Scanners designed to examine luggage and cargo are using a multispecies AI model to find evidence of illegal wildlife tracking, such as ivory pieces or animal skulls. This technology is part of a Microsoft AI for Good initiative called Project SEEKER which, in its first trial, had a 70% detection rate in scanning 250,000 items per day.  

Project SEEKER was introduced in 2021 and it was a harbinger of the transformative impact that advanced AI can have on customs and port operations. Since then, Microsoft Azure OpenAI Service and Microsoft copilots have given virtually every individual the opportunity to experience the power of generative AI for themselves. This has inspired governments around the world to seriously evaluate how they can employ AI to improve operations and efficiencies—a topic that was center stage at the World Customs Organization (WCO) Technology Conference 2023, which took place in Hanoi, Vietnam from October 10 to 12, 2023.  

Below, I’d like to share the insights gained at this year’s event and offer my point of view on how government organizations can address the unique challenges that customs and port operations face in adopting AI.   

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The promise of AI innovation in customs and port operations 

Data analytics, AI, and machine learning were central topics at the 2023 WCO event, where the theme was “Embracing the Digital Age: Leveraging Technology, Fostering Innovation, and Nurturing the Next Generation of Customs Professionals.” Most attendees arrived with a recognition of AI’s potential to enable entirely new ways of engaging with people and employees, delivering essential services and processes, and saving money.   

We see this at Microsoft in cases like Project SEEKER and other relevant customer experiences around the world. Governments are building a new class of intelligent ports and customs operations that bring the power of AI to their existing investments in the Internet of Things (IoT) sensors and devices, edge computing, advanced analytics, and blockchain. In operations, AI can improve situational awareness and enhance revenue collection through better fraud detection. In trade facilitation, it can improve supply chain transparency and protect IP and project origin certification. And in customs, it can improve key functions and enable new services with trusted data collaboration and secure identity. Here are just a few examples of how AI is being used by our customers today in customs and port operations:  

• The Inter-American Center of Tax Administrations (CIAT) and Microsoft have collaborated to build a Microsoft Electronic Invoice Anomaly Detector that helps strengthen electronic invoicing and reduce tax fraud and evasion for tax administrators in its member and associate member countries worldwide.   
• A national marine security operations center is developing an AI-powered correlation engine with data, video, and analytics from multiple sources and departments to protect restricted spaces, improve monitoring of vessels and trucks, and stop accidents before they happen.   
• A major maritime country is building AI-enhanced digital twins of its port facilities with IoT and real-time 3D modeling to enhance port and customs operations, improve situational awareness, and reduce environmental impacts.  

3 keys to successful AI adoption in customs and ports 

The announcements and conversations at the WCO event signaled a clear shift to embracing AI in customs and port operations—uncovering various dimensions associated with the challenge. The “Good” was seen in the promise of productivity gains, non-intrusive solutions for inspections, transformed automation, and better real-time insights. The “Bad” was reflected in poor quality data and data stuck in silos, including challenges with interoperability and problems extracting data from physical equipment.   

To tackle these important considerations and fast track adoption of AI in ports and customs, we advise governments to focus on a few key areas.

1. Enable the digital infrastructure with the right building blocks   

Many governments and agencies understand that generative AI represents more than a technology shift but rather a profound transformation of critical processes and decision making. Notably, their employees are helping to drive the change by initiating foundational use cases and innovating at a grass-roots level. To realize the greatest long-term benefits of generative AI, it’s critical that organizations ensure that the key elements are in place—specifically, a hyperscale cloud platform, such as the Microsoft Cloud, that can handle the volumes of data and traffic that AI demands, plus a data and analytics platform, such as Microsoft Fabric, that can integrate and manage a wide range of data sources and make them available for AI. Then, democratize generative AI by putting it into the hands of users with tools such as Microsoft 365 Copilot and Microsoft Copilot.  

2. Pay special attention to cybersecurity and interoperability 

In recent years, there has been a surge in cyberattacks against customs organizations, which are prime targets for cybercriminals who want to exploit vulnerabilities to steal data, smuggle illegal goods, or commit financial crimes such as tax evasion or money laundering. The challenge is further complicated by the fact that the level of IT maturity varies greatly around the world, from the United States, where the Zero Trust framework has been embraced, to other nations that are only recently adopting guidelines for business continuity. Ultimately, customs organizations need to take proactive measures to bolster their security postures and resilience. This is another area in which cloud and AI can help governments level the cybersecurity playing field.   

The right security approach also helps ensure the flow of goods and services across borders by enabling interoperability that can allow disparate systems to connect and exchange data. This is a promising step in fostering a transparent, seamless, and secure global supply chain.   

