New technology security procedures must be added to document processing to combat document fraud in the digital age, which is why more organizations are adopting intelligent document processing (IDP) with fraud detection AI.
The High Price of Document Fraud
Fraudulent documents are costing businesses and consumers billions of dollars. According to the U.S. Department of Justice, there was more than $2.2 billion in settlements and judgments in 2022 under the False Claims Act. The Federal Trade Commission also reports $8.8 billion in losses because of scams, including $3.8 billion in losses to phony investments.
The insurance industry is an ongoing target for document fraud. The Coalition Against Insurance Fraud reported consumer losses of $308.6 billion in 2022 from fraud. In fact, 15% of all insurance premiums are lost because of fraud. Losses to Medicare fraud alone are estimated to be $60 billion annually.
Income tax is another area rampant with document fraud. The Internal Revenue Service (IRS) reports a rise in doctored pay stubs and W-2 forms. According to the agency, there were nearly 8 million reports of suspicious tax season activities and flagged $5.7 billion in tax fraud in 2022.
New Methods to Deal with an Age-old Problem
Document fraud is not new. As far back as 80 B.C, Roman laws prohibited falsifying documents to pass property to heirs. Likewise, in 1562, Queen Elizabeth I enacted laws against forging public documents that would affect land ownership or evidence in court.
What has changed is the degree of sophistication that goes into document forgery. More paperwork is being processed electronically, making forgeries harder to spot. Automated business systems and the use of AI for document processing have introduced new types of digital document fraud. They have also removed human inspection from the process.
The most common forms of digital forgeries include:
• Image fraud – It’s become relatively easy to substitute an image in a legitimate ID, such as a passport or driver’s license. Adding to the potential misery, a website called OnlyFake started offering fake IDs, generated by AI, for just $15
• Modified paperwork – Genuine documents can be changed with new names, dates, ID numbers, signatures, etc. Criminals can use modified paperwork to forge credentials to open a line of credit, take out a loan, apply for a credit card or retail charge account, or other fraud.
• False documents – Falsifying documents to pass off someone else’s credentials is slightly more sophisticated. False documents can be used to access bank accounts or trading accounts.
• Illegitimate documents – A common form of document fraud is creating phony documents that look like bona fide originals, such as forging checks, money orders, invoices, or purchase orders.
Identity theft is a growing problem that is directly related to document fraud. Nearly 560,000 identity theft cases were reported in the first half of 2023. During the pandemic, identity theft skyrocketed, reaching about 1.4 million complaints per year for 2020 and 2021. Part of the reason for the spike was the increase in government benefits fraud. More than 800,000 cases of identity theft related to government benefits were reported for 2020 and 2021.
Automating Detection of Fraudulent Documents
New technologies make detecting new documents more difficult. Manual document inspection is no longer adequate. Physically reviewing every document for forgery or fraud is slow and inaccurate. Digital forgeries have become so sophisticated that it is extremely difficult to identify them. Plus, manual review processes aren’t scalable and run counter to automated business processes.
A better approach is to use technology to fight digital document fraud. Just as AI can be used to create false documents, AI also can be used to identify forgeries. IDP digitizes paper documents for closer scrutiny. The IDP system uses AI and machine learning (ML) to analyze, contextualize, and categorize the document data.
IDP is not optical character recognition (OCR). IDP not only converts paper documents into a machine-readable format but may also analyze documents for forged content and fraud and indexes and categorizes scanned images. IDP can extract information about each document and authenticate it, ensuring it hasn’t been altered before IDP intake.
When enhanced with AI fraud detection, IDP uses computer vision and other AI technologies to determine the authenticity of each document. AI analysis can reveal any document changes, such as text alterations, forged signatures, and other anomalies. It can even analyze images, detecting pixel manipulation or changes in the metadata, providing a trust score based on signs of tampering. Images can also be compared to an online database for signs of re-use.
With more businesses undergoing digital transformation, it seems logical to incorporate IDP, enhanced with AI fraud detection, as part of automated document processing, especially for companies particularly worried about security and fraud. Financial institutions, insurance companies, healthcare providers, and loan underwriters would be able to validate documents while they ingest paperwork for processing. Such IDP systems can flag suspicious documents for further investigation in real-time to prevent fraud.
Technology will continue to make document management more efficient and give cybercriminals new tools to perpetrate fraud. As document processing technology becomes more sophisticated, new AI-powered failsafes will play a larger role in providing real-time fraud detection. Ensuring vital documents are authentic and unaltered will save time and money and reduce business losses.
