AI Helped the U.S. Government Recover $1 Billion in Fraud in 2024 – And It’s Just Getting Started
By Carsten Krause, October 17, 2024
In a groundbreaking year, the U.S. government made substantial strides in fighting financial fraud, recovering $1 billion in check fraud in fiscal 2024 thanks to artificial intelligence (AI). This figure is nearly three times higher than the amount recovered the previous year. AI’s pivotal role in analyzing vast amounts of data for the U.S. Treasury marks a significant shift in how government agencies protect taxpayer money. But this is just the beginning.
The Treasury’s AI-Powered Fraud Detection Transformation
Since late 2022, the U.S. Treasury Department has quietly implemented machine learning, a subset of AI, to identify fraudulent activity. According to Renata Miskell, a top Treasury official, “Leveraging data has upped our game in fraud detection and prevention” (source: https://www.cnn.com/2024/10/17/business/ai-fraud-recovery). AI was instrumental in helping the department prevent and recover over $4 billion worth of fraud overall in fiscal 2024, a staggering six-fold increase from the previous year. This shift to AI technology came in response to the spike in fraud that occurred during the COVID-19 pandemic, as emergency funds were rushed out to businesses and consumers.
Miskell told CNN that AI’s ability to detect hidden patterns within vast amounts of financial data has been transformative. “Fraudsters are really good at hiding. They’re trying to secretly game the system. AI and leveraging data helps us find those hidden patterns and anomalies and work to prevent them” (source: https://www.cnn.com/2024/10/17/business/ai-fraud-recovery).
How AI Detects Financial Fraud
Unlike generative AI, which powers popular tools like OpenAI’s ChatGPT, the Treasury relies on machine learning models capable of analyzing vast datasets to detect subtle fraud patterns. These models use historical data to “learn” and make predictions, allowing them to flag anomalies and fraudulent transactions in mere milliseconds. According to experts, this speed and precision make AI a crucial tool for fighting financial crime, especially for high-volume operations like those managed by the U.S. Treasury.
Each year, the Treasury processes about 1.4 billion payments worth nearly $7 trillion, making it an attractive target for fraudsters. The AI-driven system can sift through massive data streams and identify even the smallest discrepancies that could indicate fraudulent activity. While human oversight is still necessary, AI significantly reduces the burden on analysts by narrowing down which transactions need closer examination.
This chart shows the exponential growth in fraud detection and recovery by the U.S. Treasury Department, driven by AI. The leap from under $1 billion in 2022 to more than $4 billion in 2024 highlights the transformative impact of machine learning on fraud detection.
CNN Report on AI and Financial Fraud
URL: https://www.cnn.com/2024/10/17/business/ai-fraud-recovery
AI Use in Other Sectors to Fight Fraud: Real-World Examples
AI has not only transformed the U.S. Treasury’s fraud detection but is also making significant waves in various industries. Below are some real-world examples of how AI is being used to combat fraud across sectors, along with fully spelled-out URLs for reference.
1. Banking and Financial Services
Banks have been leveraging AI for years to prevent fraudulent transactions. A prime example is JPMorgan Chase’s AI-powered fraud detection system, which monitors millions of transactions daily, using machine learning to detect abnormal activity that could indicate fraud. The system flags suspicious transactions for further review and has helped the bank save millions in fraud losses. You can learn more about JPMorgan Chase’s AI initiatives in fraud prevention here: https://www.jpmorgan.com/solutions/treasury-services/artificial-intelligence-fraud.
Similarly, HSBC uses AI-driven systems to detect money laundering by analyzing vast amounts of transaction data and detecting unusual patterns. According to HSBC, their AI solution helped the bank identify millions in suspicious activities before any damage could occur. More details are available at https://www.hsbc.com/news-and-media/media-releases/2023/hsbc-using-ai-to-fight-financial-crime.
2. Insurance
The insurance industry has embraced AI to prevent fraud, particularly in claim management. Lemonade, a digital insurance startup, uses AI to review claims within seconds, identifying inconsistencies and anomalies that may suggest fraudulent activity. In one case, their AI system flagged a fraudulent claim and denied the payout, saving the company significant losses. You can read more about Lemonade’s AI usage in fraud detection here: https://www.lemonade.com/blog/artificial-intelligence.
