cases are preventable.
This article walks you through the check fraud red flags to watch for and shows how Valid Systems helps you prevent fraud early, before it leads to costly losses or reputational damage.
What are check fraud red flags?
Check fraud red flags signal that someone may have fraudulently forged, altered, or used a check. They include mismatched handwriting, odd amounts, missing security features, and sudden account changes.
When fraud occurs, obvious warning signs are often absent. It hides in subtle details, and spotting those signs early is key to preventing losses and shutting down fraud quickly.
Why is check fraud a growing concern?
In 2024, U.S. banks flagged over 700,000 suspicious checks, nearly double what they saw just a few years ago.
Many cases involve thousands of losses, especially when checks are stolen and altered through the mail.
So why is this still happening?
- Checks haven't disappeared: Businesses still rely on them for payroll, vendor payments, and refunds. That steady use makes them a prime target.
- Mail theft fuels the fire: Criminals steal checks straight from mailboxes, then "wash" them with chemicals to change the amount or payee. One high-profile case occurred in 2023, when authorities dismantled a sophisticated check-washing ring in New York.
- Fraud tactics are becoming more sophisticated: With access to better technology and stolen personal data, fraudsters can create counterfeit checks that are difficult to detect without advanced monitoring tools.
What are the common types of check fraud?
Check fraud involves illegally using checks to access or move funds that the fraudster doesn't own or have a legal right to.
Here are the most common forms of check fraud:
1. Forged checks
This fraud occurs when a fraudster signs someone else's name on a check without authorization. It could involve forging the account holder's signature or falsifying the endorsement on the back of the check to cash it illegally.
Example: A fraudster intercepts a check, signs the payee's name, and attempts to deposit it into their own account.
2. Altered checks
Here, the fraudster alters a legitimate check, often chemically or digitally, to change critical information like the payee name or the amount.
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Example: A fraudster chemically alters a check written for $120 to show $4,200 and deposits it into a different account.
3. Counterfeit checks
These are entirely fake checks, often created using publishing software, stolen check templates, or falsified routing/account information. They may closely mimic legitimate checks but lack proper security features like watermarks or microprinting.
Example: A scammer designs a check using a real business's branding and attempts to use it for fraudulent purchases or deposits.
4. Check kiting
In a kiting scheme, fraudsters take advantage of the time it takes for checks to clear between different banks (known as "float").
Example: A person writes a $5,000 check from Account A (with no funds) to Account B, deposits it, and withdraws the money before the bank realizes the check will bounce.
5. Remote deposit capture abuse
This type of fraud involves depositing the same physical check multiple times, often through mobile apps or different financial institutions.
While most banks have duplicate detection systems, gaps still exist, especially when multiple banks are involved.
Example: Someone deposits a check via a mobile app and then takes the original to another bank branch for a second deposit.
10 Check fraud red flags you shouldn't ignore
Here are the most common check fraud red flags to watch for before they lead to losses:
1. Substantial check withdrawals to new payees
An extensive check on a new, unfamiliar payee, especially on accounts that usually pay the same vendors, is a major red flag. FinCEN reports show that such checks can clear before anyone notices the fraud.
Impact: The average fraudulent check exceeds $44,000, causing businesses to face payroll issues and consumers to deal with frozen accounts. Banks may be liable for losses and suffer reputational harm.
How to prevent it:
- Monitor for out-of-pattern checks.
- Use Positive Pay to match issued checks and secure checkbooks.
2. Sudden check deposits in new or inactive accounts
Fraudsters often use newly opened or dormant accounts, sometimes through money mule patterns, to deposit stolen or fake checks. They quickly withdraw or transfer the funds before the checks bounce.
Impact: When the flagged checks are fraudulent, the bank absorbs the loss. Victims face delays in fraud detection, and criminals may repeat the scheme across other accounts.
How to prevent it:
- Watch for large or late-night mobile deposits in new accounts.
- Familiarize users with avoiding "easy money" offers that may involve fraud.
3. Altered or counterfeit check features
Fraudsters alter checks by rewriting payee names or amounts, often leaving faded text or mismatched ink.
They also create fake checks with missing security features or wrong layouts, and sometimes duplicate check numbers to deposit copies at multiple banks.
Impact: These checks often clear before detection, forcing banks to absorb the loss, sometimes tens of thousands of dollars.
How to prevent it:
- Train staff to spot ink tampering, missing security elements, or reused check numbers.
- Use high-security check stock with tamper-proof features.
4. Mailed checks reported as missing or stolen
Customer reports of missing or altered checks often point to mail theft. Fraudsters steal envelopes from mailboxes and tamper with or forge the checks. Key indicators include:
- A customer sees a check cleared with a payee that is different from the intended one.
- Multiple people in the same area report missing mailed checks.
- Banks receive postal or law enforcement alerts about increased mail theft.
Impact: Stolen checks lead to missed payments, potential identity theft, and long reimbursement processes for victims. This results in widespread fraud, complex investigations, and financial losses for banks.
How to prevent it:
- Educate customers to use secure drop boxes and avoid mailing checks overnight.
- Enable electronic payments when possible.
5. Duplicate check deposits
Fraudsters deposit the same check more than once, often through different channels like mobile and in-branch, before the system flags it.
Impact: Once fraud is discovered, duplicate deposits trigger chargebacks and losses, cutting off customer access to funds and forcing banks to absorb the financial hit.
How to prevent it:
- Use systems that detect and compare duplicate check images across all deposit channels.
- Educate users with proper mobile deposit practices.
