Imagine submitting a tax return online and the tax office responding instantly with the message, “Please attach digital copies of receipts for this list of transactions”.
Although the transition to Standard Business Reporting grabs all the headlines, it may be less important than several other strategic projects underway at the Australian Taxation Office.
Digital First spoke to the lead for the Smarter Data project, deputy commissioner for tax crime Greg Williams, about a comprehensive overhaul of the ATO’s analytics efforts.
This project comprises several phases, including a re-organisation of all analytics personnel into one unit and a massive increase in processing capability.
While the first fruits will appear in June, the end goal is to provide near real-time evaluations of tax returns and other forms based on individual and entity profiles.
An edited transcript of our conversation appears below.
Digital First: How are you looking to improve your ability to analyse tax data?
Williams: The biggest improvement in analytics isn’t around SBR. Yes you can get better data on the way in but at the end of the day you need computing power to crunch through the numbers.
We have been doing “nearest neighbour” analysis in our test lab. Who are people who look like, smell like, another person. For us to look at your work related expenses versus the millions of people in our database it would take us a couple of weeks on our current framework.
We run that and say, hang on a second, here’s the bell curve and here are the people who look out of whack with their colleagues. We’re going to write to them and say we think there’s a problem, let’s engage.
Today that takes two weeks. We took that into the lab (with more processing power) and that two weeks turns into 18 minutes. We were able to layer in additional complexity and it took 22 minutes.
So the aspiration where we’re going, I don’t want our people to write to people after the event. When you use MyTax or whatever (accounting program), we want to say we’ve run this is in the background in almost real time. Have you got the receipts for that? Or, compared to everyone else, we think you haven’t claimed as much.
You’re taking it to a real-time interaction and that’s driven by computing power. We’re trying to use that for good if you like.
Digital First: Has this been done before?
Williams: In HMRC (the UK tax office) they have screen pop-ups (in your accounting program) to give you directions in how you sit in real time compared to others. I’d like to think I’d be able to do that within the next couple of years with the new enterprise IT infrastructure we are installing.
Digital First: What is the goal of the Smarter Data project?
Williams: The project looks at how the ATO will use the information we have and third-party information and how we will work with partners, how we will stand up with infrastructure and how we will manage the capability with our analytics to provide a better outcome for taxpayers and the ATO.
It started as a review. We looked at where we had our analytics people in the organisation and we are working towards adding new capabilities around our data, analytics, risk and intelligence by January.
Digital First: What changes will you make?
Williams: Right now you have people who are doing data and analytics work in individual business areas. The small business area, private groups, public groups and internationals, the middle market, the service delivery area or the federal area. All those people will come and work for me.
Our strategic statement is to put the client at the centre. We are bringing all the people together so we can look at that person through a whole window. We can develop detailed profiles of individuals, their personalities, their circumstances and actions, so that when they engage with us we can provide services they need or we can use that information to shape the response that we should deliver.
Digital First: Have you released any information about this strategy?
Williams: We did put out a data and analytics roadmap of the technology that we would need to fully optimise our analytics unit. We think we have a good design. We already have a data warehouse but we are moving more to a more agile capability.
Being agile is really important. If someone brings in a good idea we can test it in our infrastructure, see if it provide the business outcomes and can we afford it. And if it does those things then how do we deploy it quickly.
We have already set up a sandpit, which is a test environment, since November. Now we can test new algorithms, ideas and infrastructure.
Digital First: Will the shift to Standard Business Reporting and digital tax returns improve your ability to find anomalies in tax returns?
Williams: There’s always an opportunity to get more data and better data. But if you don’t have enough computing power, it doesn’t make a difference. If you talk to (the tax office in) the US they say there’s no point having the information if you can’t make good sense of it. You want to maintain that balance
Digital First: You mention that you are analysing data from other sources than tax returns and forms. What are they?
Williams: Property data, data from international sources, there’s a whole range of things. My job is to build the capacity to make sense of it. There are other people who are looking at opportunities for better quality data from better sources.
Digital First: When will the new infrastructure go live?
Williams: Some of that stuff may be ready be the end of this financial year. Some will come online in 2015-2016. In the old days I would buy all that gear and it would lock me in for a long time. Most of the orgs I talk to are taking this stuff as a service.
Those are all the things we are looking at at the moment. We would have a fair amount in place by end of 15/16.
Digital First: That’s the same time as the SBR transition is due to complete. Are they related?
Williams: No. I have very little to do with SBR. It’s not on my radar in terms of a critical path at all.
Want to know about the ATO’s plans for SBR, digital forms and the impact on filing tax returns? Check out the Macpherson Report.
Digital First: What will the improved analytics capabilities give the ATO?
Williams: I will be able to see who you are, who you were in the past, and either send you through or refer you to a contact channel.
One of the things that we are testing in the lab is payment plans for the 2015-2016 year. At the moment when you come in on a payment plan the operator works it out and there are some rules around that.
In the future, when you visit the website or IVR (the automated call centre attendant), we will have the analytics running in the background. It will know if this is the first time you have applied for payment plan, if you have lodged on time and done all the right things. Then the payment plan will be approved.
On the other hand, if this was your fourth payment plan and you had defaulted on the other three and we’d seen a history of not great behaviour, we would kick you out of the online system and transfer you to an operator.
Digital First: Will this help you find tax cheats more easily?
Williams: We can still do that stuff now but it just takes longer. Instead of taking a couple of weeks, you run models in a reactive sense. But more and more we will be able to deal with things in real time.
It’s trying to look at the response that we give in the context of the individual. In the old world thinking you would have responses that would be driven by the organisation. As we go forward, we look at what does the person look like in their entirety and what does the solution look like for them and that depends on compute power.
Digital First: When will you finish this project?
Williams: We’re trying to get some things stood up before 30 June but this is never going to end. If you think about the old world of big production systems you would have them for 10 to 15 years. In the world of data and analytics you’re talking a two to three year lifecycle.
We’re not going to build a house and say it’s done.
Digital First: What will analytics look like in June 2016?
Williams: People will be able to see demonstrable change in analytics in key areas. Online decisioning will be based on a client profile. Whether or not we have to provide the profile to the (call centre) operative or whether it just helps support the decisions that the operatives advise.
To me this is about enhancing the quality of the experience. My lens is not how I catch people, it’s about how you improve the experience for people and to make it easier for them. I don’t want to catch people after the event, I want to give them direction at the front end.
One of the things that excites me about this is that if you go to New Zealand they are using analytics to change the impacts of people’s lives. They can identify people who are at risk and put in strategies to help them stay at school or get jobs.
I saw people using analytics to manage waiting lists in the public health system. It’s about quality of life.
Interested in learning more about the ATO’s technology roadmap and how it will affect accountants? Check out the Macpherson Report.