Internal Audit Grapples with AI-Enabled Fraud: High Awareness, Low Preparedness

The Growing Threat of AI-Enabled Fraud

A recent joint report by The Internal Audit Foundation and AuditBoard underscores a significant challenge facing internal audit functions: the rise of AI-enabled fraud. The survey, which gathered insights from over 370 senior internal audit leaders in North America, indicates a widespread recognition of AI-powered fraud as a substantial organizational risk. However, this high awareness is not matched by a corresponding level of preparedness, with only four out of ten respondents believing their functions are adequately equipped to detect or respond to such threats. This 'readiness gap' signals a critical vulnerability for organizations as AI adoption accelerates and fraudulent activities become more sophisticated.

Key Concerns and Barriers to Preparedness

The report identifies several key concerns and barriers. AI-powered phishing attacks are the most frequently cited risk (88%), followed by fabricated invoices (65%), automated social engineering (58%), and deepfake impersonation (45%). Other emerging threats include AI used to insert malicious code, forge legal documents, and create synthetic identities. The primary obstacles hindering effective response and preparedness include a lack of appropriate technology or tools (57%), insufficient staff with relevant skills (55%), limited financial budgets (46%), and competing organizational priorities (43%). These barriers highlight the need for strategic investment in both technology and human capital within internal audit.

Pathways to Enhanced Readiness

To bridge the preparedness gap, internal audit leaders emphasize several critical actions. Continuous and updated training to develop AI-related skills is paramount, alongside fostering greater organizational alignment on AI usage policies. The report also stresses the importance of stronger collaboration among technology, cybersecurity, and risk management teams to enhance understanding of AI deployment and deliver more effective risk management strategies. Furthermore, the survey reveals that internal audit functions are increasingly leveraging AI themselves, particularly in audit planning, reporting, and risk assessment, with 83% expecting to increase AI usage in the coming year. This dual perspective—understanding AI's risks while harnessing its benefits—is crucial for internal audit's evolving role.

• Skill Building: Prioritize continuous, regularly updated training for AI-related responsibilities.
• Organizational Alignment: Foster greater organizational alignment on AI use and governance.
• Cross-functional Collaboration: Enhance collaboration among technology, cybersecurity, and risk management teams.
• Technology Investment: Address the lack of appropriate technology and tools for fraud detection.