Preventing Tax Evasion & Benefits Fraud Through Predictive Analytics

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Today's tax and welfare agencies are increasingly facing new and sophisticated methods of tax evasion and welfare fraud. Increasing digitization means that fraudsters are becoming faster and new types of fraud, such as ID theft, are growing.

However, with more and better data available, agencies now have the ability to sharpen their insights at higher speeds.

Capgemini’s TROUVE solution, powered by SAS, helps Tax & Welfare agencies harness digital to achieve better, faster and cheaper compliance results.

Presented by Capgemini's Ian Pretty at SAS Analytics 2014.

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Preventing Tax Evasion & Benefits Fraud Through Predictive Analytics

  1. 1. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics Ian Pretty | Senior Vice President, Tax & Welfare, Capgemini June 4, 2014 | SAS Analytics Frankfurt
  2. 2. 2 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Areas to be covered today !  Why should Tax & Welfare Agencies be concerned? !  The impact of technology on Fraud & Error !  How can Tax & Welfare Agencies respond? !  The Capgemini response
  3. 3. 3 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Is there really a fraud and error problem? It is estimated that approximately €100 billion in total is involved in the wrongful non-payment of VAT within the EU Member States each year Source: EU MTIC Report Shadow economies are estimated to have accounted for £880 billion in lost tax in the EU between 1999 and 2007 Source: tax justice network It is estimated that MTIC VAT fraud contributed between £0.5 billion and £1.0 billion to the UK VAT gap in 2010-11. Source: HMRC report (2012) Measuring tax gaps 2012; Tax gap estimates for 2010-11.
  4. 4. 4 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Do Governments agree that there is a problem?
  5. 5. 5 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 new modelling tools & techniques So why does better Fraud Management matter? So why does better Fraud Management matter? new & more data growing demand for and expectations of public services shorter reaction times growing use of digital identity theft Industrialization of Fraud growing complexity growing fiscal deficits reducing costly investigations internal Fraud
  6. 6. 6 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Typically we see 4 types of behaviour Large Businesses & HNWI Relationship based monitoring to protect Compliant Make it simple to get tax right Casual avoiders Risk based campaigns to recover and deter Deliberate evaders Full enquiries to recover & deter Criminals Investigate & prosecute or disrupt Value at risk Riskofnon-compliance Low High Low High
  7. 7. 7 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 How Governments respond in a digital, data and analytics driven world will determine how they protect revenues
  8. 8. 8 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Section 1 How will Technology impact the fight against Fraud & Error?
  9. 9. 9 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 We are all aware of the rise of ‘Big Data’... Many PBs of data every day 25+ TBs of log data every day 12+ TBs of tweet data every day 30 billion RFID tags today (1.3bn in 2005) 100s of millions of GPS enabled devices sold annually 4.6 billion camera phones world wide 76 million smart meters in 2009… 200m by 2014 2+ billion people on the Web at end 2012 80%Of world’s data is unstructured
  10. 10. 10 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 …but it is how you analyse that data that will be key to future success Business “Business” – it is the use of analytics to directly target a business issue or process and as such is sold to the Business. Examples are customer retention, increasing wallet share, fraud reduction… Business Analytics is the uses of advanced analytical techniques to find trends and predict future outcomes which are used to optimize business processes, customer interaction and manage risk and fraud. Analytics “Analytics” – it makes extensive use of data, statistical and quantitative analysis, explanatory & predictive modeling, and fact-based management to drive decision making. Governments will have to become data-driven, analytics-enabled organisations
  11. 11. 11 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Moving faster to an analytics enabled world means a shift in our Big Data thinking Each business area can have their own analytics on the same data Each area can get their own insights The Business Data Lake provides a place to land the big data Big data is driven by business use cases Business Data Lakes Insights can then be shared across the business
