CON3294 Bhamidipati-Tax Fraud

Preventing Fraud with Through Analytics
Satya Bhamidipati
Data Scientist
Business Analytics Product Group
Copyright 2014 Oracle and/or its affiliates. All rights reserved. |
Tax Fraud in Increasing

27% Increase in EITC
*GAO Report
$600B Impact between

Federal and State tax
*GAO Report
$15.6B EITC
Improper Payments
642,000 Incidents
38% increase since 2010
*TIGTA Report
*TIGTA Report
Copyright 2014 Oracle and/or its affiliates. All rights reserved. | Oracle Confidential Internal/Restricted/Highly Restricted
Anatomy of a Refund Scam
Top 5 Cyber Crimes
Tax Refund Scam
Refund Process
Process Tax returns and release refunds within weeks
Once released funds cannot be traced.
Quick turn around time.
Challenges to Identify and Stopping Fraud

Volume of Fraud
Resources
Lack of Machine Learning Algorithms
Criminals are creative
Technology
ORACLE and TPS

Founded by
Joan Barr (IRS)
Brian Bequette (Intuit)
2009 Developed Fraud Solutions

Partnered with Oracle in 2012
Cloud and on Prem Solution
TPS Solution
Predictive Data Analytics
Year-over-year Return Analysis
Internal Data Validation
Return Attachment (PDF) Analysis
Third-party Data Validation
Proven Proprietary Fraud Algorithms
Fraud Modeling, Rules and Deny Listing

(a.k.a. Bad Listing)
Identity Verification
TPS Fraud System

Identifies refund fraud and ID theft before any refund is paid.
Uses current and historical facts to predict future fraud
Heat maps that show where fraud is occurring.
Shows related filings
Sample TPS Findings

1.
The fraud problem is getting worse.
2.
Fraud is expanding to international sources.
3.
Fraudsters are not only stealing identities, but are also creating them.
4.
W2-to-return analysis checks are being circumvented
5.
The per-return average fraudulent refund amount has increased.
6.
Revenue impact due to fraudulent refunds paid is doubling each year.
7.
Strong evidence of automated bot fraudulent filings
10
[ Our findings ]
Fraud is getting worse

Tax year 2011
Tax year 2012
Tax year 2013
High-volume, low dollar fraud
Lower volume, higher dollar fraud
High volume, high dollar fraud
250 international IP hits
4,413 international IP hits
9,096 international IP hits
30,465 hard fraudulent returns

detected
9,161 fraudulent hard returns

detected
32,983 hard fraudulent returns

detected
$7,336,548 in hard fraudulent

refunds

refunds

refunds
11
[ Fraud Interface ]
Sample Results
12
[ Our findings ]
What Does All this Mean

Fraudsters getting smarter
No single fraud detection mechanism is wholly effective.
Best-practice methodologies should be utilized.
13
TPS - Oracle solution components

Transmission to state
Interactive dashboards
Ad hoc analysis
Mobile
And more
Scorecards
Oracle Endeca Information Discovery
Oracle Business Intelligence Enterprise Edition
Investigative data exploration and analysis
Analytics, reporting and interactive visualization
TPS fraud detection logic
TPS fraud pattern discovery
Integrated prediction and cross source validations
Validation against unstructured sources
Oracle Database Enterprise Edition

Advanced Analytics and Spatial & Graph Options
Agency and external data

sources
Attachments, documents, case notes, emails
TPS fraud prediction
TEX
T
Models and scoring

Structured and semi-structured data
Unstructured Data
Oracle Advanced Analytics

Data in the Database
Oracle Database
Added Algorithms
User tables
?x
Visual Interface
Database Compute Engine
15
Analytic Methods
Classification
K Means
Regression
Linear regression
Nave Bayes
Anomaly Detection
Neural Networks
Support Vector Machines
Attribute Importance
F1 F2 F3 F4
Association Rules
Singular Value Decomposition

