Check fraud remains a serious threat in 2025, and with 40% of U.S. B2B payments still made by check, the risk is far from theoretical.
Yet, many institutions continue to rely on outdated defenses, including manual reviews, rigid rules, and delayed responses, which leave too much room for error.
The most effective banks are taking a different approach, one that combines advanced technologies, such as AI image analysis and real-time risk scoring, with seasoned human oversight.
In this article, we'll break down how banks investigate check fraud in 2025 and how to adapt with more innovative tech, better data, and faster responses.
What is bank fraud investigation?
A bank fraud investigation is an internal, step-by-step inquiry that begins the moment a detection system or customer alert flags suspicious activity.
Investigators gather transaction data, account records, and digital logs. They then apply forensic analysis to verify authenticity, detect patterns, and support fraud prevention efforts.
The goals are clear: investigators work to confirm whether fraud has occurred, identify the perpetrator, and assess the losses while also developing countermeasures to protect customer funds and preserve the institution's integrity.
Who operates a bank fraud investigation?
Bank fraud investigations typically begin within the financial institution itself. Once suspicious activity is detected, either through internal systems or customer reports, the bank initiates a review and, when necessary, files a Suspicious Activity Report (SAR).
Banks refer cases to the appropriate legal authorities based on the scope of the fraud. In the U.S., jurisdiction determines who leads the investigation: Local police, state agencies, or federal bodies like the FBI.
Why bank fraud investigation matters more than ever in 2025?
According to the Thomson Reuters Institute, banks filed 682,276 Suspicious Activity Reports (SARs) related to check fraud in 2024, nearly matching the record high of approximately 683,000 SARs in 2022.
In this exclusive interview, NayaOne CEO Karan Jain speaks with VALID Systems CSO Rodney Drake about emerging check fraud trends, evolving fraud tactics, and how financial institutions can stay one step ahead:
Financial institutions have reported sharp increases in organized schemes targeting mailed checks, remote deposits, and small business accounts.
Despite broader digital adoption, checks are still widely used.
In fact, nearly 70% of businesses report no plans to stop using checks within the next two years, highlighting just how persistent this channel remains.
What types of check fraud are most common in 2025?
Fraudsters constantly refine their check fraud tactics, but most schemes still fall into familiar categories:
- Counterfeit checks: Fraudsters create entirely fake checks, often using stolen designs or logos to replicate authentic ones. These are printed on counterfeit stock or altered digital templates and deposited before detection can occur.
- Forged checks: Criminals intercept legitimate checks, then forge the signature or alter the payee before cashing them.
- Check washing (altered checks): A chemical or digital process removes original ink, allowing fraudsters to change the payee or amount while leaving the signature intact.
- Account takeovers and kiting: Fraudsters gain access to existing accounts or open new ones using stolen identities and credentials. They then execute check kiting schemes, circulating checks between multiple banks to create the illusion of available funds.
- Deposit scams and money mules: Fraudsters recruit people (often unknowingly) to deposit bad checks and forward the funds. Once the check bounces, the mule is left liable.
- Mail theft and Remote Deposit fraud: Fraudsters steal checks from mailboxes or drop boxes and deposit them digitally using mobile apps, a growing threat tied to Remote Deposit risks. This type of fraud exploits the convenience and speed of RDC.
- Social engineering scams: Scammers trick victims into accepting or depositing fake checks through phishing emails, job scams, or urgent phone calls.
How banks investigate check fraud: A step-by-step workflow
When a bank detects suspected check fraud, investigators follow a fast-moving, structured process designed to stop losses and protect customers in real-time.
Here's how the workflow unfolds:
1. Detect and decide quickly
A check triggers an alert, either through frontline staff (e.g., suspicious signature) or automated risk scoring. The bank must act immediately: either hold the check or process it.
Action:
- Route high-risk checks to the investigation queue.
- Place temporary holds as needed under Reg CC.
2. Collect all relevant evidence
Investigators gather the check image, account history, deposit logs, transaction details, and any video surveillance tied to the transaction.
Action:
- Pull records instantly from internal systems.
- Preserve evidence for audit trail and escalation.
3. Run forensic image analysis
Specialized tools analyze the check's stock, security features, font, and ink consistency, and signature match. Image enhancement can reveal alterations or signs of washing.
Action:
- Utilize tools like InstantFUNDS or CheckDetect to identify potential tampering.
- Compare signatures with historical samples.
4. Verify with the maker bank and databases
Investigators contact the bank that issued the check to validate the account status or confirm its legitimacy. They also query fraud consortium databases for known patterns or serials.
Action:
- Contact the bank or send a digital inquiry.
- Cross-check against industry watchlists or shared fraud networks to verify accuracy.
5. Contact the account holder
Banks notify the account holder, via call, app, or email, to confirm if they authorized the check. A simple "no" often reveals fraud instantly.
Action:
- Send secure digital outreach for real-time verification.
- Log the response in the case file.
6. Make a final decision
Based on the full investigation, the bank either clears or rejects the check. If fraud is confirmed, they return the item and begin recovery steps.
Action:
- Reject the check under UCC 4-208 if it's an on-us item.
- Reclaim funds from the depositing bank if necessary.
- Initiate reimbursement and escalate for internal action.
7. Document Everything
The bank's case management system logs every step, from alerts to decisions, including notes, timestamps, images, and customer responses.
Action:
- Maintain a detailed digital audit trail to meet compliance and legal requirements.
8. Report and prevent future incidents
If the case meets the thresholds, the bank files a Suspicious Activity Report (SAR) and updates its detection models and internal watchlists to prevent similar incidents.