3. Develop workforce skills and plan for innovation 

The potential of even the best technology cannot be realized without employees who are empowered, and excited to use it. This is a challenge for governments, who face stiff competition for talented workers and who often have an aging workforce with skills that are rapidly becoming outdated. When every worker has access to generative AI tools, organizations should focus on skilling with a workforce education and adoption plan that suits their specific requirements and provides resources such as baseline training on AI essentials by role, as offered by Microsoft Learn.   

With your workforce primed to adopt generative AI, you can fast-track early use cases that provide a low-risk, high-reward opportunity to learn and realize immediate benefits. Start with a clear business goal that you want to achieve in a specific timeframe. An excellent example is the solution implemented by Ports of Jersey. To help bring together employees working remotely due to COVID-19, the agency used a bot platform built for Microsoft Teams to create custom bots that make it easier for employees to ask questions during executive briefings. The solution led to a 250% increase in questions asked during briefings, and it created a domino effect sparking more innovation. Because of the intuitive, no-code design, the solution enables port staff to build new custom bots in 30 minutes.   

Continue your generative AI journey 

When you build new solutions with Azure OpenAI Service, you get the power of generative AI while all of your data and content stay within the bounds of the organization, and security and compliance are assured. We’re committed to the principle that government data should never be made available externally or used by other AI training models unless specifically required, as codified in our responsible AI practices.  

You can learn more by visiting Microsoft for Public Finance, where you can discover how Microsoft and our partners are working together to help our customers transform customs and port operations. To explore additional possibilities and appropriate next steps, reach out to your Microsoft representative or technology partner.   

The post 3 keys to transforming customs and port operations with generative AI appeared first on Microsoft Industry Blogs.

1. Trade fragmentation. This trend, coupled with major technological disparities across markets, can affect global growth by reducing trade flows, creating silos and sectoral misallocations, and hindering the foreign diffusion of knowledge. The estimated cost of fragmentation could range from 1.2 to 12 percent of global GDP.²
2. Growing trade of services. The international exchange of ideas, expertise, and assistance—from architecture and law to logistics and telecommunications—account for half of all global exports and two-thirds of global GDP.³ Tracking these import and export transactions is challenging for customs agencies.  
3. Crime is moving online and growing in sophistication. Cyber-enabled financial crimes, such as business email compromise, executive fraud, e-commerce scams, and investment fraud, have escalated in nearly every region. Today’s ransomware attacks target ‘big game’ targets, including major corporations, governments, and critical infrastructure.  

These trends hinder progress and growth within customs and port authorities and addressing them requires immersive data management and cooperation. 

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The importance of immersive data management for customs and ports  

Immersive data management starts with a customs and port authority data hub. Data will drive the digital customs of the future, and a data hub provides real business insights and enables better decision-making. A data hub aggregates customs data into one place, applies AI and machine learning analytics, and visually displays the information to the right person, at the right time, in the right place, and on the right device. 

While the aggregated data provides one version of the truth, it also serves other purposes: 

• Provides insight into the tax compliance of a trade, linking all the associated documents so that 80 percent of trusted trade can be processed automatically. This enables customs officials to focus their efforts on the other 20 percent of ‘suspect’ trade.
• Provides insight into cross-border trading, combining the customs documents with other data points to enable officers to better target their intervention resources.
• Supports the optimization of portside cargo logistics. For example, it can enable an understanding of where unloading equipment is in relation to a ship docking, or uncover the most efficient way to get from the ship to market using trains, trucks, and other modes of transportation.
• Unlock insights into risk using advanced AI analytics to identify anomalous behavior, changes in trading trends, suspect activities, and more.
• Gives insight into the overall sustainability picture, from port and airport energy emissions through the entire supply chain.

The power of cloud technology, like that of the Microsoft Intelligent Data Platform, coupled with advanced AI analytics and human decision-making, can make this possible.  

Innovation unlocked by immersive data management 

2. Gaining real-time intelligence: Seamless operations require real-time intelligence on activities in and around the port. Deploying the Internet of Things (IoT) sensors across a port can provide unprecedented insight into real-time occurrences. Sensors can be deployed on cranes, vehicles, buildings, energy generators, containers, ships, tugs, people, and more.
3. Enabling remote operations: Creating a digital twin of a port can enable better understanding and management of operations remotely. With IoT sensors placed in different locations and on many pieces of equipment, port authorities can create a 3D map of the entire environment. These signals can be sent to enterprise resource planning (ERP) and customer relationship management (CRM) platforms via Remote Assist in Microsoft Dynamics 365 to remediate incidents or track resource allocation for remediation.
4. Promoting sustainable operations: IoT sensor data can also be combined with a customs warehouse building energy management system (BEMS). This provides invaluable insight into how the buildings are being used to identify opportunities for more sustainable processes. 
5. Increasing supply chain visibility and efficiency: The Microsoft Supply Chain Platform, with the Supply Chain Centerat its core, provides a “command center” experience for practitioners to harmonize data from across existing supply chain systems. Its data manager harmonizes and orchestrates data to provide visibility across the supply chain and drive action back into systems of execution.

