Machine learning AI helped the US Treasury Department to sift through massive amounts of data and recover $1 billion worth of check fraud in fiscal 2024 alone, according to new estimates. That’s nearly triple what the Treasury recovered in the prior fiscal year.
The Treasury Department credited AI with helping officials prevent and recover more than $4 billion worth of fraud overall in fiscal 2024, a six-fold spike from the year before.
U.S. officials started using AI to detect financial crime in late 2022.
The goal is to protect taxpayer money against fraud, which spiked during the COVID-19 pandemic as the federal government hurried to disburse emergency aid to consumers and businesses.
The Treasury is not using generative AI, such as ChatGPT and Gemini. Instead, the fraud detection efforts rely on machine learning, the subset of AI that excels at analyzing vast amounts of data, and making decisions and predictions based on what it’s learned.
AI can be very helpful in fighting financial crime by combing can through almost endless streams of data and detecting subtle patterns – all in a fraction of the time it would take a human to do it. Experts say that once sophisticated AI models are trained, they can sniff out suspicious transactions in mere milliseconds.
This is especially crucial for the Treasury, which is among the biggest payers on the planet.
Each year, the Treasury delivers about 1.4 billion payments valued at nearly $7 trillion to 100 million people. It’s responsible for sending out everything from Social Security and Medicaid payments to federal worker paychecks, tax refunds and stimulus checks which makes the department a prime target for fraudsters seeking to steal from taxpayers.
Last year, the IRS announced it has deployed AI to detect tax cheats by examining large and complex returns from hedge funds, law firms and others.
Online payment fraud is expected to surpass $362 billion by 2028, according to estimates from Juniper Research.
U.S. officials have expressed concern that AI introduces new dangers into the financial system. Treasury Secretary Janet Yellen in June warned bankers that AI in finance poses “significant risks.”
Top regulators classified AI late last year as an “emerging vulnerability” to the financial system.
Treasury officials stressed that while AI systems will flag suspicious transactions, a human is always in the loop and federal agencies make the final determination of whether something constitutes fraud.
The Treasury is also exploring how to adopt the fraud-detection methods that leading banks and credit card companies are deploying, declining to go into detail to avoid “tipping off bad actors.”
Treasury officials are testing new data sources to better spot fraud and shady payments, and they are teaming up with state agencies to fight unemployment insurance fraud.