Tax evasion and welfare fraud and error are a huge drain on government resources. In a recent estimate, tax avoidance and error cost global economies about US$3.1 trillion annually. Digital has the potential to put millions, even billions, of that money back into the government purse.
Tax and welfare agencies can now bring together the mass of citizen and business information previously sitting in silos across government departments. With digital technologies, these agencies can also leverage new data sources and analytical techniques to provide more personalized service to its constituents and to nudge people to be more compliant – in real time.
A range of techniques including risk rules, anomaly detection and entity link analysis help agencies understand the characteristics of new types of fraud. These techniques are already proving their worth at HM Revenue & Customs (HMRC).
HMRC worked with SAS and Capgemini to build Connect, an enterprise-wide strategic assessment tool. Connect cross-matches one billion internal and third-party data items to uncover hidden relationships across organizations, customers and their associated data links. The agency has so far recovered £2bn additional tax.
How does digital help?
Agencies can manage risk by customer across multiple tax typologies (personal, inheritance, VAT, corporation etc) to get a better understanding of why a taxpayer isn’t complying – or is likely to become a defaulter. This risk management capability will help them recognize a potential threat, generate a risk alert and prioritize and refer the electronic case to the right team. So for instance, if a taxpayer is paying tax on an income of US$40,000 but the data suggests he has a higher standard of living, a case will be created and forwarded to investigators – before he commits tax fraud.
In Belgium, for example, the problem of VAT carousel fraud is under control thanks to their use of an advanced analytics technique called hybrid detection. This innovative model uses multiple analytical techniques to expose even the hardest to find fraudsters. With this approach, the Belgian government is saving nearly 1 billion euros each year – a 98 percent reduction in their tax fraud losses.
What is the solution?
SAS and Capgemini have teamed up to create Trouve. The Trouve solution provides a fraud framework that includes predictive analytics and data cross-matching. SAS and Capgemini are helping a number of agencies use digital technologies and approaches to identify and prevent fraud, prompt voluntary tax compliance and speed up the payment of debt.
Using the Trouve solution, agencies can take data from a wide range of sources to build a complete view of the citizen, with indicators of economic activities, assets and network relationships. This allows agencies to focus on identifying the ‘good guys’ – the compliant taxpayer or bonafide welfare claimant – to ‘green channel’ them and focus investigation efforts on the ‘bad guys’.