Real-life examples of innovation in customs and ports  

Innovation—powered by immersive data management—connects people and technology in an integrated manner to enable intelligent port orchestration and deliver real business outcomes. Customs and port agencies are starting to leverage AI and machine learning technologies to transform their businesses, starting first with a focus on desired business outcomes:  

• European Maritime Safety Agency: With our partner, Codit, the European Maritime Safety Agency adopted an Azure-based Maritime Data Platform. This enables authorities to have insights into shipping patterns using geospatial imagery made available by Microsoft and Airbus. 
• Maersk: Maersk uses IoT devices on their containers—with Remote Container Management System on Azure—to track and monitor refrigerated shipping containers as they move across the globe. They leverage IoT data insights to optimize internal operations and create new projects.  
• Project SEEKER: Project SEEKER is a first-of-its-kind multispecies AI model developed using Azure machine learning services to combat smuggling and wildlife trafficking. It enables x-ray scanning that automatically detects illegally trafficked wildlife concealed within luggage and cargo. Wildlife trafficking often goes hand in hand with other organized crimes, including corruption and money laundering. 
• Ports of Jersey: The Ports of New Jersey benefit from multifaceted uses of The Bot Platform to connect and keep engaged a distributed workforce. 
• Microsoft Electronic Invoicing Anomaly Detector Accelerator (e-IAD): The e-IAD Accelerator is a practical example of how agencies can use Microsoft AI and machine learning at scale—within a tax and customs agency—using electronic invoicing data. Agencies can leverage insights to uncover patterns of anomalous activity that help improve revenue collection. The e-IAD Accelerator is the result of collaboration with the Inter-American Center of Tax Administrations and leaders from tax agencies around the world. 

Enabling digital customs of the future 

Customs is complex and adopting new technology can be daunting for many agencies. Microsoft can help agencies transform operations with a focus on business outcomes. Now is the time for customs organizations to adopt an intelligent data platform, embrace AI and machine learning, IoT, and explore other modern technology like virtual and mixed reality, blockchain, drones, and more.

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To learn more about how Microsoft supports customs and port authorities innovate their operations, read our whitepaper, Digital Customs of the Future. 

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¹ UNCTAD, Global Trade Upgrade (March 2023).

² International Chamber of Commerce, ICC 2023 Trade Report: A fragmenting world, April 6, 2023.

³ World Economic Forum, These 3 charts show how international trade works—and the current state it’s in, October 4, 2021.

The post Delivering innovation in customs and port operations with Microsoft for Public Finance appeared first on Microsoft Industry Blogs.

Society demands more from government today than ever before. Gone are the days where government budgets could be set without transparently connecting taxpayer money directly to tangible outcomes. Today, traditional “analog” government structures that permit departments and services to operate in silos are understandably challenged by citizens, agency employees, and businesses alike.

So how can budget and treasury agencies meet these desired outcomes, enable real-time public services, and provide measurable social and economic outcomes? With innovative technology that enables outcomes-based budgeting, leading to more accountability and increased cross-agency effectiveness.

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Outcomes-based budgeting allows agencies to track progress to jurisdictional outcomes that would have been near impossible in the past. It also empowers agency employees with innovative and secure tools that cater to desired government investments and fosters financial inclusion.

In figure 1 below, each box represents one of the outcomes agencies strive to achieve. The colors reflect the type of technology required to provide the financial foresight to measure these outcomes. For example, agencies are looking to improve the skills of the workforce to get better jobs in the future. To deliver on and measure this outcome, they need technology to improve collaboration and knowledge sharing, like Microsoft 365 and Microsoft Viva Learning. Similarly, to deliver on the business outcome of making trade easier both in-country and abroad, agencies need technology for both digital payments management, Microsoft Azure, and collaboration and knowledge sharing, like Microsoft 365. 

This vision of outcomes-based budgeting and financial foresight hinges on three pillars of transformation for budget and treasury agencies:

1. Become predictive, connected and agile: An expanded impact through strategic foresight capabilities that allows treasury departments to cope with increasing volatility of interconnected global socioeconomic ecosystems and influence broader policy.
2. Be a trusted and transparent government advisor: Shift in focus to proactively build trust and transparency and to empower near-real time policy advising.
3. Foster financial inclusion, innovation, and resilience: Enable an evolving landscape of financial innovations to facilitate financial inclusion and resilience for agencies and countries as a whole.

