What is Check Fraud and How to Prevent it Successfully?

A single lapse in check verification can lead to significant fraud, financial losses, and significant customer impact.

One of the best ways to safeguard against check fraud is to implement robust fraud prevention strategies and tools.

In the guide below, we’ll explore what these strategies entail, why they’re essential, and how to apply them effectively from start to finish.

Let’s dive in!

What is check fraud?

Check fraud is an unlawful activity in which people or entities tamper with, forge, or utilize checks to steal funds.

This fraud can be carried out using fake checks, stolen checks, or manipulated bank account information in order to make unauthorized withdrawals from the fraudulent funds.

Check fraud is increasingly being committed as fraudsters constantly search for new ways of taking advantage of weaknesses within the banking system.

It is important for both people and companies, as it is quite dangerous.

For individuals, it may involve losing their savings or facing damage to their credit, whereas for companies, it can lead to economic losses, business disruption, and entanglements in the law.

Common types of check fraud

To better understand the various ways check fraud can occur, here are some of the most common types:

• Check forgery: Fraudsters create fake checks by forging the payee's signature, allowing them to withdraw funds from the victim's account.
• Altered checks: This type of fraud involves criminals altering the details of a legitimate check, such as changing the amount or the payee’s name.
• Counterfeit checks: Criminals produce fake checks that closely resemble legitimate ones but are drawn from non-existent accounts or accounts with insufficient funds.
• Paper hanging: Fraudsters write a check from a closed or non-existent account, knowing that the check will bounce after being processed.
• Check kiting: In check kiting, fraudsters exploit the float period by writing checks from accounts with insufficient funds, making it appear that they have money available in their account when they do not.
• Check washing: Using chemicals, fraudsters erase ink from legitimate checks, allowing them to rewrite the payee and the amount for fraudulent purposes.

Recent cases of check fraud

Here are some of the latest examples of check fraud schemes that have been reported:

1. Telegram-facilitated check fraud (2023)

Criminal syndicates used encrypted messaging apps like Telegram to share tips and techniques for committing check fraud.

At least 30 channels dedicated to financial fraud were identified, some with over 20,000 members.

This platform enabled fraudsters to anonymously organize schemes, such as check washing and counterfeit check creation.

2. Chase TikTok trend (2024)

A viral TikTok trend led some users to believe they had discovered a "glitch" in Chase ATMs that allowed them to withdraw more funds than they deposited.

Participants were filming themselves depositing checks for large sums of money, then withdrawing smaller amounts before the checks cleared.

This led to the misconception that they had found a way to get "free" cash, but the bank quickly clarified that this was a form of check fraud.

2. AI-powered check fraud (2025)

Scammers increasingly use generative artificial intelligence (AI) to enhance traditional check fraud methods.

The FBI warns that AI enables criminals to create more convincing counterfeit checks, reducing detection by improving handwriting and security features.

By synthesizing new content from learned examples, AI tools make it easier for criminals to deceive their targets while correcting potential errors.

While synthetic content is not inherently illegal, it can facilitate crimes like fraud and extortion, and the FBI is raising awareness of these growing threats.

3. Mailbox theft and check washing (2025)

Check fraud has surged, with mail theft playing a major role.

Fraudsters exploit regulations that require banks to release check funds quickly, often before the fraud is detected.

This allows stolen checks to clear, and criminals to withdraw the funds before anyone notices.

The FBI and USPIS have seen Suspicious Activity Reports related to check fraud nearly double from 2021 to 2023, highlighting just how widespread the issue has become!

Check fraud future trends

As fraudsters continue to evolve their methods, here are some trends to watch for in the future of check fraud:

• AI-generated counterfeit checks: Fraudsters will increasingly use AI to create highly realistic counterfeit checks that mimic legitimate handwriting and security features, making them harder to detect.
• Remote deposit capture (RDC) exploitation: As RDC becomes more common, fraudsters will continue to exploit this technology by depositing altered or counterfeit checks remotely, potentially multiple times across different institutions. That's why solutions that have overreliance on image can fall short.
• Synthetic identity fraud: Combining real and fictitious information to create synthetic identities, fraudsters will open bank accounts to deposit fraudulent checks and withdraw funds, a trend that has seen significant growth.
• Dark web marketplaces: The rise of dark web marketplaces will continue to facilitate the sale of stolen check images and account details, making it easier for fraudsters to access and exploit this information.
• Check washing and alteration: Traditional methods like check washing and alteration will persist, with fraudsters using chemicals to erase ink and rewrite checks with new payees or amounts.
• Increased use of stolen checks: Fraudsters will steal newly ordered blank checks from mailboxes and forge signatures to use them for fraudulent transactions. That is why the U.S. Postal Inspection Service recovers over $1 billion annually in counterfeit checks and money orders, highlighting the scale of check fraud linked to mail theft.

