Winning against Tax Fraud with Data Analytics
Category: Data Management, Analytics & Visualization
2019 NASCIO Award Recipient
State government agencies are increasingly asked to “do more with less”, as pressures on expenditures and resources require them to use every tool at their disposal to make efficient, effective, and meaningful decisions. Data and advanced analytics have emerged as cornerstones that enable agencies to achieve higher performance across their organizations while reducing operational costs. Effectively using data and advanced analytics allows agencies to make the right decisions the first time by using a sophisticated, data-driven understanding of behaviors and predicted outcomes to guide more accurate decisions. For revenue agencies, the need to enhance operational performance is also coupled with the imperative to increase revenue collections as much as possible.
The Department of Revenue of the State of Illinois [IDOR] is a 1,500+ person agency that services more than six million individual taxpayers and collects over $46 billion in total taxes. The Department administers more than 70 tax types; annually, it processes over 18 million returns, of which 6.1 million are individual income tax returns. IDOR currently uses Fast Enterprises’ GenTax system to accept, process, store, and analyze tax returns. GenTax is used by approximately 30 states and US municipal tax agencies.
In 2017, IDOR undertook a major data analytics initiative with the express purpose of increasing revenues and improving compliance with the state tax laws. The vision was to increase efficiency within taxpayer services, to instill a culture of data-driven decision-making. A cross-functional, cross-agency team assembled to convene the effort drawing from the areas of informational technology, business processing, fraud, taxpayer compliance, and research; it involved subject matter experts from IDOR, data scientists and programmers from DoIT, and programmers from our in-house tax administration software firm, FAST Enterprises.
The roadmap for IDOR’s data analytics effort was informed by the fact that FAST Enterprises had recently developed an analytics module with the hope that IDOR would be an ‘early adopter’ of the new technology. In addition, senior leadership at IDOR had expressed commitment to standing up a data analytics practice. The rollout was expected to span three phases. Phase 1 entailed working in tandem with the programming team from FAST to assimilate their knowledge and develop a full understanding of the tool’s capabilities and their supporting product offerings. This initial phase, underway in early 2017, extended thru December 2017. Phase 2 – completed in December 2018 – involved supplementing the Analytics Manager tool with algorithms developed by the Data Analytics Practice to augment the tool, including implementing and evaluating the predictive models crafted during Phase 1.
Results from the predictive models developed at IDOR have exceeded expectations: in a press release from February 2019, it was noted that “Since 2015, Illinois has stopped more than $120 million in attempted identity theft and tax refund fraud thanks to increased data analytics and partnerships… 2018 anti-fraud and identity theft detection and prevention efforts led to an increase of $37.2 million in verified savings when compared to 2017.”