To facilitate such transformation, budget and treasury agencies need to consider four main technology areas:

1. Modern budget planning: Enhanced budget forecasting capabilities and process automation that’s agile, real-time, and intelligent to enable immediate and actionable budgetary execution, reporting, and compliance management.
2. Accountable treasury management: Highly transparent, nimble, and intelligent management systems that automatically manage the liquidity of national assets, debts, reserves, and investments.
3. Targeted grants management: Streamlined grants programs that are aligned to national investment objectives, with shorter and more transparent approval procedures to facilitate the efficient disbursement of grant cases. In addition, the ability to generate reports on the impact of disbursements to national objectives such as gross domestic product (GDP) growth and jobs creation, for instance.
4. Sustainable public procurement: Compliant and highly transparent digital procurement platforms that can easily allow automated IT or financial audits to occur at any point in time. Furthermore, the agility to integrate new policies and regulations into the procurement process that’s aligned with national agendas, such as environmental, social, and corporate governance (ESG) goals or the various trade agreements.

City of Columbus elevates budget planning and streamlines budgeting processes

The City of Columbus is a prime example of a government budget and treasury agency who harnessed the power of technology to streamline processes, empower employees, and embrace the above tenants of outcome-based budgeting. As the capital of Ohio and the 14 largest city in the United States, the city strives to meet the challenges of their modern, growing city, including for government budgeting and accounting. For a city, the level of scrutiny on every dollar collected and every dollar spent is high. They understood that, as mentioned above, financial planning, budgeting, and accounting need to be fully transparent and traceable.

They partnered with Microsoft to adopt a solution based on Dynamics 365 Finance, and using elements of Dynamics 365 Supply Chain Management, commerce applications and Microsoft Power Platform. Currently, the city maintains over 150 budget plans and 9,000 forecast positions, and more than 3,500 grants and capital projects. Many of these processes use workflows with multiple levels of approval, adding to the complexity.

With Microsoft Dynamics 365, the city can easily and flexibly maintain, manage, and adjust those process flows as their needs change. In a short amount of time, the City of Columbus has been able to recognize some of the expected results with Dynamics 365, including a reduction of more than 10 percent in budget planning effort and increased productivity for remote employees.

• Less effort for better budget planning: With Dynamics 365 the city has enhanced the budgeting process for around 60 users engaged in budget planning. The intuitive, easy-to-use interface looks and feels like Microsoft Excel, and has allowed users to reduce time and effort spent on budget modeling and maintenance. With up-to-date budget information, a set of Microsoft Power BI reports with views of budget data are used to review and validate budgets as the team moves through the budget cycle.
• Increased productivity for remote employees: Employees can access the system from anywhere, without VPN, increasing productivity and strengthening disaster recovery. These capabilities were tried and tested during COVID-19, as lockdowns took hold and city employees were forced to work from home. The ability to access and interact with systems just like they do at the office helped the city remain productive and continue to service the needs of Columbus residents. 

Utilizing technology to build long-term financial resilience

As treasuries face new challenges and their priorities shift towards tackling current and future crises, the government has a unique opportunity to demonstrate how they leverage new technologies to build long-term financial resilience and inclusion, empower employees, and enable sustainability. This requires efficient internal processes that can be automated easily to free time and effort for other priorities, like inclusion and sustainability. Microsoft solutions like Dynamics 365 Finance and Microsoft Power Platform can be leveraged to achieve operational excellence and provide low-code tools for automation. We partner with organizations worldwide to utilize the insights of these learnings and harness the power of data-driven services and cooperation to build a better future for everyone.

To learn more about how the City of Columbus harnessed technology to transform finance processes and how Microsoft can help empower treasury agencies to drive outcome-based budgeting, visit Microsoft in Public Finance.

The post Discover how Microsoft can help treasury agencies drive outcome-based budgeting appeared first on Microsoft Industry Blogs.

Continue to read how our Microsoft for Public Finance teams worked with this revenue and customs agency to build a modern solution to reduce the time of forensics and ensure a robust method of data aggregation.

The scale of the challenge

The revenue agency serves a population of over 60 million people and over four million registered businesses, ranging from small companies to larger multibillion-dollar conglomerates, and here lies the problem to be addressed by the revenue and customs agency, and Microsoft co-engineering project. The risk analysis team within the agency relied on multi-data aggregations and joins from datasets distributed across the various functions within, and outside of the organization. This was a time-consuming process that required a lot of domain knowledge, and knowing exactly what to look for in order to set up the right kind of forensic process on a person(s) of significant control, or a company subject to corporation tax. If a relationship or dataset was missed during the data aggregation stage, the forensic process could be led astray. The agency wanted to build a modern solution to reduce the time for forensics and to ensure a robust method of data aggregation allowing the risk analysis team to enrich their process. This engagement also served as a starting point for them on the path of building a 360-degree view of the taxpayer, which will not only enable better compliance and risk profiling but also better taxpayer base segmentation for personalized targeted programs and communication.

The secret sauce: Code-with, not for

The Commercial Software Engineering team (CSE) within Microsoft is a multi-industry-based organization that supports strategic Microsoft customers by:

• Building solutions in a code-with engineering capacity.
• Unblocking innovation roadblocks by providing best-in-class cloud development expertise.
• Providing support with industry insights to accelerate the customer’s engineering process toward their digital strategy and vision.

