The Investigation of Check Frauds: Tips and Challenges

Check fraud may seem like an "old-fashioned" crime, but recent data paint a clear picture: it's a growing threat to banks.

For example, a 2025 AFP (Association for Financial Professionals) survey found that 63% of organizations reported experiencing check fraud in 2024.

Although digital payments dominate, fraudsters increasingly target checks, especially those used for high-value transactions.

This article explores how modern check fraud is handled by operations teams and the tools banks need to stay ahead.

What is the investigation of check frauds?

The investigation of check frauds involves identifying, analyzing, and responding to fraudulent check activity. It includes examining forged, altered, or stolen checks, identifying fraud patterns, and applying tools like behavioral analytics and real-time monitoring.

Furthermore, financial institutions often collaborate with law enforcement to trace perpetrators and improve security systems.

Key challenges in investigating check fraud

Investigating check fraud today comes with several major obstacles:

1. Declining volumes but higher stakes

Check usage has declined, but check fraud is still on the rise, and the checks still circulating increasingly carry higher monetary value.

The Federal Reserve reports that while paper check usage continues to decline, the average value per check has risen, reaching approximately $2,738 in 2024, up from $2,692 in 2023. This upward trend in transaction value means that each fraud incident now carries greater financial risk.

2. Resource constraints and scrutiny

With check volume down, some banks have reduced specialized check-processing staff and budgets.

Yet regulators still expect strong anti-fraud controls, even as check volume declines. With fewer checks, banks often reduce resources, creating gaps that fraudsters exploit. The result is a growing challenge: doing more with less to defend against check fraud.

3. Evolving fraud tactics

As banks tighten old loopholes, criminals continue to invent new ones. Today's check fraud is faster, harder to detect, and increasingly digital. Investigators face growing complexity as tactics evolve and fraud becomes more professionalized.

Consider the following trends:

• Digital check washing replaces traditional methods, using advanced chemicals and tech to alter checks with greater precision and speed.
• Do-It-Yourself (DIY) fraud kits are widely available online, giving even novices step-by-step templates for forging or altering checks.
• Mobile deposit fraud is on the rise, with fraudsters sharing stolen check images in encrypted chat groups. Some dark web forums list up to 9,000 stolen checks per month.
• Organized mail-theft rings have emerged, using stolen USPS master keys to access mailboxes and recruiting nationwide networks of money mules.

4. Technology arms race

Innovation cuts both ways. As banks adopt advanced tools to fight fraud, fraudsters use the same technologies to stay ahead. The result is an ongoing arms race that challenges even the most prepared institutions. Notable developments in this field include:

• Generative AI in fraud: According to FinCEN, fraudsters increasingly use AI to create fake documents, forged checks, and deepfakes, making visual verification unreliable.
• Machine-generated authenticity: A check and matching ID might appear flawless but could be entirely AI-generated, slipping past untrained human reviewers.
• Need for continuous adaptation: Investigators must regularly update their technology and training to spot AI-enabled fraud attempts.
• Instant payment risk: Platforms like Zelle and RTP move funds in seconds, giving fraud teams little time to intercept suspicious transactions before the money is gone.

5. Data and coordination gaps

Fragmented processes and limited data sharing across the financial ecosystem often hinder efforts to investigate check fraud. With multiple stakeholders involved, coordination challenges persist.

Key obstacles include:

• Complex processing chain: Check handling typically involves several entities, including the originating bank, collecting bank, USPS, and clearinghouses, which can delay data collection and response times.
• Lack of forensic visibility: Unlike card fraud, where tokenization and metadata logging provide detailed digital trails, electronic check images do not currently carry embedded forensic data, limiting traceability.
• Limited information sharing: Some institutions hesitate to share fraud patterns due to privacy concerns, regulatory risk, or competitive sensitivities.
• Difficulty identifying broader schemes: These data silos make it harder to connect fraud incidents across institutions or detect coordinated activity by organized rings.

6. Legal/financial complexity

Determining who ultimately pays can be extremely complex.

