The Knowledge Exchange / Risk Management / Predict and prevent fraud

Predict and prevent fraud

Preventing tax fraud and evasion has the potential to put billions back into the public purse

preventing tax fraudAs governments struggle to reduce their budget deficits, preventing tax fraud and evasion has the potential to put billions back into the public purse.

When the UK last held the G8 presidency in 2005, the focus of the summit was on ending world poverty and supporting development in sub-Saharan Africa. Billions of dollars were earmarked and an agreement made to cancel the debts of the poorest 18 countries. Now, eight years later, it is the pressure on budgets that has set the agenda for the 2013 G8 summit.

UK Prime Minister David Cameron has set three goals for the 2013 summit: advancing trade, ensuring better tax compliance and promoting greater transparency. On tax compliance he wrote in the euObserver: “People rightly get angry when they work hard and pay their taxes, but then see others not paying their fair share.”

A groundswell of opinion against tax evasion and avoidance has captured both headlines and the public imagination – and, it’s not just taxpayers who are angry. Governments see the agencies tasked with enforcing tax compliance as having a key role to play in reducing budget deficits. There is only so much that spending cuts can deliver.

It is estimated that tax avoidance and error costs … more than US$3.1 trillion annually

Tax is a vital revenue stream and tax agencies need to ensure individuals and businesses pay the tax they owe. When they don’t, the sums can be huge: it is estimated that tax avoidance and error costs 145 countries, representing more than 98 percent of world GDP, more than US$3.1 trillion annually.

Making connections at HMRC

Just how important the role of tax agencies is in reducing the budget deficit can be seen in some figures from the UK. HM Revenue & Customs (HMRC) estimates that its tax gap – the gap between monies owed and monies paid – had grown to a massive £32 billion in the year 2010-2011. HMRC believes its investment in an analytics -based approach will help increase tax yield £7 billion by 2014/15.


Its strategic risking tool, Connect, cross matches 1 billion internal and third-party data items to uncover hidden relationships across organizations, customers and their associated data links. These include bank interest, lifestyle indicators and stated tax liability.

Connect captures information from 30 different data sources, and transforms it into a standard format for Connect analytical and ‘spider diagram’ visualization. HMRC analysts produce target profiles, and risk and intelligence investigators generate campaigns and cases for investigation. Automated feeds into HMRC’s case management system allocate work to the correct caseworkers, and their feedback further refines intelligence in Connect. 

This is clever stuff. And it’s getting results.

So far Connect has enabled an increasing number of successful investigations and more than £1.4 billion in additional yield has been recovered. HMRC has plans to increase the number of data sets – introduce new risking tools – and mine unstructured data in its continuing drive to reduce the tax gap.

Process change

Of course, investment in the tools enabling an intelligence-led approach to evasion is just the start. Making it easy for taxpayers to understand their obligations and comply with the rules is another area that demands the right approach. And for those who still wish to aggressively avoid their obligations, processes must be in place to enforce compliance. Systems must also be flexible enough to allow prevention strategies, detection strategies and business rules to change regularly. This will prevent agencies from being out-maneuvered by the constantly evolving tactics of tax evaders. 

In the end it comes down to an agency’s ability to outsmart the fraudsters, criminal gangs, identity thieves and tax evaders with a combination of process change and technology-enabled insight. Our experience shows that there is real value in using analytics to stay one step ahead of the criminals. With tax agencies around the world looking at how to tackle the multi-billion global tax gap, it is no wonder that this year’s G8 summit has put tax compliance on its agenda. 

Read more about SAS for Fraud and Improper Payments to learn how you can use analytics software to comb filings for errors and fraud – before payments go out. 

Co-written by Ian Pretty and Vishal Marria

Tags: , , ,
  • Facebook
  • Twitter
  • Digg
  • LinkedIn
  • email

Post a Comment

Your email is never published nor shared. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>