A typical CSE engagement consists of the Microsoft side of four to five software engineers, a technical program manager, and a project management office (PMO) representative that forms what is called a “dev crew.” The dev crew and the additional customer’s engineering team, typically several software engineers and a product owner, form a single co-engineering team working towards a common goal. The aim of this arrangement is for both teams to learn from each other and share both industry and technical knowledge. A successful engagement concludes not only with an innovative outcome but also with the co-engineering team having gained deeper technical and industry expertise.

Solution and design

One of the main tasks to get to a successful outcome was for the risk analysis team to get all relevant data points on a person of significant control and the relationships of these data points, without having to go through the process of explicitly building out these relationships. Furthermore, the outcome needed to display the connections this person had with other people that own significant control in companies. Finally, the output had to be displayed as a user-friendly graphical interface that allows others in the organization to be able to consume the outcome as a quick informative illustration.

The design of the co-engineering team’s solution consisted of a graph database with a data model that preserves the relationships between the data points. This graph database would store the data in the form of:

• Nodes: A subject point such as a person or company that holds attributes of that subject.
• Edges: Denotes the relationship between nodes and how they interact with each other.

To have this solution operate in production with a consistent level of quality, the raw data needed to be ingested and transformed into the graph format to produce the desired output. As part of the solution, a repeatable data ingestion layer was created to ingest the various datasets from their existing locations, transform the data via a data transformation layer, before ultimately landing in the graph database. In this case, leveraging the Azure Cosmos DB Gremlin API.

Co-engineering business impact

The implementation of this solution gives a tax agency the ability to enrich their analysis with data that is already linked. The limitation of discerning information from scattered data and only based on datasets the analyst is aware of would no longer be an issue. The risk assessment team within the agency can now simply look up a company, by company ID, and be able to view all the relevant information about that company, its connections to other companies, and the people who are connected to it. The data displays second, third, and fourth connection layers along with their attributes.

This widens the business value by:

• Cutting down the time-to-value by focusing on the analysis.
• Reducing time-consuming join operations, as relationships are stored with the data.
• Delivering effective business intelligence (BI) that gives the user a simpler visual representation of complex relationships.
• Delivering a key capability towards their vision of making tax digital.
• Enabling effective cross-learning between two engineering teams operating as one.

Co-engineering technical impact

The outcome of the engagement was the result of a timeboxed co-innovation project. The CSE and customer teams worked diligently across the span of several scrum-based sprints to meet the goals outlined at the beginning of the partnership. With a continuous effort to improve with each iteration, the engineering fundamentals were reviewed on a weekly basis, along with a continuous process of backlog refinement and an end-of-sprint retrospective to revisit, assess, and remodel the main priorities of the subsequent sprints.

The resulting outcome was:

• A DevOps solution that ensures robust continuous integration and continuous deployment pipelines and rollout of infrastructure as code.
• A repeatable data ingestion and transformation pipeline for longevity and futureproofing.
• A flexible graph database (DB) that accommodates for scale and domain requirements.
• An application programming interface (API) that enables the integration of the graph DB into internal systems.
• A visualization component for rapid search enrichment and information gain.
• The sharing of engineering best practices has enriched engineering teams, the customer, and Microsoft.

Future plans

The outcome of this engagement has led to the discussions and the ideations around the next phase of capabilities for the graph DB within the revenue and customs agency. With the data being transformed, stored, and queried in the graph format, ideations on analytics and machine learning to further reduce the time to value for the analysis team have been explored.

Such as:

• Widening the scope of data being pulled into the data model for further enrichment of results.
• Implementation of Graph Neural Networks to pave the way for targeted recommendations.
• Deeper data mining capabilities.

Next steps

At Microsoft, we are continuously improving on the graph database solution for public finance and tax agencies. With our partners, we seek to enrich the capabilities offered and to provide the right kind of industry domain knowledge for the solution. If you would like to learn more about how we can help you leverage this solution, visit our Microsoft for Public Finance web page.

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For more than a decade, tax administrations across the globe have been exploring the use of artificial Intelligence (AI) and machine learning (ML) to prevent and detect tax evasion.

While there are promising results, AI needs to further evolve and mature to drive increased impact. Democratizing access to AI, training more experts in data science and data engineering, and deploying more agile development life cycles are all key for that evolution and progress.

Tax administrations have traditionally used risk-based models applied in batch at the end of the fiscal year to look for discrepancies. AI and machine learning present an exciting opportunity to move to near-real-time detection and reporting of discrepancies on tax data to the government. We invite you to read Microsoft Fraud Protection Capabilities to see how Adaptive AI continuously learns to protect you against payment fraud, bots, account takeover, and returns and discounts fraud. This article introduces account protection and how AI addresses common challenges such as fake accounts, fraudulent account access, and user account abuse.

