Leadership Strategies In Navigating Fraud In The Age of AI - Part 1

"Success in creating effective AI could be the biggest event in the history of our civilization. Or the worst. We just don’t know. So we cannot know if we will be infinitely helped by AI, or ignored by it and side-lined, or conceivably destroyed by it.”
                        ---Late theoretical physicist, Stephen Hawking

The Context of Finance and Accounting with AI In the Picture

Stephen Hawking’s prescient observation appears to be correct in both predictions.  Artificial Intelligence is indeed a tool of monumental magnitude and appears to be a mixed blessing in the potential benefits and in the potentially destructive risks it presents to business and to society at large.  It changes everything affected by information and everything is affected by some kind of information!  AI is growing in its influence on the context of our existence, and as Stan Davis, a former Harvard and Columbia University professor once wrote, “Context defines the meaning of everything.”

The benefits of AI are well established and continue to amaze as it continues to learn and improve its performance daily.  Tasks, bundled into assignments, projects, products and services, get done in better ways, at less expense, and the results are usually better for it.  Information is synthesized in new ways, triggering beneficial innovation and potentially damaging disruption.  AI stimulates new insights---some helpful, some with adverse and dangerous implications.  AI’s positive influence is not restricted to commercial activity.  It extends to not-for-profit, educational efforts, and governmental operations too.

But AI also presents all of us with not inconsiderable risks.  We are cognizant that AI is a resource with no conscience.  Can you imagine living in a world without conscience?  Working in an enterprise without moral boundaries?  Leading an enterprise, a family, a professional services firm, where neither you nor your family members and associates have moral compasses to guide their decisions?  Lives devoid of ethical awareness and conscience?  Canadian psychologist Robert Hare who has spent his life studying psychopaths wrote a book in 1993 titled “Without Conscience: The Disturbing World of the Psychopaths Among Us.” Hare paints a scary picture of a dystopian future…only that this time around, these “psychopaths” may be of the non-human variety: AI and autonomous machine intelligence systems.

Welcome to the World of AI.  It is unimaginably productive but without any “humans in the loop” the decision-making environment lacks any adults in the room. As Jim Martin wrote in his January 10, 2024 letter to The Wall Street Journal: “The danger of AI isn’t that it will learn to think.  It cannot and will not. The danger is that it can be taught to lie (although it will never know it is lying). AI Won’t Learn to Think. It’ll Be Taught to Lie - WSJ

What all this means is that our society is developing and increasingly using information systems---in the largest sense of the word---that are not trustworthy.  In 2018, The Rand Corporation released a report exploring the phenomenon it labeled “Truth Decay.”  Truth Decay | RAND

Symptoms of truth decay include:

• A decrease of faith in traditionally authoritative information sources;
• A decrease in accountability for information accuracy;
• An increase in arguments over “facts” that should be objective;
• An increased conflation of opinions and facts in necessary discourse;
• An increase in the quantity and seeming authority of opinions rather than facts in that discourse;
• And often an inability to be aware of these symptoms when they are present.

I believe the drivers of truth decay are highly vulnerable to the “lack of conscience” associated with AI.  Where there is no conscience there exists no moral obligation to acknowledge the truth.  In other words, the false equivalence between the truth and the lie can be claimed with impunity.  Those drivers include biases in thinking and remembering, changes in information systems as they are upgraded to rely for on AI, competing demands on educational systems (that should be developing critical thinking skills), and polarization and its consequences.  “Plausible deniability” provides fuel in these circumstances—it is no longer about speaking the truth, it is about someone making the effort to prove that you lied. Verification, by definition, is more work; and less likely to be done credibly and therefore poses a greater risk. Indeed, plausible deniability on the part of the liar, and the taking the path of least resistance on the part of the verifier, are an unholy and sinister combination. When truth becomes the casualty, lies will naturally proliferate.

The Rand Corporation has identified four major discernible trends from truth decay.  One is increasing disagreements over what appear to be facts and data---disagreements resulting from the lack of trustworthiness of those facts and data.

A second trend from truth decay is the blurring of distinction between opinions and facts in public media and private discussions.

A third trend is the increasing influence of opinions over facts.  Could this be partly because opinions can be more elegantly presented than cold facts?  Greater elegance increases the acceptance of information presented.

And the fourth trend is declining trust in what used to be respected sources of facts.

The consequences of these trends are evident to knowledgeable commentators in our society.  We are experiencing an erosion of productive civil discourse. We see paralysis in our governmental institutions that are established, monitored and funded by political sensitivities. We find that symptoms of alienation and disengagement are undergoing a dramatic increase.

And so, our level of uncertainty is skyrocketing at this moment---both nationally and globally.  In her 2018 book, “Hello World: How to be Human in the Age of the Machine,” Hannah Fry asks:  Would you let an algorithm determine your fate? She exposes the world of algorithms, examining how they impact our future and whether they really are an improvement on the humans they replace.

_{Sridhar Ramamoorti is Associate Professor of Accounting, University of Dayton and Managing Principal & CEO, Behavioral Forensics Group LLC and is based on a presentation at the May 2024 Leadership Summit of FEI in Orlando, FL. He would like to thank Mr. Jack Bigelow and Daven Morrison, MD, of the Behavioral Forensics Group LLC, as well as Ms. Sue Kirchner for their help with earlier versions of this article.}