Ever since the first ATM distributed money to a customer or a machine counted and sorted coins, financial institutions have used technology to advance their systems. Some of these inventions benefit customers by making their experience easier while others save the company time, money, and labor costs. The next big technological advancement for financial companies is artificial intelligence. Here are just four ways Artificial Intelligence (AI) is changing the financial industry and the accounting professionals who work within it.
Machine Learning Identifies Fraud Detection Patterns
Fraud is a threat for any company, but it costs the financial industry billions every year. IBM Research reported that fraud costs financial institutions $80 billion annually and costs American credit card issuers alone $2.4 billion. On an individual level, fraud can mean anything from an inconvenience when a card is stolen to identity theft that bankrupts families and ruins their credit scores. The key to lowering fraud costs is to stop it early through detection.
Historically, fraud detectors followed a set of rules to send alerts to the affected customers. For example, if there was an excessive withdrawal or a charge outside of state, the bank would freeze the card and alert the owner. More recently, however, machine learning and AI have made fraud alerts more dynamic. IBM’s AI bots are able to analyze historic spending patterns and update them over time. As fraud trends rise, the bots learn about them and apply them to the algorithm. This means the developers at IBM don’t have to constantly update the flags and rules themselves because the machines are constantly learning and making those adjustments.
One banking client using IBM’s machine learning technology to detect fraud saw a 15 percent increase in fraud detection and a 50 percent decrease in false alarms. This lead to a 60 percent increase in savings, because the bank was catching more fraud cases and not wasting its time on false flags. This technology benefits both financial institutions and their customers.
AI Auditing Can Help Accountants Be More Thorough
While financial institutions are definitely set to benefit from increased fraud audits, other industries can tap into AI to streamline their accounting processes. In The Daily Caller, Patrick Taylor, CEO of Oversight Systems, used company expense reports as an example of accounting firms saving time when auditing forms.
Most companies randomly sample 20 percent of expense reports for fraud. However, less than one percent of expense reports contain serious fraud risks. This means that up to 99 percent of the reports in a typical audit will be a waste of time and the chance that a fraudulent expense report gets approved is relatively high. By employing AI, companies can scan all of their audit reports for fraud, increasing their chances of catching serious risks. This also saves money, as the system is able to do the work of five employees in less time.
Many businesses use AI as the first line of defense against fraud in audits and then use a careful human eye to double check. Instead of auditing expense reports all day and hoping to catch fraud, the accountant reviews the reports that have been flagged by the system and follows up internally to correct them. The accountant’s position thus becomes much more active and profitable to the company.
AI Analyzes Commercial Loan Agreements in Seconds
Accounting isn’t always crunching numbers and balancing books. For instance, if you are pursuing your Masters in Accounting online, you may consider becoming a loan officer. In this role, you might work with companies to form agreements and analyze applications to determine whether commercial loan agreements are fair to both parties. While part of this job can be exciting for accountants who want to broker deals and support commercial businesses, there are mundane tasks (like interpreting legal jargon and checking provisions) that can be time-consuming.
According to The Independent, JPMorgan is hoping to change that. The bank wants to reduce the busywork of its loan officers so they can focus on approving good deals. It created a program called COIN, for Contract Intelligence, which can review documents and save up to 360,000 hours of manual work annually.
Not only does COIN reduce the number of hours required to review and process a document, it’s better at it than humans. COIN is able to decrease the number of loan-processing mistakes that even the sharpest lawyers might miss. Considering that the team at JPMorgan processes more than 12,000 new contracts annually, the occasional human error was bound to slip through.
With this technology, loan officers will be able to focus on creating agreements that benefit both parties and customers can get answers about their applications faster. Both parties benefit from faster and more accurate contracts.
The Role of Auditors Will Change With AI
The experts at Accounting Today explained that AI is changing more than processes and accounting systems; it’s also changing the role of auditors themselves.
“It’s in an auditor’s DNA to be inquisitive and to interrogate data,” Felice Persico writes. “AI will provide stronger and more perceptive tools for auditors to interrogate the data, find anomalies and improve techniques, thereby leading to higher-quality audits.”
It’s not possible for auditors to take the massive amount of data available and review it to find flaws. However, AI can sort the data quickly and present it in a clean and easy-to-use manner. From there, it’s up to the auditor to use the data to answer questions and identify trends.
Auditors need to think like financial analysts so they can ask the right questions in order to paint an accurate financial picture. They create rules for the AI systems to follow and step in when technology fails. The auditor and analyst roles work hand-in-hand to prevent mistakes and make decisions that benefit financial institutions.
If you have a knack for problem solving and are interested in choosing a career that requires data based decision-making, consider pursuing an advanced degree from the New England College – Master of Science in Accounting online program. With this degree, you can be better prepared with the right tools to succeed as the accounting world changes with AI.