Preventing Tax Evasion & Benefits Fraud Through Predictive Analytics

Preventing Tax Evasion & Benefits Fraud through Predictive Analytics Ian Pretty | Senior Vice President, Tax & Welfare, Capgemini June 4, 2014 | SAS Analytics Frankfurt

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

BIM



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

BIM



Do Governments agree that there is a problem?

5

BIM



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

BIM



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

Ris

k of

non

-com

plia

nce

Low

High

Low High

7

BIM



How Governments respond in a digital, data and analytics driven world will determine how they protect revenues

8

BIM



Section 1 How will Technology impact the fight against Fraud & Error?

9

BIM



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

BIM



…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

BIM



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

BIM



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

21

34

Business Data Lake

It’s all about insight at the point of action

13

BIM



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 Reclaims Vulnerability 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

BIM



…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

Dig

ital E

ngag

emen

t Digital G

overnance

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

BIM



Digital will fundamentally change the tax administration model

16

BIM



Section 2 How should Tax & Welfare Agencies respond?

17

BIM



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

Cha

ract

eris

tics

Exam

ple

18

BIM



...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 analysis Entity 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

BIM



...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

BIM



Section 3 Trouve: The Capgemini answer in partnership with SAS

21

BIM



Back to Mr. Hyde

22

BIM



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

BIM



...and enterprise capabilities to improve compliance outcomes

Filing / (Re) Payment request

Calculation Assessment

Payments in/out Pre-reg Registration /

Application Reconciliation Compliance & Debt Enforcement

Bus

ines

s op

erat

ing

mod

el

Solu

tion

arch

itect

ure

laye

rs

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 Audit Campaigns Profiling 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

BIM



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

BIM



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

BIM



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

BIM



!  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

ProcessApplication

/Return

EstablishLiability/Benefit

ManagePayments

In/outReconcile

Investigation/Audit/

Enforcement

ReceiveCustomer

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 incorrect information – either error or fraud

Protect against incorrect /repayments/repayments through the identification and management of risks

Identify that fraudulent or non-compliant activity 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 ManagementEnterprise Compliance Capabilities

!  Strategic global partnership with SAS on Fraud management solutions

!  BIM Centre of Excellence in India

!  Business & Solution Architects

!  Local footprint.

Delivery capability Domain 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

Kno

wle

dge

Inte

nsiv

e Resource Intensive

Proven value

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.