© 2 0 1 6 E x p e r ia n In fo r m a t io n S o lu t io n s , In c . A l l r ig h ts r e s e r v e d . E x p e r ia n a n d th e m a r k s u s e d h e r e in a r e s e r v ic e m a r k s o r r e g is te r e d t r a d e m a r k s o f E x p e r ia n In fo r m a t io n S o lu t io n s , In c . O th e r p r o d u c t a n d c o m p a n y n a m e s m e n t io n e d h e r e in a r e th e

t r a d e m a r k s o f th e i r r e s p e c t iv e o w n e r s . N o p a r t o f th is c o p y r ig h te d w o r k m a y b e r e p r o d u c e d , m o d i f ie d , o r d is t r ib u te d in a n y fo r m o r m a n n e r w i th o u t th e p r io r w r i t te n p e r m is s io n o f E x p e r ia n .

E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

Optimizing Income Tax Return Identity Fraud Prevention

2© 2 0 1 6 E x p e r ia n In fo r m a t io n S o lu t io n s , In c . A l l r ig h ts r e s e r v e d .

E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

§ Common Fraud Definitions that drive Tax Refund Fraud Detection

► Why fraud definitions are critical

§ Tax Refund population

► Who’s asking for refunds?

► Who are we contacting for verification?

► More importantly– where do agencies look for fraud dollars?

§ Putting it all together- definitions, verifications and outcomes

§ Research indicates the common definition may not be accurate

Content

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

§ Generally accepted, two-part definition of “ID fraud” used in Tax Refund Fraud.

► Confirmed fraud– where a risky return generates a notification to which a real taxpayer responds and claims to have not filed the refund request

► Non-responders- who receive a notification and do not respond

§ Definitions are critical

► Dictate who is impacted by fraud prevention efforts and who is not

► They become a self fulfilling prophecy

► Dramatically impact perceived false positives

Common Definitions

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

Majority of Requested Refund Amounts are low

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

… and people who request large refunds are much more likely to be flagged as suspicious

6© 2 0 1 6 E x p e r ia n In fo r m a t io n S o lu t io n s , In c . A l l r ig h ts r e s e r v e d .

E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

But when we convert “percentage of returns” to dollars, returns with lower refund amounts get plenty of attention in terms of suspected fraud

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

Using the common definition of “fraud”

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

Separating “fraud” into confirmed fraud vs non-responders

9© 2 0 1 6 E x p e r ia n In fo r m a t io n S o lu t io n s , In c . A l l r ig h ts r e s e r v e d .

E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

An abrupt decline in non-responders

correlated to a dollar range

Low volume of confirmed frauds

in low dollar ranges

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

1. Notifications sent to low-dollar cases don’t reach a “real” taxpayer that contacts the agency to confirm fraud. This seems unlikely.

2. The notifications do reach the “real” taxpayer, who is willing to walk away from the requested refund

► These are actual taxpayers using their own identities that choose not to engage with the agency

● Possible misrepresentation of tax information to increase refund

● Possible mistrust of the validity of the notification

Two possible explanations

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

Evidence that non responders may not be fraud

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

Evidence that non responders may not be fraud (2)

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

… so where do we focus our effort to stop fraud?(light gray overlay on right axis shows the total dollar amounts of returns that get a notification for each refund account)

Non Responders Confirmed Fraud

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

There is significant emphasis on low-dollar refunds where benefit comes from non-responders and not fraud

28% of all dollars associated with a notification occur in dollar ranges (<$2,200) where non response is very high and confirmed fraud is low

15© 2 0 1 6 E x p e r ia n In fo r m a t io n S o lu t io n s , In c . A l l r ig h ts r e s e r v e d .

E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

§ Using the common definition of fraud has two pitfalls

► Liability -- Non Responders may surface and verify

► Integrity– Based on the volume and dollars, analytics built to find fraud that includes non-responders, will drift away from “confirmed” fraud

Impacts

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

§ Experian advocates the exclusive use of “confirmed” fraud for building analytics that prevent tax refund fraud

► Generates lower overall false positives

► Less Ambiguity- Better segments results into either confirmed fraud or

verified good

► Stops the analytics from drifting toward the wrong target

§ More details on the analytical approach available

A better analytical approach

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .

§ If the dollars you are saving come from non-responders, you should be concerned

► Evidence indicates a significant number of these are real taxpayers

► The dollars to be saved by chasing good taxpayers away from refund requests are simply larger and easier to create than finding confirmed fraud

► Over time, the analytics will focus more on generating no response- -leaving ID fraud room and incentive to grow

§ Focusing on non responders

► May create liability for the agency

► Will erode savings over time if/when taxpayers get more comfortable with engaging with the agency

► Takes the focus off of confirmed fraud and will corrupt the analytics over time

Wrap Up

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E x p e r ia n P r o p r ie t a r y a n d C o n f id e n t ia l .