Changing payment methods

New billing and payment methods are changing the rules in the public finance industry. Billentis¹, recently forecasted that the global market for electronic invoicing is expected to be 550 billion invoices annually and will quadruple in size by 2035. Governments worldwide are pushing e-Invoicing as a mechanism to perform fiscal reporting, with better collection of value-added taxes (VAT) being one of the key drivers.

Existing risk-management and business rule-matching techniques used by tax agencies to run background checks, qualify, and detect fraud and other such tasks can be enhanced by using AI/ML to:

• respond proactively and rapidly to a detected event with near-real-time data.
• integrate more sources of data and share data across the tax ecosystem
• better understand taxpayer reporting and compliance behavior.
• improve the quality of data.
• drive more proactive digital audits and less reactive audits.

How a tax agency can improve its effectiveness in the detection and prevention of fraud

We consider four dimensions to build an organizational capability: people, process, technology, and data.

People—culture and digital skills

Building AI/ML and data science capabilities involve developing qualified human talent with appropriate skills and introduce new ways of getting things done. A culture of innovation and digital skills are fundamental for this change. You can read about what Microsoft offers in digital skills-building in this article: “Microsoft launches initiative to help 25 million people worldwide acquire the digital skills needed in a COVID-19 economy.”

Subject matter experts in the business are key to leveraging the institutional knowledge related to risk management, tax auditing, and tax intelligence. They play a crucial role in the exploratory phases and even more so in interpreting and validating results produced by AI/ML. Business subject matter experts are the ones who finally validate and qualify an AI/ML result as fraud—or not.

Process

For fraud detection and prevention, the process for interpreting results is critical. Once diagnosed, identified anomalies, abnormal behaviors, or potential fraudulent taxable transactions need confirmation through automated techniques with a ‘human in the loop’ validation procedure. Human intervention allows the tax authorities to leverage the organizational knowledge from their in-house subject matter experts and make appropriate interpretations surfaced by the models.

Further, adopting low code application development and process automation can help generate actionable data insights, connect to auditing systems, and automate alerts and notifications. The benefits extend to the productivity of the human talent that participates in the fraud detection process. Here is an inspirational success story of how a “Progressive retailer resolves challenges with low-code automation and AI solutions.”

Technology

An effective practice to detect and prevent fraud demands the use of multiple analytics and machine learning techniques. These include text clustering, entity resolution, risk scoring, network analysis, and others. They are selectively used to do taxpayer profiling and segmentation, risk scoring of tax operations, analysis of the supply chain, and identification of abnormal transactions among many others.
Security and privacy are genuine concerns for government agencies when storing data in the public cloud. The evolution of confidential computing and other technologies are enabling strong isolation of sensitive data while at rest and during processing in the cloud.

Investing in agile development practices such as , MLOps, and DataOps are essential for the efficient deployment, testing, calibration, and operationalization of machine learning algorithms. This is foundational for introducing effective fraud detection on tax agency data. You can read the “GigaOm-Delivering on the Vision of MLOps” report to familiarize yourself with the MLOps practice.

As tax agencies collect more types and larger amounts of data such as e-Invoicing, capabilities in the hyper-scale cloud provide a backbone to deal with the volume, variety, and velocity of such data. Big Data solutions in the cloud provide the flexibility, performance, and efficiency required to do near-real-time data processing.

The following figure illustrates the challenge of increasing volumes of data when e-Invoicing is introduced.

Data

And finally, the importance of good data that is critical to achieving the best results. That said, developing good-quality data is not simple. However, the introduction of near-real-time analytics helps detect quality gaps and introduce preventive practices, such as alerting the taxpayer for inconsistencies. Conventional analytics processes run after the fact, months or maybe even years later, limiting the opportunity to fully exploit data for its potential. That is why near-real-time analytics is highly valuable for Tax Agencies.

A major opportunity is the ability to drive value from data as fast as possible. Near-real time analytics should be part of the AI agenda. According to the Organisation for Economic Co-operation and Development (OECD): ‘The advent of a digital age in government has created new opportunities for assessing risks of fraud and corruption in infrastructure.’ ²

AI maturity

As we mentioned at the beginning of this article, the adoption of artificial intelligence and machine learning is a journey, moving through multiple levels of maturity. As you can see in the figure below, Microsoft has identified four maturity levels for tax administrators to adopt AI and ML.

A comprehensive AI platform is a key component for fraud detection and fraud prevention in the tax administration.

Summary

Speedy responses are critical for detecting and preventing fraud. Newer and fast emerging tax-evasion schemes introduce higher levels of sophistication and complexity that departments need to address constantly. The digitalization of taxable transactions has become a reality. All this presents a very real opportunity for tax administrators to increase the use of artificial intelligence to use data proactively and at near-real-time to fight against fraud.

A comprehensive approach for enhancing AI, acquiring human talent, creating AI processes, implementing an AI platform, and improving the use of tax data, is therefore fundamental.