• Business email compromise (BEC) involving checks: BEC scams will continue to evolve, with fraudsters using fake emails to trick businesses into issuing checks to fraudulent accounts.
• Advanced printing technologies: Advances in printing technology will make it easier for fraudsters to produce nearly flawless counterfeit checks that can bypass basic fraud detection systems.
• Double presentment fraud: Fraudsters will continue to use RDC to commit double presentment fraud, where the same check is deposited multiple times across different financial institutions.
• Fraud as a service model: The democratization of scams through fraud as a service model will make it easier for individuals with limited technical skills to execute complex check fraud schemes, further increasing the threat landscape.

How does check fraud work?

Check fraud is a prevalent issue that financial institutions and their customers face regularly.

Fraudsters use various techniques to exploit weaknesses in the check deposit process, from creating counterfeit checks to using advanced technology to bypass security measures.

Understanding how check fraud works is the first step in safeguarding your financial transactions.

Step 1: Fraudulent check creation

Fraudsters often begin by creating counterfeit checks, using sophisticated technology to replicate legitimate ones.

These fake checks can appear almost identical to real ones, with altered details such as forged signatures, stolen account numbers, and manipulated amounts.

Fraudsters typically acquire personal or account information from a variety of sources, including hacking, phishing, or even stealing checks from mailboxes.

How to handle it:

• Ensure that your bank uses advanced security features on checks, such as watermarks, special ink, or microprinting, which are difficult to reproduce.
• Train staff to spot common signs of check fraud, such as discrepancies in fonts or unusual signatures.
• Consider adopting technologies that detect changes in check patterns.

Step 2: Deposit process exploitation

After creating the counterfeit checks, fraudsters deposit them into bank accounts using various methods—such as at ATMs, through mobile banking apps, or directly at bank branches.

Since the checks aren't immediately verified for authenticity, the fraudster hopes that the funds will be available quickly before the check is flagged.

This is often when the fraudsters attempt to withdraw funds or transfer them.

How to handle it:

• Implement real-time check verification systems to flag suspicious deposits immediately and prevent fraudulent checks from being approved.
• Set up deposit limits for new accounts, requiring additional verification until checks are fully cleared.
• Use enhanced authentication methods, such as requiring customer verification for large or unusual deposits.

Pro tip:

With the InstantFUNDS© product by VALID Systems integrated into your system, your bank can make sub-second decisions for every check deposit.

This means only legitimate checks get approved, and fraudulent checks can be flagged instantly.

This helps protect your institution and customers while speeding up the deposit process.

Step 3: Check clearing and settlement

Once a check is deposited, it undergoes the clearing process, where the bank verifies that the check is VALID and that the funds can be transferred.

However, if the check is fraudulent, the fraudster is hoping it clears before any checks on its authenticity are made.

Unfortunately, most checks are not fully verified during the initial deposit process, making it easier for fraudsters to exploit this gap.

How to handle it:

• Employ systems that track checks through the entire clearing process, ensuring early detection of discrepancies.
• Use fraud monitoring systems that can detect anomalies at the point of presentment, even if the check passes initial screening.
• Introduce more thorough checks for high-risk deposits or accounts with histories of fraud.

Pro tip:

Use VALID Systems' advanced fraud detection solutions INclearing Loss Alerts to flag potential fraud during the clearing process.

These systems leverage behavioral analytics and machine learning to identify discrepancies at the point of presentment, ensuring that legitimate transactions are unaffected while fraud is quickly detected and stopped.

Step 4: Loss and charge-off

After the fraudulent check clears, the bank may not realize that it was fake until after the funds have been withdrawn or used.

This delay means that the financial institution is left to absorb the loss, which can lead to charge-offs and significant financial damage.

It may take time to trace back the fraudster or recover the funds, making it a costly and resource-intensive process.

How to handle it:

• Set up a clear process for reporting discrepancies in cleared checks immediately.
• Work closely with your fraud detection systems to quickly investigate and reverse transactions if fraud is detected.
• Ensure that you have strong internal controls for identifying and addressing charge-offs.

Preventing check fraud successfully

Preventing check fraud is crucial for maintaining financial security and customer trust.

By implementing effective fraud detection systems, educating customers, and adopting advanced technologies, financial institutions can reduce the risks of fraud while enhancing operational efficiency and customer satisfaction.