For example, if a fraudster deposits a stolen check and the payor's bank bounces it, the presenting (deposit-taking) bank might have to absorb the loss. Different states can interpret the Uniform Commercial Code differently.

So, investigators often must balance uncovering the fraud and figuring out loss allocation.

The check fraud investigation process: Step-by-step

Investigating check fraud requires speed, structure, and teamwork.

While the exact steps may vary, most banks follow a process that looks like this:

1. Spotting red flags

The process starts when a check triggers suspicion through monitoring systems, teller reports, or customer complaints.

Common signs include:

• Unusual amounts or deposit patterns
• Altered signatures or mismatched details
• Duplicate deposits or check number gaps

Once flagged, the case is logged and prioritized.

2. Building the team

A thorough investigation often requires collaboration across departments. Core team members may include:

• Fraud analysts and forensic accountants
• IT and cybersecurity specialists
• Legal and compliance professionals
• Internal auditors or BSA/AML officers

3. Defining the case

Before digging deeper, investigators outline what's suspected, which accounts are involved, and the timeframe.

Clear boundaries help keep the case focused.

4. Gathering evidence

Investigators collect everything relevant - check images, account history, CCTV footage, mail logs, login records, and customer statements.

They look for signs of forgery or tampering and confirm whether the account and check details align.

5. Talking to the right people

This includes account holders, bank staff, and anyone linked to the transaction. Structured interviews help clarify facts and spot inconsistencies.

6. Sorting out fraud vs. mistake

Not every case is criminal. Investigators determine whether the issue was a simple error or an actual fraud attempt and assess who's liable under banking rules.

7. Reporting and Escalation

Investigators report confirmed cases to FinCEN by filing a Suspicious Activity Report (SAR) and refer larger fraud rings to the U.S. Postal Inspection Service or the FBI.

8. Recovering Funds

Banks act fast to freeze accounts, reverse transactions, or file insurance claims. Victims are reimbursed based on liability findings and bank policy.

9. Learning From the Case

Once the case is closed, the bank updates its fraud rules, trains staff, and alerts other departments or customers if needed. Insights may also improve detection systems in the future.

Best practices for investigating check fraud in 2025

Based on evolving fraud tactics, the following best practices can help you, as a bank, to stay ahead of check fraud threats:

Implement Robust Real-Time Checks

Deploy real-time screening tools at the point of deposit.

Systems like RTLA (Real-Time Loss Alerts) provide instant risk scores based on behavioral data and known fraud patterns. When a check is flagged, banks can immediately hold or reject it before funds are released.

Pro tip:

VALID Systems' RTLA flags over 75% of likely charge-off checks in real-time, allowing banks to act before losses occur without slowing down legitimate transactions.

Enforce strong internal controls

Strong controls reduce both external and insider fraud risk.

Establishing clear checks and balances within your financial operations reduces the chance of unauthorized activity going unnoticed and increases team accountability.

Recommended actions:

• Separate duties - Avoid giving a single employee too much control over the check lifecycle. For example, the person issuing checks should not be reconciling accounts.
• Require dual authorization - Secure that at least two individuals approve large transactions or batch releases.
• Use exception reporting - Automated systems can flag missing check numbers, unusual payment patterns, or unexpected payouts.

Adopt Positive Pay and matching tools

Banks use Positive Pay to prevent counterfeit checks by matching issued check data with checks presented for payment. Therefore, banks should encourage its use among business clients and implement it internally for high-risk accounts.

Pro tip:

VALID's InteliFUNDS© improves Positive Pay by using fraud pattern recognition to differentiate human error from real risk. This improves matching accuracy with real-time analytics that can spot mismatches or forged data even when basic fields appear correct.

Advanced machine learning

AI-driven tools are transforming check fraud detection. Financial institutions that invest in these technologies and aim to become AI-powered banks gain a critical advantage: real-time fraud detection, fewer false positives, and faster investigations that keep losses low and trust high.

Pro tip:

VALID Systems' InteliFUNDS© delivers real-time decisions on every check deposit, enabling instant availability for up to 99% of items.

