In a 2018 global study on occupational fraud and abuse published by the ACFE, which analyzed 2,690 cases of occupational fraud, found that the total loss to organizations caused by fraud cases exceeded USD 7.1 billion. Probably no other corporate function is challenged more than internal audit departments. One of the chief responsibilities of audit teams is assessing programs and systems for fraud-related red flags. Internal audit teams are pressured to find hidden risk by their board, regulatory agencies, and the audit committee while at the same time often receiving a cold welcome from the functions they are auditing.
Internal audit teams are tasked with reviewing internal controls, improper payments, cybersecurity, compliance, and a myriad of other topics. The one commonality in internal audit reviews is that they all require some type of data to be reviewed. When internal audit teams create annual audit plans, they routinely plan to take representative samples of data and then conduct a manual analysis to search for abnormalities or anomalous activity. Representative samples require the development of a time-consuming sampling methodology, which coupled with smaller data sets, can lead to potential risk gaps.
According to the ACFE, internal control weaknesses were responsible for nearly half of all fraud incidents. However, there are new technologies and innovations (such as artificial intelligence (AI) and machine learning) on the market that can help mitigate fraud.
Advanced data analytics technology, including AI and machine learning, can assist organizations in processing account openings, loan applications, insurance applications and claims, such as unemployment claims, and other access point-related documents. Emerging data analytics techniques are also vastly improving internal audit’s capabilities to analyze millions of data points instead of relying on the traditional, manual representative sampling methodology.
These new technology solutions can analyze huge amounts of business data to identify hidden commonalities and linkages such as addresses, e-mails, telephone numbers, relatives, and other personally identifiable information. Advanced techniques such as Natural Language Processing (NLP), graph search algorithms and predictive analytics can enhance the effectiveness and efficiency of fraud detection and prevention programs.
New data analytics and AI solutions can help internal audit teams perform more efficient and effective audits of all programs and are also uniquely situated to assist in identifying risks related to improper payments, FCPA, Anti-Money Laundering (AML), fraud, and insider threat matters. Utilizing these new technologies and other advanced techniques can markedly improve internal audit’s ability to investigate data sources for evidence of financial crimes.
While this is debated, the problem persists as legacy AML technology such as transaction monitoring systems (TMS) have little to no ability to identify and assess risk created by shell companies. And while policies, procedures, and processes, if applied correctly, can protect financial institutions from becoming conduits for some fraction of money laundering, terrorist financing, and other financial crimes, identifying shell company risk continues to be elusive.
On the final day of the FIBA conference, QuantaVerse Founder and CEO, David McLaughlin, participated on the “Customer Profiling, Use of Innovative Technologies in Onboarding and Risk Assessment” panel. David Schwartz, President and CEO of FIBA, set up the panel discussion by emphasizing the importance and impact that innovative technologies have on risk assessment and the customer onboarding process.
CASE STUDY: AI-Powered Entity and Alert Adjudication Streamlines Financial Crime Investigation Processes
Based on these outcomes, the bank is moving QuantaVerse AI solutions into production. Moving forward, the bank will be better equipped to find hidden financial crime risk while automating 70 percent of its AML investigation processes, enabling investigators to focus their time and talents on the most complex cases.