Submitter
Andrew Schaufele, Director, Bureau of Revenue Estimates
Company
Comptroller of Maryland
Industry
Government/Taxes
Business Challenge
The Comptroller of Maryland (COM) is a statewide elected official tasked with the administration of Maryland’s taxes. Critical to its success is the accurate and prompt processing of tax refunds, all while providing excellent customer service. Tax refunds in Maryland average $1,100 and are often a critical component to taxpayers’ financial stability; refunds are generally treated as an expected source of income each year, as well as a mechanism to deliver the single most effective anti-poverty tool available to government, the earned income tax credit. Taxpayers count on COM to deliver.
Like most financial enterprises that operate in the digital world, COM is under attack by those looking to commit fraud. For government tax agencies, this has materialized as tax refunds claimed using stolen identities by nefarious organizations. To put the incidence in perspective, the federal government estimates that in 2013 fraudsters targeted $30 billion in tax refunds, 19% of which the IRS paid out.
Analytics Solution
COM has consistently expended resources to identify fraud. The historical approach involved several dozen standalone metrics. That approach yielded between $2 million and $5 million annually, but was achieved by reviewing 110,000 returns per year with a 5% accuracy rate. However, as the perpetrators of this type of fraud have proliferated in recent years and their methods have become highly sophisticated, COM sought a new strategy. Over the last several years it has implemented and refined an analytical approach. It now utilizes an ensemble learning analytical model.
Impact
In the most recently completed tax year, this led to the identification of $38.6 million in fraudulent tax returns. Equally important, the company’s accuracy rate improved to 55%. In fact, COM discovered that amount by reviewing nearly 35,000 tax returns.