Tax return fraud: Using 3rd party data and analytics to stay one step ahead of fraudsters
By Neli Coleman
According to a May 2014 Governing Institute research study of 129 state and local government officials, 43 percent of respondents cited identity theft as the biggest challenge their agency is facing regarding tax return fraud. Nationwide, stealing identities and filing for tax refunds has become one of the fastest-growing nonviolent criminal activities in the country. These activities are not only burdening government agencies, but also robbing taxpayers by preventing returns from reaching the right people.
Anyone who has access to a computer can fill out an income-tax form online and hit submit. Most tax returns are processed and refunds released within a few days or weeks. This quick turnaround doesn’t allow the government time to fully authenticate all the elements submitted on returns, and fraudsters know how to exploit this vulnerability. Once released, these monies are virtually untraceable.
Unfortunately, simply relying on business rules based on past behaviors and conducting internal database checks is no longer sufficient to stem the tide of increasing tax fraud. The use of a risk-based identity-authentication process coupled with business-rules-based analysis and knowledge-based authentication tools is critical to identifying fraudulent tax returns. The ability to perform non-traditional checks that go beyond the authentication of the individual to consider the methods and devices used to perpetrate the tax-refund fraud further strengthens the tax-refund fraud-detection process. The inclusion of multiple non-traditional checks within a risk-based authentication process closes additional loopholes exploited by the tax fraudster, while simultaneously decreasing the number of false positives.
Experian’s Tax Return Analysis PlatformSM provides both the verification of identity and the risk-based authentication analytics that score the potential fraud risk of a tax return along with providing specific flags that identify the return as fraudulent. Our data and analytics are a product of years of expertise in consumer behavior and fraud detection along with unique services that detect fraud in the devices being used to submit the returns and identity credentials that have been used to perpetrate fraud in financial transactions outside of tax. Together, the combination of rules-based and risk-based income-tax-refund fraud-detection protocols can curb one of the fastest-growing nonviolent criminal activities in the country.
With identity theft reaching unprecedented levels, government agencies need new technologies and processes in place to stay one step ahead of fraudsters. In a world where most transactions are conducted in virtual anonymity, it is difficult, but not impossible, to keep pace with technological advances and the accompanying pitfalls. A combination of existing business rules based on authentication processes and risk-based authentication techniques provided through third-party data and analytics services create a multifaceted approach to income-tax-refund fraud detection, which enables revenue agencies to further increase the number of fraudulent returns detected. Every fraudulent return that is identified and unpaid, improves the government’s ability to continue to meet the demand for services by its constituents while at the same time strengthening the public’s trust in the tax system.