Artificial Intelligence (AI) & Occupational Fraud

The ever-growing use and rapid advancement of artificial intelligence (AI) presents numerous opportunities to build efficiencies within the workplace. However, its misuse also raises significant concerns, particularly in the realm of fraud. The power of AI lies in its ability to process vast amounts of information quickly and efficiently. For example, a simple prompt on AI tools like ChatGPT can generate a full essay in mere minutes, showcasing the technology’s speed and capability.

Fraudsters can exploit AI to generate misleading or false documents, reports, data and deceptive emails that appear realistic. In addition to these deceptive materials being used for various external threats like email phishing, SMS phishing or email account compromise, they also pose an internal fraud risk. Employees with malicious intent could use AI to manipulate or falsify internal documents, such as invoices, contracts, spreadsheets and bank statements, making it difficult to detect fraudulent activity. By leveraging legitimate internal resources, a fraudster can generate falsified documents that appear completely authentic.

However, we can also use AI as a powerful ally to help us catch these fraudsters! Generative AI, a type of AI that uses machine learning algorithms to learn from large datasets based on training, can process large volumes of data quickly, making it a great tool for pattern recognition. This makes it an invaluable tool for detecting anomalies in user behavior and identifying irregularities within vast transaction datasets, essentially flagging suspicious activity that deviates from typical patterns. Additionally, it can also be used as a fraud prevention tool to evaluate systems of internal controls and identify weak spots and areas of vulnerability before they can be exploited. In a sense, generative AI can serve as your “fraud copilot,” aiding in both detection and prevention.

There are safeguards you can utilize to mitigate the risks surrounding AI and its usage. As AI increasingly becomes an integral part of everyday business, it’s crucial to stay informed about its capabilities, both current and future. The more familiar you are, the more prepared you will be to manage the risks. Additionally, always verify the output of AI, as it is not a perfect technology, despite how advanced it may be. Be vigilant for potential signs of tampering, such as mathematical errors, formatting differences or fuzzy logos and fonts, which could indicate that a document has been altered. Whenever possible, obtain data and supporting documentation from reliable third-party sources. Finally, establish clear standards for the use and development of AI within your company to maintain control over its applications. By doing so, you can harness the power of AI to improve efficiencies throughout your business while also limiting its ability to hurt it.

Erin E. Heindl, CPA, is an audit senior with experience in performing audits, reviews, compilations and employee benefit plan audits for various clients, specializing in fraud prevention and detection. For more information on this topic, contact Erin at eheindl@dmcpas.com or (315) 472-9127.