Social Network Analysis (SNA) tools hold the potential to help tax and revenue agencies identify non-compliance and tax fraud. These tools have been proven to be effective in fraud detection¹, but to date haven’t been utilized to any large degree at tax agencies. This blog describes what an SNA tool is, and how it can be utilized at a tax agency.
Social Networking Analysis ExplainedSNA is an analytic approach of correlating people, entities and relationships to determine how tightly an individual or business is related to others who have known compliance issues. These relationships can be from shared phone numbers, physical addresses, bank accounts, credit cards, or any other connection that is available through data capture. The results of the SNA can show the risk that a specific individual or business presents, based on their relationship with others who have known issues within the network. As can be seen below, using graph theory and analytics, we gain can valuable insights into specific members of the network.
Opportunities for Tax AgenciesThere are many opportunities for tax and revenue agencies to take advantage of SNA tools, across registration, audit and collections business areas.
- Improper registrations. Tax agencies have always faced the problem where they close a business and the business re-opens (typically now owned by a relative of the original owner) at the same or a nearby location. In this case, a business may have been closed by the state or municipal government for non-payment of taxes. The owner tries to stay in business by opening a similar (or identical) business with a different legal name and a different legal owner (e.g., a spouse, parent or another relative). Because of the manual efforts that would be needed to detect the issue, the relationships will almost always go undetected. The challenge for the tax agency is the owner will have changed, and won’t be an exact match to the previous business.
- Identify Fraud Rings. Once an instance of fraud is identified, the SNA can identify related businesses. This could include businesses with related addresses, bank accounts, phone numbers, email addresses, or other identifying characteristics. Through the use of an SNA investigative tool, a revenue agent can identify additional individuals and/or businesses that may be related to the same fraud ring, saving the investigator time and effort.
- Assisting with Locating a Delinquent Debtor. SNA’s are frequently used during the debt collection process to identify related individuals. Collectors have utilized manual tools along these lines for years, contacting next-door neighbors (for example) in an attempt to locate a debtor. This tool can greatly enhance and automate this effort, by finding people who share the same physical address, phone number, email, etc.
- Finding Successor Businesses. When a business ceases operation, the business can re-open in a new location or under new ownership. When the original business owes money, the government can in many cases pursue that debt if there is a successor business. Through the SNA tool, successor businesses can be quickly identified. Businesses and individuals can be identified that have relationships with the prior businesses, such as those sharing bank accounts, physical address(es), phone numbers or other identifying criteria. This can save the collector a significant amount of time for what otherwise would require significant manual research.