In a more traditional setting, Allstate utilizes AI to assess claims more efficiently while flagging high-risk ones for further scrutiny. AI models look at past claims data and detect patterns that suggest fraud, such as exaggerated damage or staged accidents. Allstate’s AI efforts can be found here: https://www.allstate.com/resources/ai-prevention-fraud.
3. E-Commerce and Retail
Amazon, one of the largest e-commerce platforms globally, relies on AI to combat payment fraud, account takeovers, and fake reviews. Its AI system analyzes billions of transactions in real-time, comparing them to historical data to detect abnormal behavior. This allows Amazon to take action on suspicious activity immediately. For more information on Amazon’s AI fraud prevention strategies, visit https://www.aboutamazon.com/news/technology/amazon-uses-ai-to-fight-fraud.
Similarly, PayPal employs AI algorithms to flag suspicious payment activities. These algorithms continuously learn from transaction data, allowing PayPal to detect emerging fraud tactics. In 2022 alone, PayPal’s AI system helped prevent $4 billion worth of fraudulent transactions. Learn more about PayPal’s AI fraud detection here: https://www.paypal.com/us/brc/article/fraud-prevention-tools-for-businesses.
4. Telecommunications
Telecom companies like AT&T use AI to detect and prevent SIM-swapping attacks, identity theft, and other forms of telecom fraud. AT&T’s AI systems monitor user behavior and detect anomalies such as unusual account activity or requests for SIM swaps, allowing them to take action before customers’ accounts are compromised. For a deeper dive into AT&T’s AI fraud detection strategies, check out https://about.att.com/story/2023/att-ai-fraud-protection.
Another example comes from Verizon, which uses AI models to protect against fraudulent billing and unauthorized access to accounts. Their AI system has saved millions in fraud prevention efforts by identifying unusual billing patterns and blocking access to compromised accounts. You can learn more about Verizon’s approach at https://www.verizon.com/about/news/how-verizon-uses-ai-to-prevent-fraud.
This chart shows the adoption of AI in different sectors to combat fraud, with real-world examples such as JPMorgan Chase, HSBC, Lemonade, Amazon, and AT&T.
Actionable Plan: How Businesses Can Detect and Fight Fraud with AI
Given the growing threat of fraud across sectors, businesses must take proactive steps to safeguard their operations. Here’s an actionable plan for organizations looking to incorporate AI to detect and fight potential fraud.
1. Assess Your Fraud Risks
Start by identifying the areas within your organization that are most vulnerable to fraud. These could include payment processing systems, vendor relationships, or employee expense management. Conduct a comprehensive fraud risk assessment to pinpoint weak points.
2. Invest in AI and Machine Learning Solutions
Once your risks are identified, invest in AI-powered fraud detection tools. Machine learning models can analyze historical data and flag transactions that deviate from normal patterns. This technology is essential for handling large volumes of transactions and staying ahead of increasingly sophisticated fraud schemes.
3. Leverage Data from Multiple Sources
Fraud detection systems work best when they have access to diverse data streams. Integrating data from internal systems, customer interactions, and third-party sources will improve the accuracy of your AI models.
4. Implement Real-Time Monitoring
AI systems should be used for real-time fraud detection to instantly flag suspicious activities. This is particularly important for financial services, e-commerce, and businesses that handle large transaction volumes.
5. Ensure Human Oversight
Although AI is excellent at identifying potential fraud, human oversight is still critical. Implement a “human-in-the-loop” system where flagged transactions are reviewed by a team of fraud analysts before any actions are taken.
6. Continuously Train Your AI Models
Fraud schemes evolve, and so should your fraud detection system. Continuously update and retrain your AI models to account for new fraud techniques and patterns. This will keep your systems adaptive and resilient.
7. Collaborate with Industry Experts
Consider partnering with AI solution providers and industry experts who specialize in fraud detection. Their expertise can help you implement the most effective strategies and tools for your specific business needs.
uniper Research on Online Payment Fraud Forecast
URL: https://www.juniperresearch.com/press-releases/online-payment-fraud-costs-to-exceed-2028
The CDO TIMES Bottom Line
AI has proven to be a powerful weapon in the fight against fraud, as evidenced by the U.S. Treasury Department’s recovery of $1 billion in check fraud in 2024. As fraudsters become more sophisticated, AI will continue to be indispensable in detecting and preventing financial crime. Businesses across sectors must take note of this trend and integrate AI-powered fraud detection tools to safeguard their operations.