We invite you to read more about the Microsoft Fraud Protection capabilities to see Adaptive AI that continuously learns to protect you against payment fraud, bots, account takeovers, and returns and discounts fraud. This provides a good source of inspiration to introduce fraud prevention and protection in Tax .

To learn more about Microsoft’s global view in Government, visit our web page

¹ Bellentis, The e-invoicing journey 2019-2025, Fourth Edition, September 2019

² Analytics for Integrity: Data driven Approaches for Enhancing Corruption and Fraud Risk Assessments, OECD 2019

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The current economic landscape

To learn more about how public finance organizations can be a leading agent for the economic rebuild of our communities, register to watch this webinar “The key role of Public Finance Organizations in the economy rebuild.” During this webinar, you will gain strategic insights from other countries on how they are restarting the rebuild of their economy.

With governments now focused on post-pandemic economic recovery, three consistent themes have emerged:

• The urgency of digital transformation: Governments now understand that digital technology and data are critical components of their nation’s infrastructure. Organizations that are further along their digital transformation initiatives proved more resilient. For example, the Government of Canada swiftly pivoted operations to deliver secure critical citizen services while simultaneously enabling approximately 250,000 employees to work remotely, thus minimizing the impact to government services.
• Public-private partnerships: With organizations operating at their limits to deliver community services, to expedite the aperture of what these organizations can provide, governments must look to public-private partnerships (PPPs). The agility and additional capability that PPPs provide proved especially valuable when rival companies came together to hasten the manufacture of ventilators.
• Focus on social impact and good sustainability: Governments earmarked funding in stimulus packages to fund programs that target environmental performance, social cohesion, and economic development. The EU Green deal aims to mobilize at least €100 billion over the period 2021-2027 in the most affected regions.¹ The ASEAN Catalytic Green Finance Facility (ACGF) provides member states with technical assistance and access to over $1 billion in loans from co-financing partners.²

The digital transformation journey within public finance agencies

Governments are relying on public finance agencies to foot the bill. These institutions struggle with significant inefficiencies as they attempt to combat increased tax evasion and fraud:

• Globally, it takes an average of 27.3 weeks to complete a VAT refund request. As a result, EU countries lose €137B in value-added tax revenues annually.³
• Every year, governments globally lose $2 trillion due to corruption. To put this amount into context, that amount would solve world hunger, provide basic education to all children, eradicate malaria, and bridge the global infrastructure gap.⁴
• With over $9 trillion in COVID-19 recovery packages planned, additional cracks in economic stimulus programs infrastructure will be exposed and reveal new, large opportunities for corruption and fraud.⁵

Digital Transformation technologies are a priority for governments and critical to how public finance agencies engage with individuals and businesses. The capability new technologies provide can ensure the highest levels of compliance and a more efficient economic rebuild.

Today’s governments are more proactive, collaborative, and transparent. As organizations attempt to enable intelligent, predictive capabilities they are finding the journey difficult. Successful outcomes can only be achieved when people, governance, technology, and data work together. Transparency builds trust and trust drives compliance. To accelerate the move to a culture of greater transparency and accountability, governments must adapt.

Microsoft’s vision for public finance ecosystem cooperation focused on economic rebuild

Along with accelerated digital transformation, a successful economic rebuild requires interagency cooperation. This cooperation needs a foundation based on verification of credentials to allow for the intelligent, real-time sharing of data. Today, many public finance agencies are unable to exchange data and leverage data analytics in a way that allows them to enact policies and procedures that most benefit communities, companies, and government.

Secure and scalable data collaboration helps governments better serve their residents, reduce administrative and compliance costs, and boost their nation’s competitiveness. As governments become more sophisticated they can begin to leverage machine learning and AI to move from reactive to predictive and proactive, so they minimize operational costs and can handle crises more effectively.

Public finance organizations embrace technology innovation to expedite economic rebuild efforts

Modern grants management is required to make sure the right support package reaches the right organization or individual at the right time. A good example of how technology accelerated appropriate aid delivery, is the work KPMG and GrantCare performed in order to help accelerate relief-fund disbursement. They also improve tracking and management of federal grants for the State of Georgia.

To ensure that governments reach vulnerable populations, two components are critical: verification for eligibility and advanced analytical capabilities to segment populations and profile. The Flanders Government of Belgium is piloting decentralized identity technology to lower the burden for citizens to opt into programs while improving their trust in the government. Chile’s Solidarity and Social Investment Fund (FOSIS) leverages data and AI capabilities to manage information and securely provide answers to citizens in distress. All application data—budgets, program information, and operational management—is displayed in dashboards to increase transparency while Role-Based Access ensure that parties view only the data they are supposed to.