Principle Component Analysis
16
Oracle Data Miner GUI

Easy to Use
Oracle Data Miner GUI for data analysts
Work flow paradigm
Powerful
Multiple algorithms & data transformations
Runs 100% in-DB
Build, evaluate and apply models
Automate and Deploy

Generate SQL scripts for deployment
Share analytical workflows
Oracle Strategy for R

Provide high-performance, scalable R environment tightly integrated with
Oracle RDBMS and Hadoop
For R users
For Database &

Big Data developers
Full access to Database and HDFS objects
Execute embedded R scripts containing
High performance and scalability for all R
any R algorithm or calculation

Access stored R results in Database or
Hadoop HDFS
Retrieve R computation results in
graphical formats like XML or PNG
Integrate R results into BI Applications
operations
Scalable, Natively integrated machine
learning algorithms
Deploy R scripts and store R calculation
results in Database or Hadoop
Oracle Endeca Information Discovery

Endeca Information Discovery (EID) helps
organizations quickly explore all relevant data
Combine structured & unstructured data from disparate
systems
Endeca Information Discovery

Unified Querying
Interactive Exploration
App Composition
Automatically organize information for search, discovery &

analysis
Rapidly assemble easy to use analysis applications
Endeca Server
Faceted Data Model
Integration
Enrichment
Interactive Exploration and Discovery
Advanced Search
Search look-ahead
Spell-correction
Data-driven filtering
Faceted Navigation
Select attributes, like a web site
Visual Analysis
Charting & crosstabs
Geographic visualization
Tag clouds
Analytics and OBIEE

In-database data mining
builds predictive models
that predict customer
behavior
OBIEEs integrated spatial
mapping shows where
Customer most likely to be

HIGH and VERY HIGH value
customer in the future
Contacts
Satya.Bhamidipati@oracle.com
Brian.Bequette@taxprocessingsystems.com
Sandy.Fitzpatrick@oracle.com
22

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Preventing Fraud with Through Analytics

Tax Fraud in Increasing

$600B Impact between

Anatomy of a Refund Scam

Top 5 Cyber Crimes

Tax Refund Scam

Challenges to Identify and Stopping Fraud

ORACLE and TPS

2009 Developed Fraud Solutions

Year-over-year Return Analysis

Internal Data Validation

Return Attachment (PDF) Analysis

Third-party Data Validation

Proven Proprietary Fraud Algorithms

Fraud Modeling, Rules and Deny Listing

TPS Fraud System

Sample TPS Findings

The fraud problem is getting worse.

Fraud is expanding to international sources.

W2-to-return analysis checks are being circumvented

The per-return average fraudulent refund amount has increased.

Revenue impact due to fraudulent refunds paid is doubling each year.

Strong evidence of automated bot fraudulent filings

Fraud is getting worse

Tax year 2012

Tax year 2013

High-volume, low dollar fraud

Lower volume, higher dollar fraud

High volume, high dollar fraud

250 international IP hits

4,413 international IP hits

9,096 international IP hits

30,465 hard fraudulent returns

9,161 fraudulent hard returns

32,983 hard fraudulent returns

$7,336,548 in hard fraudulent

$17,532,173 in hard fraudulent

$44,498,435 in hard fraudulent

Copyright 2014 Oracle and/or its affiliates. All rights reserved. |

Copyright 2014 Oracle and/or its affiliates. All rights reserved. |

What Does All this Mean

Copyright 2014 Oracle and/or its affiliates. All rights reserved. |

TPS - Oracle solution components

Oracle Endeca Information Discovery

Oracle Business Intelligence Enterprise Edition

Investigative data exploration and analysis

Analytics, reporting and interactive visualization

TPS fraud detection logic

TPS fraud pattern discovery

Integrated prediction and cross source validations

Validation against unstructured sources

Oracle Database Enterprise Edition

Agency and external data

Attachments, documents, case notes, emails

TPS fraud prediction

Models and scoring

Copyright 2014 Oracle and/or its affiliates. All rights reserved. |

Oracle Advanced Analytics

Singular Value Decomposition

Oracle Data Miner GUI

Automate and Deploy

Oracle Strategy for R

For Database &