Digital fraud defense: Outsmarting the modern con artist

The expanding scope of digital fraud: The evolving virus

The new face of fraud

Gone are the days when fraudsters relied solely on forged checks or fake invoices. Today’s fraudsters are digital chameleons, using everything from artificial intelligence (AI) enhanced phishing emails to deepfakes to sneak past traditional defenses. According to the Association of Certified Fraud Examiners (ACFE), organizations worldwide lose an estimated $4.7 trillion annually to fraud—about 5% of their annual revenue. That’s not just a minor nuisance; it’s a full-blown epidemic.

Digital fraud isn’t just about money! It’s a strategic threat that can tarnish your organization’s reputation, erode trust among stakeholders and customers, and drain employee morale. Like a virus, it doesn’t discriminate, no matter your organization’s size or industry.

How digital fraudsters operate

Today’s phishing emails, powered by AI, can mimic the tone, style, and even the quirks of your colleagues or executives. They are so convincing that even the most cautious might be fooled. Then there are the deepfakes. They’re all over your Instagram scroll for laughs, like the famous action movie star playing the guitar or doing card tricks. However, these very real deepfakes are making their way into our organizations, where bad actors can impersonate your CFO standing in your company’s headquarters, authorizing a wire transfer to a fraudster’s account. According to Ponemon Institute’s Digital Executive Protection Research Report for 2025, 41% of respondents reported deepfake incidents targeting their executives.

Social media and mobile apps are also a playground for fraudsters. They exploit personal information to create fake identities or trick people into handing over sensitive details. QR codes make life easy, but they can also be a treasure map leading straight into a fraudsters trap—one scan and your data could be compromised.

The fallout from digital fraud goes way beyond dollars and cents. A single incident can trigger a domino effect resulting in regulatory scrutiny, operational disruptions, and a loss of organizational trust that can take years to rebuild. For internal audit functions, the mission is clear: you’re not just fighting a financial crime, you’re defending the very integrity of your organization.

Fraud prevention strategies and internal audit’s role: The immune system in action

From reactive to proactive: Spotting the virus before it spreads

Traditionally, internal audit was called in after the fraud has already occurred to help piece together what went wrong. But in today’s digital age, waiting for symptoms to appear is a losing game, which is one of the reasons that fraud is a more prevalent topic in the update to the IIA Global Internal Auditing Standards. For instance, Standard 3.1 now emphasizes competencies to address pervasive risks like fraud, while Standard 9.4 suggests audit plans explicitly consider fraud risk coverage, a shift from earlier standards that focused on ethics-related objectives and emerging issues. Internal audit teams need to think more like epidemiologists, using data and technology to catch early warning signs and stop fraud before it spreads.

Instead of waiting for fraud to happen, internal audit should be leveraging advanced analytics, AI, and other real-time monitoring technologies to detect anomalies and flag suspicious activity as it unfolds.

Leveraging technology: Digital fraud detection and mitigation

Looking back, internal audit teams lacked the assortment of powerful tools that have become more readily available:

• Analytics and AI: These tools can sift through mountains of transactional data, both structured (analytics and AI models) and unstructured (AI-powered techniques like natural language processing), spotting patterns and outliers that most of us might miss on our own. For example, machine learning algorithms can flag unusual vendor payments, sudden spikes in employee expenses, or transactions that don’t fit the usuals norms.
• Deepfake detection: As fraudsters use AI to create convincing audio and video, internal audit can use AI-powered tools to spot these digital imposters before they can cause harm. Internal audit teams can use these AI-powered tools to analyze suspicious video or audio messages purportedly from executives authorizing unusual transactions.
• Continuous monitoring and real-time dashboards: Hospitals use vital monitoring systems to track patients’ heart, pulse, and respiratory functions, immediately alerting the medical team when any readings fall outside normal ranges. Similarly, continuous monitoring tools are more readily available to provide instant visibility into key risk indicators like unusual login attempts, security breaches, or irregular financial activity, that can be tracked and alerts that are sent out in real-time.

By embracing these technologies, internal audit can act faster and smarter, identifying fraud before it has a chance to spread.

Collaboration: The power of a unified immune response

No immune system works in isolation, and neither should internal audit. Tackling digital fraud demands cross-functional collaboration. So, teaming up with IT, InfoSec, compliance, and risk management is a must, as they all play vital roles. Similar to a medical team: each department has a position, but only by working together can they succeed in saving a patient against a deadly virus.

Internal audit teams are increasingly using collaborative tools and centralized reporting systems to break down silos and keeping everyone on the same page. This unified approach speeds up detection and response, while building a culture of transparency and shared responsibility.

Detection and prevention: Building stronger defenses

Early warning systems: Your organization’s blind spot monitor

Everyone with a mid-2010 vehicle probably has blind-spot monitoring. Think back to when you drove without these monitors. You might be a great driver, but hidden dangers could still catch you off guard. Early warning systems in fraud detection work in the same way as the little light on your side mirrors, they alert you to risks you might not see coming.

Internal audit teams that are using analytics and machine learning are essentially rolling out early warning systems to keep an eye on key risk indicators. For instance, if a vendor suddenly starts submitting inflated invoices or an employee’s expense report suddenly spikes, the system identifies these as red flags for immediate review.

Dynamic audit planning: Rotating and balancing for better traction

Just like you rotate and balance your car’s tires to maintain safety and performance, internal audit teams need to regularly update their audit plans to keep pace with the shifting risk. This means assessing new technologies, such as autonomous systems or AI-driven platforms, and making sure that your audit strategies stay relevant and effective.

Dynamic audit planning allows internal audit to stay ahead of emerging threats rather than reacting after the fact. With solutions like TeamMate+, internal audit can monitor risk indicators in real-time and adjust audit plans as needed. For instance, if a sudden cybersecurity threat arises, internal audit can quickly reallocate resources and prioritize audits that address the new risk, ensuring a proactive and efficient response.

Simulations and stress testing: Preparing for the worst

You change your batteries and test your smoke detector every six months, because you don’t want to wait for a real fire to make sure they work. Similarly, internal audit teams should be partnering with their InfoSec teams to conduct simulations of AI-driven cyberattacks and stress tests on critical systems to spot vulnerabilities before fraudsters can exploit them. These exercises help fine-tune incident response plans and ensure fraud detection mechanisms work and are ready when a fire breaks out.