Can anyone explain how check kiting works? I understand the tranfering of funds but how do you catch that they are moving funds in and out without a computer system? How are they pulling money out and how do you protect your bank against taking the loss?

You protect yourself by being the first bank to catch the kite. You don't need a computer system to catch a kite. If there is someone you are suspicious of, start placing applicable holds on their checks.

Not to be a wet blanket or anything but we need to be very careful about explaining our procedures identifying check kiting to an anonymous user.
I'm sure the intentions are legitimate but you never know in today's day and age.

I just turned 30 and got really cynical in my old age. haha.

It's actually possible to have fun with a wet blanket. First you [edited to delete any sensitive information], then you [this too].