There are consistent factors in fraud, like social engineering tactics that exploit human behavioral tendencies or external financial pressures that lead fraudsters to commit their crimes, but there are also trends and themes that emerge and affect the anti-fraud profession on a more limited timeframe.
Detecting and preventing fraud is a daunting task that requires anti-fraud professionals to regularly adapt to a continuously evolving risk landscape. There are consistent factors in fraud, like social engineering tactics that exploit human behavioral tendencies or external financial pressures that lead fraudsters to commit their crimes, but there are also trends and themes that emerge and affect the anti-fraud profession on a more limited timeframe.
Forecasting is inherently a risky exercise, but based on recent fraud-related news and discussions with subject matter experts over the course of regular ACFE operations, here are five trends that are expected to have a significant impact on the anti-fraud profession in 2024.
Generative artificial intelligence (AI) technology, or deep learning AI models used for high-quality image, video, audio or text generation, became much more mainstream with the introduction of ChatGPT in late 2022. The proliferation of easy-to-use generative AI software, such as programs or apps that generate deepfakes, has already been utilized by fraudsters to generate more convincing images, video, audio and text in their scams, but the scale of its weaponization will grow tremendously in 2024, and affect both individuals and organizations.
One major fraud involving deepfakes of multiple people on a single video call already caused a multinational company in Hong Kong to lose more than $25 million this year, and numerous other examples of scams ranging from virtual kidnappings utilizing voice cloning technology to romance frauds leveraging text generation similar to ChatGPT capabilities have been reported and will only increase.
As the technology gets better, so do the scams using it. Fraud examiners can help protect themselves, their employers or clients, and their communities by raising awareness about these scams, and encouraging everyone to exercise a high level of skepticism with any digital communications, but especially those that involve a request for money.
Bitcoin was at its highest price since late 2021. Frauds and scams related to cryptocurrencies, coins, tokens and all the other confusing things under the digital assets umbrella have historically ebbed and flowed along with the prices of popular cryptocurrencies, particularly bitcoins. With increased enthusiasm around digital assets and more mainstream adoption, fraudsters will follow.
Expect an increase in SIM swaps, digital wallet account takeovers, ransomware, investment scams, hacks or exploitation of decentralized finance (DeFi) companies, and any other fraud schemes either targeting or involving digital assets. The irreversibility and pseudonymity of digital asset transactions makes them inherently riskier, even when they are not extra attractive to fraudsters due to crypto prices, so consumers should stay diligent about not reusing their passwords for digital wallets, considering multifactor authentication protocols that do not rely on SMS, and being wary of any cannot-miss investment opportunities framing themselves as related to recently approved Bitcoin Exchange Traded Funds (ETFs). Sending fiat currency instead of cryptocurrency for a transaction will likely have more recourse available in the event of a fraud. Meanwhile, fraud examiners at organizations that deal in digital assets or possess them should assess existing anti-fraud controls and look for opportunities to improve them.
When a technology hype cycle kicks off, there is never a shortage of companies looking to cash in on the craze or investors looking to identify the next “unicorn” or spread investments across the sector to hedge their bets. This can create a lot of pressure for emerging technology-focused companies to perform, or at least maintain the appearance of performance to reassure existing investors and attract new ones, such as Theranos, Wirecard, Nikola and FTX.
With more than $150 billion reportedly invested in AI startups since the beginning of 2021, the same kinds of financial pressures that led leaders of the previously mentioned companies to fabricate results or employ creative (fraudulent) accounting practices are in place for the AI sector. This might play out as a singular, major fraud scandal affecting a major player in the sector, with the direct impact mostly limited to the company’s investors and creditors. Alternatively, it could play out in the failure of multiple start-ups on a smaller scale. Either outcome would likely shake public faith in the sector and in turn affect the trajectory of the technology’s adoption and the viability of AI companies doing things by the book.
Fraud examiners tasked with due diligence or auditing engagements concerning AI service providers should keep these factors in mind and perhaps apply a little more scrutiny to make sure that they do not overlook any red flags.
The passage, or royal assent, of the United Kingdom Economic Crime and Corporate Transparency Bill in late 2023 establishes a new failure to prevent offence [sic] for organizations that profit from fraud committed by their employees, even if they were unaware of the fraud while it was occurring. Since new laws and/or regulations that emerge from Europe often end up producing copycat responses from other regions, anti-fraud programs could be tasked with preventing yet another fraud-related liability.
Meanwhile, the International Auditing and Assurance Standards Board (IAASB) recently proposed a change to its standards for auditors that would increase the responsibilities to detect fraud in a client’s financial statements. This came months after the Public Company Accounting Oversight Board (PCAOB) made a similar proposal to update its standards related to auditors’ responsibilities to detect fraud. Although neither proposal has yet been adopted and reflected in updates to the standards, it could happen in 2024 and would have a significant impact on auditors and ultimately strengthen the anti-fraud profession, assuming auditors embrace the upgraded fraud detection responsibilities.
In 2022, the United States passed legislation that extended the statute of limitations for fraud related to several federal benefit programs from five years to 10, meaning that federal law enforcement in the U.S. will not have to be as selective with investigation, enforcement and prosecution of these fraud cases. Many fraudsters who carried out COVID benefit fraud have yet to face any consequences from their schemes, simply because the resources required to work through the caseload have exceeded what the federal government has been able to allocate. As these fraudsters have been out there living their best lives, it is reasonable to suspect they have been looking for other fraud schemes to carry out, since most fraudsters do not decide to quit committing fraud when they believe they have gotten away with it.
However, there are a great many federal law enforcement agents working dutifully to investigate these cases, so many fraudsters will be getting very unwelcome knocks on their doors in 2024 that could ultimately provide investigative leads for other frauds they have committed. These investigations and prosecutions will also likely provide incredibly valuable blueprints for future fraud investigations as law enforcement agents develop and hone new techniques to uncover and prove fraud, trace assets and recover funds.
Time will tell how accurate or relevant these trends end up being this year, but hopefully these valuable insights can be extracted to aid in the prevention, detection or investigation of fraud in 2024 and beyond.
Research Director, Association of Certified Fraud Examiners
