Part V
Fraud Detection 2.0:
How AI is Outpacing Traditional Methods

Mary Breslin, CFE, CIA

Fraud detection has always been a critical aspect of auditing, but it’s also one of the most challenging. Traditional methods rely heavily on manual analysis, intuition, and the auditor’s experience to identify potential fraud. However, as fraud schemes become more sophisticated, these methods are increasingly inadequate. Enter AI, and specifically ChatGPT, which is revolutionizing how auditors detect and prevent fraud.

ChatGPT: An Invaluable Tool in Fraud Detection

ChatGPT’s ability to analyze large datasets quickly and accurately makes it an invaluable tool in the fight against fraud. Unlike traditional methods that might involve sampling a subset of transactions, ChatGPT can process entire datasets, identifying patterns and anomalies that might indicate fraudulent activity. This comprehensive analysis reduces the chances of missing critical red flags, making fraud detection more robust and effective.

Recognizing Subtle Patterns with AI

One of the key strengths of ChatGPT in fraud detection is its ability to recognize subtle patterns that might not be immediately obvious to human auditors. For example, it can analyze transaction data to detect anomalies such as unusual payment amounts, transactions outside of normal business hours, or inconsistencies in vendor information. These anomalies might be indicative of fraud, but they can easily be overlooked in manual reviews, especially when dealing with large volumes of data.

Continuous Monitoring for Real-Time Detection

Moreover, ChatGPT can assist in continuous monitoring, allowing for real-time fraud detection. By setting up automated alerts for specific indicators of fraud, such as sudden changes in transaction patterns or repeated payment adjustments, auditors can respond to potential issues as they arise, rather than after the fact. This proactive approach is a significant improvement over traditional methods, which often detect fraud only after significant damage has been done.

Refining Risk-Scoring Models

In addition to detecting fraud, ChatGPT can also help auditors develop and refine risk-scoring models. By processing historical fraud cases and identifying common characteristics or indicators of fraud, ChatGPT can assist in creating more accurate models that better predict where fraud is likely to occur. This enables auditors to focus their efforts on high-risk areas, increasing the likelihood of detecting fraud before it escalates.

Analyzing Unstructured Data for Fraud Clues

Another valuable application of ChatGPT in fraud detection is the analysis of unstructured data, such as emails or chat logs. Fraudsters often communicate in ways that leave subtle clues—using coded language, avoiding certain keywords or emojis, or displaying unusual communication patterns. ChatGPT’s natural language processing capabilities allow it to analyze these communications for signs of deception, providing auditors with additional tools to uncover fraud.

AI is transforming fraud detection from a reactive to a proactive process. By leveraging the power of ChatGPT, auditors can analyze more data, identify more risks, and respond to potential fraud faster than ever before. This not only increases the effectiveness of fraud detection but also helps protect organizations from the financial and reputational damage that fraud can cause.

Mary Breslin, CFE, CIA, is president and founder of Verracy, a training and consulting company. Contact her at mbreslin@verracy.com.