Chapter 11: Artificial Intelligence in Modern Banking: Enhancing Audit Integrity and Fraud Prevention

This chapter aims to educate banking professionals, regulators, and students on the evolution of auditing in financial institutions. In the modern banking industry, artificial intelligence (AI) is reshaping how audits are conducted, and fraud is detected. With the explosion of transaction data, conventional audit techniques reliant on sampling and manual processes struggle to detect complex fraudulent schemes and systemic risks. This chapter explores AI applications within the banking sector, focusing on machine learning, robotic process automation, natural language processing, and behavioral analytics. These tools are transforming internal audits, continuous monitoring, and fraud detection in ways that improve accuracy, efficiency, and financial integrity. The ethical, legal, and operational implications of AI use in banking are also reviewed, with a spotlight on algorithmic bias, audit independence, data privacy, and regulatory compliance. Real-world banking case studies and leading technologies are used to illustrate AI’s impact on bank operations and compliance functions.