  12. 12. 12 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 So we will need data lakes to support this new world of analytics Store everything Govern only the common Encourage local Treat global as a local view 2 1 3 4 Business Data Lake It’s all about insight at the point of action
  13. 13. 13 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 But Governments will also have to operate in a digital world with increased risks for fraud and error…. Beginning of Web Session Login Transaction and Logout Pre-Authentication Threats Post-Authentication Threats DDOS Attacks Phishing Attacks Parameter Injection Man in the Browser New Account Registration Fraud Account Takeover Fraudulent ReclaimsVulnerability Probing Risking Intelligence Gathering Password Guessing Disruption and/or Intelligence Gathering Theft of information and/ or Money Nation States – Hacktavists – Organised Criminals News > UK > Crime Source: http://www.independent.co.uk/news/uk/crime/cybercrime-boss-offers-a-ferrari-for-hacker-who-dreams-up-the-biggest-scam-9349931.html Cybercrime boss offers a Ferrari for hacker who dreams up the biggest scam
  14. 14. 14 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 …meaning they will need to think data, analytics and digital Source: Capgemini Consulting-MIT Analysis – Digital Transformation: A roadmap for billion-dollar organisations (c) 2011 Iterative Transformation Roadmap DigitalEngagement DigitalGovernance Digital Building Blocks Customer Insight Operational Process New Business Model Customer understanding Customer touch points Improved compliance Worker enablement Performance management Process digitisation Global collaboration New outsourcing/ partner models Digitally modified business Digital Capabilities Tax Investigators Channels Tax Policy Process Innovation Customer Knowledge Culture Partnership Network Brand Strategic Assets Digital Investment Skills Initiatives Transformative Digital Vision Use of new analytical capabilities & tools Using cross-government & third party data sources Real time identify verification and data validation Digital by default – intervention by exception Bilateral and multilateral exchange of data Mobile access to data & tools Near real time dashboards
  15. 15. 15 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Digital will fundamentally change the tax administration model
  16. 16. 16 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Section 2 How should Tax & Welfare Agencies respond?
  17. 17. 17 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Tax and Welfare Agencies will need to move from ‘checking’ to ‘risk based’ analytics.... Up-front data matching accuracy and eligibility checks Pre-emptive and initial risking Synthesis of risk and case prioritisation Sophisticated, algorithm-based response Compliance rules Risk rules Risk score Risk-based treatment Individual reports income ‘A’ and compliance rule is used to compare it to known income value ‘B’ reported by employer Individual reports income ‘A’, risk rule is used to assess the propensity to risk, e.g. by comparing income to possession of assets Individual triggers multiple (risk) rules which are combined into single risk score that enables the Agency to differentiate between the level of risk between individuals Individual triggers multiple risk factors and based on predictive risk score, this individual is treated differently CharacteristicsExample
  18. 18. 18 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 ...which means risking using advanced analytics to link multiple data sets and generate a risk score..... Historic Approach Looking for data matches to prove fraud and error Leading practice model Spotting likelihood of an event through multivariable analysis Outlier analysisEntity Network Analysis Hybrid risk modelling approach Location Demographics & behaviour Income Assets Funds Multiple data sources brought together X X X X X X Data set 1 Data set 2 Data match/ mismatch triggers risk rule
  19. 19. 19 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 ...and an analytics–based risk methodology Compliance activity WHAT is happening? WHO is doing it? WHY are they doing it? HOW to respond? Understanding the type of non-compliance (simple error; evasion; avoidance; underreporting income) Understanding the characteristics of the taxpayer or benefits group (segment) Understanding the reasons (low level of services; complicated legislation; criminal attack) Understanding the best option (targeted compliance campaign; preventive action; better information/ service; penalties) Analytical insight Client Segmentation Behavioral Analysis Predictive Modelling Campaign Design & Mgt Risk Rule Design & Mgt Anomaly Detection
  20. 20. 20 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Section 3 Trouve: The Capgemini answer in partnership with SAS
  21. 21. 21 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Back to Mr. Hyde
