Promoting Evidence-Based Decision-Making Across Federal & State Revenue Agencies

To maximize the impact and reach of often limited resources, federal and state revenue agencies must continuously find ways to do more with less. Enhancing their use of advanced analytics to identify non-compliance and fraudulent behavior in tax administration is a key strategy in this effort.

Historically, tax agencies’ analytics capabilities have primarily focused on data aggregation and reporting, but we’re seeing more forward-thinking leaders expanding their portfolio with more advanced analytics, such as predictive analysis, modeling, visualization, and machine learning to identify taxpayer trends and design strategies to stay ahead of the curve, rather than reacting to it. To achieve results from these new initiatives, though, it’s critical that agencies follow a proven approach that will foster long-term success.

While there is no one-size-fits-all approach to driving analytics into enterprise operations, we’ve developed repeatable methodologies, frameworks, solution development approaches, and program management capabilities—and we have proven the effectiveness of these assets on more than 100 analytic engagements with tax and revenue organizations. Based on our experience, we recommend the following for tax agencies ready to optimize their tax administration capabilities with advanced analytics:

Implement a diverse and evolving portfolio of analytic initiatives to test different strategies.

Mission stakeholders regularly re-engage the research and analytics organizations to discuss new priorities. These engagements often lead to changes or additions to the research portfolio. To manage this change, the contracting structure should be flexible enough to accommodate initiatives of varying duration and intensity, and to allow new initiatives to begin throughout the period of performance. This enables the mission to invest in those initiatives producing the greatest impact and divest those that are not.

Establish processes for portfolio governance and coordination.

Agencies should seek to create synergies and complementarities across the initiatives that comprise the agency’s overall analytics portfolio with an emphasis on collaboration between initiatives. This is best achieved by establishing formal processes for initiative identification, prioritization, and planning, providing opportunities for cross-pollination across initiatives, and regularly reviewing the overall portfolio to identify opportunities for synergy. Lessons learned should be rewarded to emphasize the importance of sharing successes and failures across initiatives

Plan on solving a variety of mission challenges using a variety of analytic capabilities.

Units within the agency face a diverse set of business problems and use a broad range of data sources. Correspondingly, the agency must be able to apply a variety of analytical methods, tools, and technologies. This is best achieved by developing teams that are comprised of analytics professionals with complementary expertise in the areas of data engineering, data science, and application development alongside mission stakeholders with a deep understanding of the program, the business process and mission outcomes that need to be impacted.

Explore new analytic tools and solutions.

There are a variety of open-source analytic tools that provide cost savings to agencies and are easier to trial for short-term initiatives to evaluate their usefulness. With collaboration across initiatives a pipeline of tools and capabilities can accelerate future initiatives. A tooling approach that emphasizes open-source technology can reduce cost, while increasing flexibility, extensibility, and reuse over more expensive commercial analytic software.

Emphasize mission engagement throughout project planning and delivery.

Building trust with stakeholders is a critical component of helping the organization shift to an evidence-based decision-making approach. Consistent communication throughout the initiative about new analytic capabilities will help them understand how analytics can improve their mission outcomes and help shift the agency towards a data-driven culture. By engaging mission stakeholders throughout the design, development, and deployment process, agency leaders can build trust and receive valuable input on solution design and functionality. This engagement models allows both sides to develop an analytic product that will be utilized by all stakeholders to help make decisions.