1. Implement advanced fraud detection tools

The most effective way to prevent check fraud is through advanced fraud detection tools that leverage machine learning, AI, and behavioral analytics.

These tools help financial institutions identify suspicious patterns and flag potential fraudulent activity before it results in financial loss.

Key actions to take:

• Integrate AI-powered fraud detection systems that analyze transaction behavior and flag anomalies.
• Use biometric verification methods or dynamic authentication for high-risk transactions.
• Continuously update fraud detection systems to adapt to evolving fraud tactics.

Pro tip

VALID Systems product InteliFUNDS© offers real-time decisioning for every check deposit, allowing you to expedite up to 99% of items for instant availability.

For the remaining 1%, which requires additional scrutiny, VALID Systems helps identify high-risk deposits, minimizing the chance of fraudulent checks slipping through.

2. Real-time decisioning for check deposits

Implementing real-time decisioning systems allows your bank to approve or reject checks instantly based on a set of predetermined criteria, or preferably, dynamic real-time decisioning.

This not only accelerates the deposit process but also helps prevent fraud by ensuring that only legitimate checks clear without delay.

Recommended practices:

• Utilize real-time decisioning systems to evaluate checks for potential fraud instantly.
• Set up alerts to notify staff immediately if a check is flagged for further review.
• Offer transparency to customers by informing them about real-time decisions and deposit statuses.

3. Educate and provide transparency for customers

Educating customers about how to protect themselves from fraud is essential.

Financial institutions can help customers recognize fraudulent checks and empower them to report suspicious activity promptly.

Transparency about the bank’s fraud prevention efforts builds trust and improves communication.

Best practices:

• Offer fraud awareness programs for customers, both online and in-branch.
• Provide easy-to-understand resources on how customers can spot fraudulent checks.
• Set up customer-facing fraud prevention tools, such as alerts and educational materials.

4. Continuous monitoring and real-time alerts

Continuous monitoring of deposits and account activities, combined with real-time alerts, can help detect fraud at the earliest stages.

This system enables financial institutions to take swift action, reducing the impact of fraudulent transactions on both the bank and its customers.

Next steps to take:

• Set up continuous monitoring systems that track transactions for irregularities.
• Use real-time alerts to notify your team when suspicious activity is detected.
• Offer customers alerts for transactions that appear unusual or suspicious.

Pro tip:

VALID Systems’ Real-Time Loss Alerts (RTLA)© help your bank stay one step ahead by reducing check fraud losses by up to 90% in real time.

These alerts provide your institution with accurate intelligence to identify fraudulent deposits before they clear, giving customers peace of mind knowing their accounts are protected.

How VALID Systems supercharges your fraud prevention?

VALID Systems is an AI-powered provider of risk management and fraud prevention that helps businesses stay ahead of evolving fraud threats.

By integrating advanced behavioral analytics and machine learning technologies, VALID Systems proactively identifies emerging fraud patterns and provides real-time protection for your organization.

Key products of VALID Systems include:

Transactions

InstantFUNDS©

• Client-elected fee revenue: Provide customers with the choice and transparency of a nominal convenience fee for immediate access to guaranteed funds.
• Sub-second decisioning: Approve or reject checks in real-time, reducing risk and ensuring efficient deposit processing.

Real-time loss alerts (RTLA)©

• High-accuracy intelligence: Detect up to 75% of potential check deposit charge-offs in real-time, giving your institution actionable insights.
• Actionable insights at presentment: Implement customizable treatments at the point of presentment to mitigate fraud, with the flexibility for banks to focus on specific objectives such as reducing fraud loss, improving accuracy rates, or minimizing false positives, depending on their priorities.

InteliFUNDS©

• Real-time decisioning for check deposits: Process up to 99% of check deposits instantly, ensuring quick access to funds while flagging high-risk items for additional scrutiny.
• Deposit charge-off coverage: Ensure full coverage for any approved check that later results in a deposit charge-off.

INclearing loss alerts

• Fraud detection with advanced analytics: Leverage behavioral analytics and machine learning to identify fraud, even when traditional methods fail, minimizing disruption to legitimate transactions.

VALID Edge Data Consortium

• Fraud detection at scale: Gain access to over 420 million accounts and $6 trillion processed annually, leveraging data insights to detect fraud with predictive features from VALID's Edge Data Consortium.

Ready to elevate your fraud prevention efforts?
Schedule a free consultation with VALID Systems today and explore how our advanced tools can help secure your financial institution from check fraud.