  22. 22. 22 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Trouve applies new sources of data and advanced analytics to create an end to end risking & interventions process.... Prioritized (risk based) flow Large scale Data Networking & Network Analysis High Analytical Performance Data Visualization Applying insight across the value chain Measurement and Continuous Improvement Applying analytics internally (workforce, case management) Building a citizen centric view Hybrid Analytics Models Advanced Campaign Management Receive Understand Interact Review
  23. 23. 23 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 ...and enterprise capabilities to improve compliance outcomes Filing / (Re) Payment request Calculation Assessment Payments in/out Pre-reg Registration / Application Reconciliation Compliance & Debt Enforcement Businessoperatingmodel Solutionarchitecturelayers Downstream risking Debt Management Internal Fraud Upstream risking ID assurance Voluntary compliance Tailored solution to deliver new capabilities and maximize value Design Develop Deploy Organization People & Skills Processes Technology Business Services Information Systems Capabilities For more information about TROUVE visit: www.capgemini.com/trouve Debt Management Information Mgt Work and Workforce management Investigation and AuditCampaignsProfiling and Risking Performance Management Strategy and Policy Set Risk Policy / Strategy Set Service and Channel Strategy Simulate Policy / Strategy Develop Policy / Strategy Monitor Legal Compliance Manage Customer Service Manage Yield Effectiveness Manage Resources and Workforce Efficiency Profile Citizens Prioritize Risk Validate Citizen Identity Identity Registration Risk Identity Returns Risk Identity Repayment Risk Identity Compliance Risk Identity Debt Risk Set Channel Selection Rules Design Campaign Execute Campaign Case Record / Verify Response Profile Citizens Investigate Non- Compliance Find ‘Ghosts’ Investigate False Passes Detect Internal Fraud Pursue Compliance Case Pursue Internal Case Assess debt risk Set work priorities and allocate Manage Case Worklist Manage Contact Worklist Set Resource / Skills strategy and capacity Set Data Acquisition and Mgt Policy Select/Model new information sources Monitor Data Quality Import and Check External Data Prioritize debt Create inventory of debt Monitor Insolvencies Pursue Debt Case with the Citizen Administer Insolvencies Set workflow rules
  24. 24. 24 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 The functionality of TROUVE addresses the requirements of the future compliance model Downstream Risking & Case Management Operates outside of operational processing. Extends the capabilities of post processing compliance to maximise money yield and money recovery based on optimising available resources. Upstream Risking & Case Management Uses predictive models to identity high risk transactions to withhold services such as payments or repayments and initiates interventions. Protecting Online channels from ID Theft Using transaction monitoring and the application of identity assurance within the transaction to prevent ID Theft Uncovering Internal Fraud & Collusion Applies the analytics techniques on internal operational and customer data and to identify anomalies in behaviours that signal fraud, either individual working alone or collusion with external fraudsters. Improving Debt Management by understanding customers attitudes and behaviours we can determine the optimal treatment strategy balancing cost and business results. An integrated feedback mechanism leads to a continuous improvement. Supporting Voluntary Compliance maximizing the use of digital communication channels, methods and campaigns to drive up voluntary compliance via targeted & tailored service, eliminating the need for compliance activity
  25. 25. 25 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Client Concerns Method But we also know that each client has a different starting point Client Situation !  Requirement identified but there is no clearly articulated vision or high level design !  Vision and High Level design exist – unsure of where to start and in what order !  Concerns remain about clarity and progress !  Will it work at all and if so will it be scalable !  Desire to start to build initial components quickly !  Value Discovery !  Target Operating Model and detailed Roadmap !  Business Assurance !  Proof of Concept/Pilot !  Design & Build Fraud Management System I need to do something I have a Vision Show me it works I get it. When can we start? Am I on the right track?