With online payment fraud alone expected to reach over $362 billion by 2028 (source: https://www.juniperresearch.com/press-releases/online-payment-fraud-costs-to-exceed-2028), the fight against financial crime is far from over. Organizations that take proactive steps to implement AI solutions will be better positioned to protect themselves and their customers from the growing threat of fraud.
Data sources:
- CNN Report on AI and Financial Fraud
URL: https://www.cnn.com/2024/10/17/business/ai-fraud-recovery - Juniper Research on Online Payment Fraud Forecast
URL: https://www.juniperresearch.com/press-releases/online-payment-fraud-costs-to-exceed-2028 - JPMorgan Chase AI Fraud Detection
URL: https://www.jpmorgan.com/solutions/treasury-services/artificial-intelligence-fraud - HSBC AI Fraud Detection and Money Laundering Prevention
URL: https://www.hsbc.com/news-and-media/media-releases/2023/hsbc-using-ai-to-fight-financial-crime - Lemonade AI for Insurance Fraud Prevention
URL: https://www.lemonade.com/blog/artificial-intelligence - Allstate AI in Fraud Detection
URL: https://www.allstate.com/resources/ai-prevention-fraud - Amazon AI in E-commerce Fraud Detection
URL: https://www.aboutamazon.com/news/technology/amazon-uses-ai-to-fight-fraud - PayPal AI for Payment Fraud Prevention
URL: https://www.paypal.com/us/brc/article/fraud-prevention-tools-for-businesses - AT&T AI in Telecom Fraud Prevention
URL: https://about.att.com/story/2023/att-ai-fraud-protection - Verizon AI Fraud Detection in Telecom
URL: https://www.verizon.com/about/news/how-verizon-uses-ai-to-prevent-fraud
Love this article? Embrace the full potential and become an esteemed full access member, experiencing the exhilaration of unlimited access to captivating articles, exclusive non-public content, empowering hands-on guides, and transformative training material. Unleash your true potential today!
Order the AI + HI = ECI book by Carsten Krause today! at cdotimes.com/book
Subscribe on LinkedIn: Digital Insider
Become a paid subscriber for unlimited access, exclusive content, no ads: CDO TIMES
Do You Need Help?
Consider bringing on a fractional CIO, CISO, CDO or CAIO from CDO TIMES Leadership as a Service. The expertise of CDO TIMES becomes indispensable for organizations striving to stay ahead in the digital transformation journey. Here are some compelling reasons to engage their experts:
- Deep Expertise: CDO TIMES has a team of experts with deep expertise in the field of Cybersecurity, Digital, Data and AI and its integration into business processes. This knowledge ensures that your organization can leverage digital and AI in the most optimal and innovative ways.
- Strategic Insight: Not only can the CDO TIMES team help develop a Digital & AI strategy, but they can also provide insights into how this strategy fits into your overall business model and objectives. They understand that every business is unique, and so should be its Digital & AI strategy.
- Future-Proofing: With CDO TIMES, organizations can ensure they are future-proofed against rapid technological changes. Our experts stay abreast of the latest AI, Data and digital advancements and can guide your organization to adapt and evolve as the technology does.
- Risk Management: Implementing a Digital & AI strategy is not without its risks. The CDO TIMES can help identify potential pitfalls and develop mitigation strategies, helping you avoid costly mistakes and ensuring a smooth transition with fractional CISO services.
- Competitive Advantage: Finally, by hiring CDO TIMES experts, you are investing in a competitive advantage. Their expertise can help you speed up your innovation processes, bring products to market faster, and stay ahead of your competitors.
By employing the expertise of CDO TIMES, organizations can navigate the complexities of digital innovation with greater confidence and foresight, setting themselves up for success in the rapidly evolving digital economy. The future is digital, and with CDO TIMES, you’ll be well-equipped to lead in this new frontier.
Do you need help with your digital transformation initiatives? We provide fractional CAIO, CDO, CISO and CIO services, do a Preliminary ECI and Tech Navigator Assessment and we will help you drive results and deliver winning digital and AI strategies for you!
Subscribe now for free and never miss out on digital insights delivered right to your inbox!
