Decision Support System & Data Mining Methodologies FTA Conference

1. Decision Support System & Data Mining MethodologiesFTA Conference Atar Singh Tomar atar.toomar@tatainfotech.com Tata Infotech Ltd. Proprietary

2. Outline • Why a Tax Decision Support System (DSS)? • Tax DSS Architecture • Tax DSS Methodology • Tax Decision Support System • Business Benefits • Concluding Thoughts • Q & A Session Tata Infotech Ltd. Proprietary

3. Online Analytical Systems Operational Systems Mainframes 1960 1980 1990 Evolution Tata Infotech Ltd. Proprietary

4. ACTION Prediction Forecast Business Need WHY WHAT Complexity Changing business needs Tata Infotech Ltd. Proprietary

5. Challanges before tax administrators • Readily access and analyze the tax information • Effectively and accurately identify the area of non-compliance • Better understand the taxpayers • Formulate better legislative policies • Achieve higher degree of accuracy in revenue forecast • Optimize the operational cost Tata Infotech Ltd. Proprietary

6. Typical analysis a Decision Maker may perform • Compare the revenue collected and balance due for the past 5 years • Evaluate the effectiveness of audit programs in identifying non-filers and under reporters by Business Type by Tax Type by Tax Period by Location by its distribution across the various income groups of the taxpayers by tax period by location by business type • Trends in the collected and due amounts in the various Payment Plans at various stages and defaulters by the payment plan type by the tax period by the income group by the tax type • Evaluate the effectiveness of external data in identifying non-filers by showing the number of such taxpayers by tax period by location by business type • Evaluate the productivity of various departments in handling cases over the years Tata Infotech Ltd. Proprietary

7. Limitations of Transactional Applications • Designed for real-time data entry and editing • Data maintained is constantly changing • Limited historical data is available for on-line comparisons • Running Decision Support queries degrades the performance of the Transactional Application • Difficulty in making ad-hoc queries • Complexity in achieving Comparisons, Aggregations, Rankings, Running totals etc. Tata Infotech Ltd. Proprietary

8. What is a DSS? Decision Support System is a computer based information system designed to facilitate the decision making process of semi structured tasks Tata Infotech Ltd. Proprietary

9. Metadata Repository Indv. / Corp. Tax App. Data Validation Source 2Q96 Transformation Sequence Data Migration Data Transformation Un-employment Tax App. 3Q96 Table of Contents T Income Data Scrubbing X T Y 4Q96 Title Page Origin of Data = 1Q97 AA 4 Tax Data Warehouse BB 8 LAN WAN Internet T 2Q97 Withholding Tax App. CC 12 Y X A Data Extraction, Scrubbing and Transformation C AB 16 Withholding BA 20 Data Mart Data Warehouse State’s Legacy and Transactional application Meta Cube B A/R System Insurance Meta Cube Access Levels Internal Data Sources Tax Compliance Refresh info • IRS’s different tapes • IMF • IRTF • BMF • BRTF • Other State Agency's • Payroll System • Transportation System • General Services Time Line of Journey 12 OLAP tools EIS Query & Reporting Statistical Analysis Data Mining = 9 3 External Sources 6 East West North Data Warehouse External Data Sources • Collected Tax Revenue • North • Withholding • 1Q97 Tax DSS Architecture • “A Data Warehouse is a • subject-oriented, • integrated, • time variant and • non-volatile • collection of data in support of • management’s decision-making process.” AData-Mart contains a subset of the data available in an enterprise-wide data warehouse. • Data Mining is • Discovering meaningful new correlations, • Patterns and trends • Using • Pattern recognition technologies, • Statistical and mathematical techniques On-Line Analytical Processing (OLAP) Is a process to assist decision making by using tools to facilitate the analysis of multi-dimensionally structured business information. Tata Infotech Ltd. Proprietary

10. Scoping of Prototype Project Evaluation Criteria Detailed Design System Construction Testing Demonstration Evaluation Structured Interviews Decision Analysis Data Analysis Technical Analysis Conceptual DSS Orientation Plans & Prioritization Adaptation Functional Orientation Operational Training Deployment Maintenance Revision & Enhancements Decision Support Methodology (DSM) Decision Support Analysis DSS Software Evaluation & Selection Prototype Development Operational Deployment and Support Tata Infotech Ltd. Proprietary

11. Tax DSS - Common Subject Areas • These Subject Areas can be viewed w.r.t to • various common perspectives • Business Type • Location (States, City) • Taxpayer (Demographic) • Tax Type • Tax Period (Year, Quarter, Months) • Time (Year, Months, Events, Seasons) • Taxpayer Profiling • Tax Collection • Fraud Detection & Tax Non-compliance • Legislative Change Impact • Revenue Forecasting Tata Infotech Ltd. Proprietary

12. Taxpayer Profiling • Provides comprehensive taxpayer information • Identification of potential fraudulent taxpayers • Compliant taxpayer can be relaxed from cumbersome audit process • Provide better taxpayer services Tata Infotech Ltd. Proprietary

13. Tax Collection • Analyze the trends in tax revenue for revenue enhancement • Evaluate uncollected tax revenue • Reallocate resources to value added programs • Enhance A/R management Tata Infotech Ltd. Proprietary

14. Fraud Detection & Tax Non-Compliance • Maximize the non-compliance discoveries • Analyze trends and patterns of targeted groups of taxpayers • Rank potential audit suspects by evaluating their revenue potential • Focus on collection and compliance efforts • Substantial increase in tax assessments and long term reduction in tax gap Cont... Tata Infotech Ltd. Proprietary

15. Fraud Detection & Tax Non-Compliance • Leverage the accuracy, efficiency,and productivity of non-compliance programs • Provide an alert mechanism to trap non-filers before expiry of the statute limit Tata Infotech Ltd. Proprietary

16. Legislative Change Impact Analysis • Estimate fiscal and administrative impacts of proposed legislative changes • Support users in formulating tax policy • Analyze the revenue effect of proposed and enacted legislative changes • Determine the effects of changes in legislation, policies and regulations Tata Infotech Ltd. Proprietary

17. Revenue Forecasting • Ability to formulate reasonable fiscal policies • Incorporate the historical revenue trends and other governing estimate variables • Provide the highest degree of accuracy in revenue forecasting • Use of econometric models to improve the accuracy of forecasts Tata Infotech Ltd. Proprietary

18. Benefits - ROI Tangible Benefits • Improvement in non-compliance will increase tax revenue • More cost effective decisions are enabled • Better business intelligence is enabled • Enhanced taxpayer Services • Intangible Benefits • Improved productivity • Reduced redundant processing and support • Ability to focus on business processes through complete analysis Tata Infotech Ltd. Proprietary

19. Concluding Thoughts • Tax DSS holds great potential for dramatic business benefits • Capitalizes on the potential value of the organization’s information • Provide decision makers access to consistent, reliable and timely data • Still much more to explore and enhance Tata Infotech Ltd. Proprietary

20. Understand DSS Technology Tax DSS Methodology Superior Solution Expertise in the Area Large pool of resources Make Things Happen Why Tata Infotech for Tax DSS? Tata Infotech Ltd. Proprietary