How State Governments are Using AI to Combat Fraud

Artificial intelligence is a powerful tool in a variety of applications and industries. In this blog, we continue to explore the use cases for AI in state government agencies and operations, this time focusing on fraud detection and mitigation. 

In recent years, government agencies have seen an increase in AI-powered fraud schemes, according to a study by SAS. 96% of respondents from this study report that fraud, waste, and abuse (FWA) has caused a drop in public trust of their agencies. These sophisticated schemes are costly for many reasons, emphasizing the need to explore ways of fighting back.

AI can indeed be used to make fraud more difficult to catch, with fraudsters using AI to create fake identities, personalized phishing campaigns, and design advanced malware. However, AI can also be used for fraud detection. Let’s look at how state governments are using AI to combat fraud and protect citizen data and funds.

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How AI Improves Government Fraud Detection

Public sector agencies are slower than other companies when it comes to adopting AI, but research shows that 97% of public sector employees expect to be using GenAI within the next two years. This is expected to present positive outcomes in terms of fraud detection, saving on potential loss of public funds and preventing the compromise of sensitive data. Here are a few ways that AI improves fraud detection for the public sector:

• Advanced Pattern Recognition: AI technologies have become known for their ability to detect anomalies and patterns in large amounts of data which can vastly transform fraud detection. Traditional systems that are meant to detect signs of fraud rely on preset rules or conditions, which could be lacking when it comes to newer, more sophisticated fraud strategies.

Using AI can allow for real-time detection of suspicious activity, the ability to recognize the latest fraud techniques, a reduction of false alarms, and the capacity to adapt to shifting behaviors. If any patterns are detected that seem to be out-of-place or abnormal, AI can instantly flag it or take necessary action to stop it.

• Improved Productivity: Public sector staff can utilize their time to focus more on complex issues and citizen services thanks to AI’s ability to continuously improve and refine its capabilities. As AI continues to process data, it is able to learn and evolve on its own without the need for manual reprogramming. While human oversight is crucial for AI systems, a lot of the time the AI can act on its own, allowing for increased productivity for staff.

• Keep Public Trust: By investing in the best cybersecurity strategies, state governments can ensure they remain trusted by the public. Citizens want to ensure that government systems are safe and efficient and take care to protect their information and funds. With AI, fraud detection can significantly improve, which displays the government’s commitment to safeguard public trust.

  
  

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Real-Life Examples of Governments Using AI Against Fraud

Some state governments across the United States are moving forward with implementing AI to fight back against fraud in their operations and services. The examples we will be exploring are those from Minnesota and Louisiana.

Early this year, Governor Tim Walz of Minnesota introduced a new executive order and proposed legislation to stop the theft of funds from public safety net programs. In addition to creating a fraud investigation unit within the state’s Bureau of Criminal Apprehension, Walz is proposing using AI to detect fraud to be flagged for employees to then investigate. This new program is intended to catch any signs of fraud before a claim or complaint is submitted in an attempt to protect public services such as those that provide food or autism treatment to children.

A few months ago Louisiana Department of Health Secretary Bruce Greenstein launched an initiative to target Medicaid fraud with the use of AI. The University of Louisiana at Lafayette is developing an AI and data analysis tool that will be used by the Louisiana Department of Health to fight fraud, waste and abuse (FWA). The AI technology is being trained on national data and peer-reviewed publications. This training focuses on identifying fraud, after which the AI will apply this learning to find similar patterns within Louisiana's Medicaid data. AI brings transformative potential in protecting crucial funds for public programs and the sensitive information of thousands of patients that utilize these services. 

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Fraudsters are discovering more advanced and sophisticated ways to conduct theft of public funds from state government services with the help of AI. To combat them, the public sector is also adopting AI, which can help mitigate or eliminate any fraud from occurring. Contact one of our AI experts to learn more about these AI technologies and how they can best serve you.

“Trust takes years to build, seconds to break, and forever to repair.”

– Amy Rees Anderson, Entrepreneur & Public Speaker

Sources:

https://www.sas.com/en_ph/news/press-releases/2025/may/government-fraud-ai-study.html#:~:text=Nearly%20every%20agency%20suffers%20AI,budgets%20and%20erodes%20public%20trust

https://catalisgov.com/ai-is-reshaping-fraud-detection-in-government-payment-systems/#:~:text=The%20ability%20to%20detect%20and,streamlining%20detection%20and%20automating%20reviews

https://statescoop.com/minnesota-fraud-tim-walz-anti-fraud-expansion-ai/#:~:text=%E2%80%9CWe%20will%20look%20to%20use,capacity%20across%20executive%20branch%20programs.%E2%80%9D

https://lailluminator.com/2025/04/22/louisiana-will-turn-to-ai-to-detect-medicaid-fraud-health-officials-say/