For the small percentage that needs closer review, the system pinpoints high-risk deposits, helping banks catch potential fraud before it causes loss.

Prioritize training and awareness

Fraud detection still depends heavily on human judgment, making staff training a critical line of defense.

Building a culture of awareness and continuous learning can significantly reduce the chances of fraud slipping through unnoticed.

Action plan:

• Train staff to spot red flags - Teach tellers and fraud teams to recognize signs like altered ink, inconsistent handwriting, or multiple checks from unrelated accounts.
• Keep teams informed - Share updates on current scam trends, phishing tactics, and emerging fraud methods.
• Use trusted sources - Regularly review FinCEN bulletins and industry reports to stay ahead of evolving threats.

Strengthen customer collaboration

Educate customers on safer payment methods like ACH or Real-Time Payments. 

For those still using checks, promote best practices:

• Secure check stock,
• Prompt mailing,
• Immediate reporting of theft or loss.

Next steps:

• Develop clear customer education materials (e.g., brochures, emails, website content) on secure check usage.
• Train frontline staff to offer to check safety tips during routine interactions.
• Encourage high-risk business clients to enroll in Positive Pay or ACH services.

Foster industry partnerships

Collaboration is essential when fraud crosses institutional boundaries. Work closely with law enforcement, participate in industry groups, and share relevant data (via SARs or direct communication) when patterns emerge.

Put it into practice:

• Join local and national fraud prevention consortiums or working groups.
• Establish direct lines of communication with USPS inspectors and financial crimes units.
• Host or attend regular briefings with peer institutions to compare fraud trends.

Review and refine continuously

Check fraud evolves, your defenses should, too.

Conduct regular reviews of fraud trends, analyze past cases for process gaps, and update policies as threats change. Work with your tech vendors to ensure you use the most current tools.

Implementation strategy:

• Schedule quarterly or semi-annual reviews of fraud incidents and system performance.
• Update fraud detection rules based on the latest threat intelligence.
• Analyze false positive/negative rates to improve model accuracy.
• Engage vendors like VALID Systems to review system updates and ML performance improvements.

How does VALID Systems transform the investigation of check frauds?

Fraud prevention starts at detection, but it’s the coordination between real-time tools and well-equipped back-office teams that stops fraud before it settles. 

VALID Systems empowers ops teams with real-time scoring, post-deposit intelligence, and scalable fraud orchestration to make every fraud decision faster, smarter, and more precise.

VALID goes beyond flagging transactions; it helps investigators understand patterns, assess risk instantly, and act before losses occur.

Here's how VALID Systems strengthens your fraud investigation capabilities:

Real-time decisioning with InteliFUNDS©

• Instant check deposit evaluation: InteliFUNDS© delivers real-time approvals for up to 99% of deposits, giving customers immediate access to funds.
• Fraud flagging at deposit: Suspicious items are identified and held before losses occur, with full charge-off coverage for any check later deemed fraudulent.

Targeted alerts with RTLA© (Real-Time Loss Alerts)

• Early detection: RTLA detects and flags up to 75% of likely-to-bounce checks when banks receive them.
• Custom response logic: Institutions can apply tailored treatments such as placing holds, requesting additional verification, or declining deposits outright.

Deep risk insight with INclearing Loss Alerts

• Advanced fraud detection: Machine learning and behavioral analytics uncover fraud patterns that traditional systems miss, especially during the clearing process.
• Minimal disruption: The system flags high-risk items while allowing legitimate checks to process smoothly.

Scalable intelligence with the VALID Edge Data Consortium

• Shared fraud defense: VALID's consortium includes over 420 million unique accounts and $6 trillion in annual payments, giving your institution access to a vast intelligence network.
• Predictive features at scale: Identify threats earlier by leveraging behavioral signals and fraud histories across the banking ecosystem.

Ready to take a proactive stance against check fraud?

Schedule a free consultation with VALID Systems today and explore our real-time, data-driven approach to check fraud prevention.