Fraud Detection and Monitoring
SUBMITTED BY OLUJIMI OSINAIKE
NEXFORD UNIVERSITY
To: Management
From: Head of Risk Management, FCGT Bank Date: 9th July, 2025
Subject: AI Solution for Fraud Mitigation
This report analyzes the utilization of Artificial Intelligence (AI) to address the increasing fraud
cases at FCGT Bank. The following addresses data requirements, neural network applicability,
learning methodologies, transfer learning potential, and ethical considerations.
AI-based systems enhance the detection of anomalous patterns in transactional data, significantly
improving fraud prevention capabilities (Ngai et al., 2011)
What type of data applies to this project?
The project's data requirements comprise both organized and unorganized information.
Organized data encompasses transaction specifics, including monetary values, temporal markers,
and account identifiers. Unorganized data incorporates customer interaction archives, such as
electronic mail correspondence and telephone conversation transcripts.
Are neural networks applicable to this project? If yes, what type of neural networks?
Yes, neural networks are highly applicable. Recurrent Neural Networks (RNNs) and
Convolutional Neural Networks (CNNs) are particularly relevant. RNNs can analyze sequential
data like transaction histories, while CNNs can process image-based data, such as scanned
documents.
Neural networks and decision trees are among the most effective AI models for financial fraud
detection (Kou et al., 2004).
AI uses learning. What type of learning can you use in this project? How different is the
learning different from other types of learning?
Supervised, unsupervised, and reinforcement learning are used. Supervised learning utilizes
tagged datasets to train models for fraudulent transaction identification. The supervised learning
option takes what the system learned in the past and applies this to the new data.
Unsupervised learning discovers patterns and irregularities within untagged data, potentially
uncovering novel fraud techniques. Reinforcement learning can refine fraud detection strategies
over time. These methods contrast with conventional rule-based systems, which depend on pre-
established guidelines, by enabling the AI to learn and adjust to evolving fraudulent activities.
Is transfer learning applicable to this project? If yes, what valuable advantages would it
have?
Transfer learning is indeed suitable and presents notable benefits. This method enables the bank
to utilize pre-existing models, constructed from extensive, publicly accessible datasets or those
from other financial entities. This strategy diminishes the requirement for comprehensive data
acquisition and expedites model training, thereby facilitating quicker implementation and
enhanced fraud detection performance.
Transfer learning can significantly improve the efficiency and effectiveness of fraud detection
efforts.
Real-time fraud monitoring systems using machine learning have shown high accuracy in
predicting and flagging suspicious activity (Abdallah et al., 2016).
What are the ethical considerations required in this project?
The project necessitates careful attention to ethical concerns, including data privacy, algorithmic
fairness, and operational transparency. The bank must adhere to data protection laws, such as
GDPR, and actively work to eliminate potential biases within the AI models to prevent unfair
results. Moreover, the bank should maintain clear explanations for the AI's fraud alerts and
ensure accountability for its actions.
In conclusion, AI offers a proactive approach to fraud detection, adapting to new threats. Careful
consideration of data privacy and algorithmic bias is essential.
Reference List
1. Ngai, E. W. T., Hu, Y., Wong, Y. H., Chen, Y., & Sun, X. (2011).
The application of data mining techniques in financial fraud detection: A classification
framework and an academic review of literature. Decision Support Systems, 50(3), 559–
569.
2. Kou, Y., Lu, C.-T., Sirwongwattana, S., & Huang, Y.-P. (2004).
Survey of fraud detection techniques. In IEEE International Conference on Networking,
Sensing and Control (pp. 749–754).
3. Abdallah, A., Maarof, M. A., & Zainal, A. (2016).
Fraud detection system: A survey. Journal of Network and Computer Applications, 68,
90–113.
