Audit Selection

Joseph L Hammond
Executive Administrator Audit Division

What is the business need?

Simply put, we did not have a structured

method for generating audit leads.

Where do you start?

What: The Ohio Department of Taxation project (June, 2015) created a process
that uses statistical data to objectively identify business taxpayers with profiles
that merit audit scrutiny.

Past Practice: No structured method for generating audit leads allowed for
subjective selections. Tax Auditors would identify companies to audit based on:
information obtained in the course of auditing other companies
tradition; revisiting companies that had been noncompliant in the past
personal observation; see, hear, or discover some anomaly that prompted
further inquiry

Current Process: The Tax Commissioner directed the Audit Division to develop an
Audit Selection Process that was objective, efficient, fair, and equitable. An Audit
team, working with a contract vendor specializing in data analysis, developed an
Audit Selection Model that uses software capable of sifting through hundreds of
thousands of business taxpayers to identify the small percentage that are likely to
be out of compliance with tax law and their tax obligations.
Auditing four taxes: use, sales, employer withholding, and commercial activity

What do you have to start with ?

Business need
Clear direction
SPSS Software
4.4 terabytes of data within data warehouse
Business people
IT people
Business process poised for change

Audit Selection
Project

Considerations
1.
2.
3.
4.
5.
6.
7.
8.

Original Objectives and Value Achieved

Lifecycle of the Project
The Leads Produced by the Model
Geographic Distribution of Leads
Constructing the Model
Addressing Questions
Data Governance
Recommendations and Roadmap

Vision for the Project

Who You, the Audit Team
What Create a working audit selection model to
sustain growth, expansion and evolution
Where Wherever you happen to be when an idea
comes to you
When Short runway 2/1/15 6/30/15
Why We need to be objective, efficient, fair and
equitable

Objectives
Fair & Equitable
Improve Taxpayer Compliance
Efficiency

Lifecycle of the Project

Began in February 2015

Ended in June 2015
One team of auditors and consultants
Took on tax types sequentially

Use Tax

Sales Tax

CAT

EWT

Whats Different About the Modeling

Methodology?
Statistical modeling changes the entire
approach to identifying leads
Queries require a long time to
develop

After data extraction, statistic models

evolve and adapt very quickly

Audit Selection is not able to see the

filters and rules

Statistic models were developed in

partnership with the auditors and are
reviewed continuously

Queries do not learn over time

Statistic models learn and adapt with

every execution

Constructing the Model

Productive
Past Audits
Statistical
Model

Companies

Audit
Leads!

Lead Inventory As Of Today

Model Name

USE Predictions
USE Trending
USE non-registered
CAT Predictions
CAT Trending
SALES Trending
EWT Trending
Sub total
Overlapping
Unique Leads

Count

2,472
11,362
10,672
725
2,830
9,673
6,582
44,316
3,446
40,870

Total Population of Leads

Now
2014

Geographic Distribution of Leads

Value Achieved
5.5 6.0% time spent on research
190 Hours saved per auditor per year

37,071 total hours for all auditors reduced to 250 hours (99.3%
reduction)

Reduce unproductive audits by 50%

44,316 Audit Leads

7% of companies (compared to over 630,000)

9.14% Avg

0.7% Future

Audit Work Request Process

Data Governance at ODT

Accomplishments

Formalized New Data and Query Request Processes

Data Governance Council
Data Profiling
Audit Selection Model Data Sourcebook
Data Dashboards
Audit Selection Model

Formal approach to Data Quality for Analytics

Products