  26. 26. 26 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 Case study: Implementing the strategic risking solution for HM Revenue & Customs !  Capgemini supported HMRC to design, build, deploy and run their strategic risking tool – Connect !  Takes information from 28 different data sources !  Cross-matches one billion internal and third party data items !  Uncover hidden relationships across organizations, customers and their associated data links (bank interest, lifestyle indicators and stated tax liability) !  Connect uses analytical and ‘spider diagram’ visualization tools !  HMRC analysts produce target profiles and models to risk assess transactions and generate campaigns and cases for investigation !  Automated feeds into HMRC’s case management system !  Streamlined risk and intelligence operations are delivered by with 40% fewer staff. Connect produces in minutes what previously took months of research, or was simply not possible to do manually or on a volume basis !  Skilled staff concentrate on tackling aggressive evasion rather than correcting errors, which historically took much time and which is now tackled in other ways. £ In total HMRC has recovered £2.6bn additional tax yield to date, through the use of Connect The project has won several awards:
  27. 27. 27 BIM Copyright © 2014 Capgemini. All rights reserved. Preventing Tax Evasion & Benefits Fraud through Predictive Analytics | May 2014 !  Proven success stories in UK, Netherlands and in the Financial Services Sector !  £2.6bn additional tax yield to date for HM Revenue & Customs. !  Partner to 35 Tax & Welfare globally !  Understanding of the Tax business process !  Compliance Framework !  End to End solution !  World’s foremost provider of Business Information Management (BIM) services. Our capabilities Register /Change of Details Process Application /Return Establish Liability /Benefit Manage Payments In/out Reconcile Investigation /Audit/ Enforcement Receive Customer Submission Enforcement /Debt collection /criminal proceedings Prevent Protect Uncover Resolve Feedback Prove An integrated approach takes a holistic approach on which to base a business strategy that develops and deploys common capabilities actively managed to deliver the best business outcome. Prevent transmission of incorrectinformation – either error or fraud Protect againstincorrect /repayments/repayments through the identification and management of risks Identify that fraudulentor non-compliantactivity has taken place Provide evidence to prove the case so that the authority can take remedial action Successful resolution through recovering the monies or securing criminal prosecution Infrastructure Data Sources Data Preparation Data Linking/Networking Creation Analytical Environment Network Visualisation Risk Model Management Analytical Capability Execution Ability Investigative Capability Case Management Enterprise Compliance Capabilities !  Strategic global partnership with SAS on Fraud management solutions !  BIM Centre of Excellence in India !  Business & Solution Architects !  Local footprint. Delivery capabilityDomain expertise SAS CoE ! Dedicated lab for all SAS products ! High performance servers installed ! Hands on experience for building proof of concepts ! Build better knowledge infrastructure to share and learn SAS ! Premium partnership agreement with SAS Report generation & delivery Predictive models, scorecards, segmentation, decision trees, web analytics Forecasting optimization, social media, solutions Value Proposition Skills ! Analytical consultants ! Business analysts ! Statisticians ! Tools experts ! BI architects ! Data architects ! MDM experts ! Change experts ! Quality experts ! Process leads ! Domains Analytics Maturity Assessment Specialized skill pool Cloud based offering Analytics CoE to support the known requirements of today and the unanticipated needs of the future Easy to use and relevant scorecards and reports that enable greater visibility into operating and financial metrics Ad-hoc sales, marketing and functional reporting for a streamlined, integrated and automated operation Solution Social Media Analytics Marketing Campaign Analytics Big Data Analytics KnowledgeIntensive ResourceIntensive Proven value
  28. 28. The information contained in this presentation is proprietary. Copyright © 2014 Capgemini. All rights reserved. Rightshore® is a trademark belonging to Capgemini. www.capgemini.com/bim About Capgemini With more than 130,000 people in over 40 countries, Capgemini is one of the world's foremost providers of consulting, technology and outsourcing services. The Group reported 2013 global revenues of EUR 10.1 billion. Together with its clients, Capgemini creates and delivers business and technology solutions that fit their needs and drive the results they want. A deeply multicultural organization, Capgemini has developed its own way of working, the Collaborative Business Experience™, and draws on Rightshore®, its worldwide delivery model.

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