Action:
- Submit SAR, flag mule accounts, refine rules, and update fraud models with new signals.
Advanced tools and technologies in check fraud investigations
Here's how to implement the advanced tools and strategies top institutions are using to detect threats earlier, act faster, and protect both customers and assets with greater precision:
1. Apply AI and image forensics
Every check that enters the system, through a teller, mobile app, or ATM, is evaluated by AI before it is reviewed by anyone.
The AI inspects paper texture, magnetic ink consistency, UV security marks, and microprint. It also analyzes the spacing of MICR characters and the angle of signature strokes, processing all of this in seconds.
Example:
At 4:00 p.m., a mobile check deposit comes in. The AI detects diluted ink in the payee field, which is a typical sign of chemical washing. It instantly places a hold and sends the item for manual review. Investigators view the enhanced image, confirm the fraud, and stop the transaction, averting a potentially significant financial loss.
How to upgrade your system:
- Implement image-forensic models trained on real fraud data.
- Ensure instant flagging for check washing, altered fonts, and fake signatures.
Pro tip – add InstantFUNDS®:
Integrate InstantFUNDS to give clean checks immediate availability while still quarantining suspect items. The solution scores each deposit in sub-seconds and, for a small convenience fee, guarantees adequate funds to the customer and the bank, no charge-backs if the item is later returned.
2. Use behavioral analytics to catch suspicious patterns early
Don't just analyze the check – monitor the account's behavior. Look for red flags like:
- Sudden high-dollar deposits on new or dormant accounts
- Multiple checks just under hold thresholds
- Rapid withdrawals after deposits
Example:
A business account that had been inactive suddenly deposits five checks in two days, totaling $49,750. That's abnormal behavior. Behavioral models flag the activity for review and freeze the account before any funds are withdrawn.
Action step:
- Connect behavioral scoring to deposit workflows
- Flag deposit patterns that break from past behavior
VALID solution:
With InteliFUNDS®, you automatically hold 1% of checks that look suspicious, based on behavioral outliers and release the rest instantly. Valid even removes the risk from your books for those high-risk items.
3. Leverage shared fraud intelligence to strengthen your defense
Join a fraud consortium or shared data network. Pooling anonymized check data across institutions helps you block known fraud before it hits.
Example:
Bank A flags a fraudulent vendor check. Later that day, Bank B sees the same check number from a different customer. Thanks to shared data, the item is instantly rejected at Bank B – no delay, no loss.
Action step:
- Connect to consortiums like Valid's Edge Data Consortium
- Feed all confirmed fraud items into shared watchlists
- Enable real-time serial number and payee matching for business accounts
Bonus:
Pair this with Positive Pay and payee verification tools to prevent altered or reprinted checks from clearing.
4. Alert Your Frontline Staff in Real Time
Fraud alerts must reach tellers, mobile systems, and fraud teams before funds are released. Real-time alerting is critical to act before a bad item clears.
Action step:
- Train staff to act immediately on flagged items
- Link alerts to escalation workflows for fast decisions
Valid solution:
CheckDetect flags over 75% of charge-off-prone checks before they're released. One top-10 bank cut fraud losses by 73% in six months by embedding it directly in branch operations.
Here is how CheckDetect works:
At a drive-through, a customer deposits a $12,300 check. Valid's CheckDetect flags it instantly as high-risk based on prior returns from the same maker account. The system alerts the teller, who informs the customer that the check will be held for review, potentially saving the bank thousands of dollars.
5. Build a preemptive defense with data intelligence
Get ahead of a fraudulent check before it reaches your system. Use fraud-propensity scoring during account onboarding, monitor breach data for exposed account details, and cross-reference internal systems with consortium databases to flag high-risk names, accounts, or check templates.
Example:
A batch of stolen contractor checks shows up for sale on a dark web forum. You log the serial numbers into your internal risk engine. Three weeks later, a customer deposits one of those checks via mobile, and the system blocks it before releasing any funds.
Action Step:
- Monitor external fraud alerts and exposure lists regularly
- Integrate external risk signals into your scoring and hold policies
- Set automated rules to flag and isolate known fraudulent patterns before they cause damage.
How VALID Systems supports smarter, faster check fraud investigations
Modern check fraud investigation and prevention require systems that can analyze, make decisions, and escalate within seconds, before financial losses occur.
VALID Systems improves every stage of the investigation process, from early detection to final resolution.
Instead of drowning analysts in noise or forcing tellers to guess, VALID delivers decision-ready signals rooted in forensic detail, behavioral insight, and shared industry intelligence.
Here's how leading banks like PNC and Truist are using VALID's core solutions to improve outcomes:
- InstantFUNDS®: Speeds up access to verified deposits while isolating risk. By scoring each check in sub-seconds, InstantFUNDS allows trusted transactions to proceed immediately, reducing friction.
- InteliFUNDS®: Brings behavioral analytics into the heart of decision-making. InteliFUNDS monitors account patterns and flags outliers, helping teams identify high-risk activity even when the check itself appears legitimate.
- CheckDetect: This system serves as an early warning procedure for checks that are likely to result in losses. CheckDetect flags high-risk deposits, often based on maker history or repeat abuse. Some institutions have reduced charge-off losses by over 70% by embedding CheckDetect into teller workflows.
- Edge Data Consortium™: Extends visibility beyond your walls. This shared intelligence network enables participating institutions to detect known fraud patterns, recycled serial numbers, and repeat offenders across banks, thereby strengthening investigations with broader context.
Don't just investigate fraud. Stay ahead of it.
Schedule a consultation to discover how VALID can help your team investigate more efficiently, act decisively, and safeguard what matters most.