6. Checks presented at unusual locations or channels
Depositing checks far from the customer's usual location often signals check fraud, especially when stolen items are involved.
Impact: Unusual location deposits bypass local risk rules and trigger payouts before banks identify the checks as fraudulent.
How to prevent it:
- Monitor for geographic or channel inconsistencies.
- Apply stricter scrutiny to remote or out-of-region deposits.
7. Sloppy or forged endorsements
Endorsements that are rushed, shaky, or unlike prior signatures can point to forgery or tampering. Phrases like "pay to bearer" are also red flags.
Impact: Forged endorsements expose banks to liability and reputational damage.
How to prevent it:
- Require ID verification for endorsed or third-party checks.
- Train staff to recognize signature inconsistencies.
8. Unusual or blank memo lines
A vague or missing memo, especially on business or recurring payment checks, could indicate a forged or misused item.
Impact: Blank or suspicious memos reduce traceability and allow fraudsters to use checks without scrutiny.
How to prevent it:
- Flag checks missing purpose descriptions or containing inconsistent notes.
- Encourage business customers to use standardized memo formats.
9. Frequent use of third-party or endorsed checks
Customers or non-customers frequently depositing checks made out to other individuals may be acting as mules in a larger fraud scheme.
Impact: These checks are often stolen or altered. Processing them exposes banks to legal risk, losses, and possible AML concerns.
How to prevent it:
- Observe third-party endorsements, especially from new accounts.
- Restrict cashing checks for non-customers.
10. Pressure to deposit and move funds immediately
Scam checks often face pressure to deposit and withdraw money immediately, usually as part of job or overpayment schemes, before the check can bounce.
Impact: Victims often wire money from a check that proves to be fake later. The bank may be left covering the full loss.
How to prevent it:
- Train staff to question rushed transactions.
- Alert customers to scams involving fake checks and urgent fund transfers.
How to Respond to Check Fraud the Moment It’s Detected
Here's how you, as a financial institution, can take a more proactive, tech-driven approach to securing check transactions:
1. Leverage AI-powered fraud detection systems
Traditional systems alone can't keep up with today's fraud tactics.
AI-driven tools analyze check behavior, customer history, deposit channels, and handwriting patterns.
Action steps:
- Deploy machine learning systems that build behavioral profiles for every account.
- Use predictive models to score check risk instantly based on dozens of live signals.
Pro tip:
INclearing Loss Alerts, continuously monitor check clearing activity using behavioral analytics. If something looks off, the system quickly flags it so action can be taken before the check clears and causes a loss.
2. Enable real-time decision-making at the point of deposit
Speed matters - both for convenience and fraud prevention. With real-time check scoring, banks can instantly approve or hold deposits based on intelligent risk analysis.
Action steps:
- Integrate real-time fraud scoring into your teller, ATM, and mobile deposit workflows.
- Set thresholds to auto-approve low-risk checks and escalate questionable items for review.
Pro tip:
RTLA (Real-Time Loss Alerts) evaluates checks at the moment of deposit. It detects up to 75% of likely fraud before the check clears. When paired with InteliFUNDS, it automatically releases 99% of safe checks with guaranteed funds, isolating only the most suspicious 1% for further inspection.
3. Use behavioral analytics to track abnormal activity
Most check fraud doesn't look suspicious until it's too late, unless you're watching for behavior that doesn't fit the customer profile.
Behavioral analytics systems do just that: They learn what's "normal" for each account and flag anything that's not.
Action steps:
- Monitor for shifts in check size, frequency, payees, and deposit channels.
- Use behavioral scoring to prioritize reviews, especially for new accounts.
Pro tip:
VALID's AI-enhanced Positive Pay goes beyond static matching. It learns from past check issues and account activity to distinguish between human error and fraud, reducing false positives while increasing fraud detection.
4. Educate customers and internal teams
Empowering customers and front-line staff to recognize suspicious behavior is a critical layer of defense.
Action steps:
- Offer customers fraud awareness resources and reminders about secure check usage.
- Train staff to identify check washing signs, endorsement issues, or mule patterns.
Pro tip:
Use insights from the VALID Edge Check Data Consortium, aggregating fraud intelligence from over 420 million accounts and $6 trillion in check volume annually. Share emerging fraud patterns with customers and staff to stay ahead of evolving tactics.
5. Automate fraud alerts and case management
Once fraud is detected, response time is everything. Automated alert systems and case management tools help your fraud team act quickly, track incidents, and efficiently escalate critical cases.
Action steps:
- Set up real-time alerts that notify fraud analysts or compliance officers when a high-risk check is detected.
- Automate risk scoring and assign priority levels to cases based on severity and pattern matches.
Why choose Valid Systems for check fraud prevention?
VALID Systems combines 20+ years of fraud prevention expertise with industry-leading AI and machine learning technology.
Our key features include:
- InstantFUNDS©: Offer customers guaranteed check availability in under a second, while we handle the risk and decision-making.
- InteliFUNDS©: Release 99% of checks instantly while isolating the riskiest ones for further review — all backed by machine learning.
- RTLA© (Real-Time Loss Alerts): Detect high-risk check deposits at the moment of presentment and act immediately to prevent losses.
- INclearing Loss Alerts: Catch fraud during clearing using AI that identifies late-emerging threats others miss.
- VALID Edge Data Consortium: Access check fraud intelligence from hundreds of financial institutions to detect emerging scams across the industry.
Stop check fraud before red flags turn into losses.
Schedule a free consultation with Valid Systems to see how our solutions detect red flags early, prevent check fraud, and protect your transactions.