The ease of doing business is extremely important to a nation’s competitiveness. The focus to improving this by reducing the administrative burden on businesses and individuals falls on organizations such as the Department of Information and Communications Technology Philippines. This organization modernized its Electronic Business and Permits Licensing System (eBPLS) to simplify processes that led to immediate cost and time savings, reduced human intervention, fewer errors, and fewer opportunities for fraud and corruption.  The solution implemented also enabled faster permit processing and increased revenues resulting from improved collections.

Similarly, the Ministry of Finance Poland developed a service called. “Twój e-PIT” (Your e-Personal Income Tax), an easy-to-use digital tool. Taxpayers can use e-PIT on any computer, smartphone, smart TV, or gaming console that is connected to the internet to file their taxes. Now they can file in as little as five minutes while continuing to offer a full suite of services despite the transition of its employees to remote working conditions due to COVID-19.

Accountability is an especially important measurement for governments. Protecting tax dollars from fraud, waste, abuse, corruption is top of mind for many organizations, politicians, and their constituents. To support these efforts Microsoft launched Anti-Corruption Technology and Solutions (ACTS) to empower governments and other stakeholders in their battle against corruption. With this initiative, Microsoft hopes to support governments in their quest to innovate with technology and expertise.

At Microsoft, we are committed to complying with the data privacy and security requirements of governments. We understand that government digital reality will continue to be hybrid. To better respond to government needs we are announcing Azure confidential computing. Azure confidential computing offers data protection that has been missing from public clouds. This new service helps organizations secure sensitive and regulated data that is processed in the cloud by isolating computations in a hardware-based trusted execution environment. It also protects data that is in use to prevent it from access by a cloud provider, administrator, or user. This is built on top of secure hardware with familiar tools, software, and cloud infrastructure.

Our vision for the public finance ecosystem creates a predictive, taxpayer-centric public finance sector. It also helps measure the social outcomes of public spending, leading to a skilled workforce, modern infrastructure, and environmental sustainability.

Watch the Digital Forum: “The key role of Public Finance Organizations in the economy rebuild,” and visit Microsoft in Government to learn more.

References:

¹ A European Green Deal

² ASEAN Catalytic Green Finance Facility

³ Paying Taxes 2020

⁴ We waste $2 trillion a year on corruption. Here are four better ways to spend that money | World Economic Forum

⁵ Tracking the $9 Trillion Global Fiscal Support to Fight COVID-19

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Carrot or stick? For tax authorities looking to increase revenue collection while minimizing fraud and evasion, it ultimately comes down to one of these two approaches.

The “stick” approach is adversarial: favoring a coercive approach to tax compliance, and threatening punishment for non-payment. The “carrot” approach seeks to create a culture in which taxpayers feel the tax authority is on their side, they clearly see the wider social benefit of paying taxes, and the process of submitting returns and making payments is easy and non-intimidating.

Carrots are better—for everybody

Many modern governments are finding the second approach more fruitful. Encouraging voluntary compliance doesn’t just result in a higher proportion of tax being collected on time. It also reduces the cost to the tax authority of collecting the revenue, since it spends less time and budget on investigations and enforcement.

Making it happen is more difficult. In many countries, there’s a climate of fear among citizens when it comes to paying tax. Turning that perception around takes time and effort, and isn’t helped by events like the recent phone scam here in Canada, where criminals posing as the CRA demanded immediate payment with menaces—netting CAN$10 million to date from terrified citizens.

Four technologies that help promote voluntary compliance

Our work with tax authorities around the world has shown that technology can play a major role in creating a culture of trust and cooperation that leads to voluntary compliance. Here are four technologies that can help taxpayers and tax authorities work more productively together:

Cloud: This is the first step for many authorities looking to move services online and make sure they’re always available. Offering 24/7 service in the cloud means citizens always have somewhere to find advice, submit returns, and make payments. The scalability of the cloud infrastructure means that services never go down—even at times of peak demand like payment deadline days.

Collaboration tools: When tax officials can easily collaborate and find the information they need, taxpayer queries and cases can be resolved faster. Officials can use online productivity tools to work smarter, and be more knowledgeable and productive when meeting with taxpayers. Mobile devices allow them to spend more time in the field, helping taxpayers to calculate tax owed—or refunds due—and submit the right paperwork.

Business process automation: Paper-based forms can be notoriously hard to navigate; even trying to find the right form can be an offputtingly difficult task. Infusing smart online forms with AI can help—by dynamically reconfiguring the form based on the information the taxpayer is entering, or by pre-populating the form with preexisting information to save time.

In Mexico, the Servicio de Administración Tributaria offers an online portal where taxpayers can input their ID and see automatically calculated deductions—helping them file returns faster and more accurately.

Cognitive services: Tax authorities can take a cue from innovative insurers, and use cognitive services like chatbots and voice assistants to make it easier for taxpayers to navigate services and find the information they need. The Australian Taxation Office, for example, has introduced ‘Alex,’ a virtual assistant that can help answer general enquiries from citizens and businesses.

Get the full guide to digital transformation

For tax authorities seeking to increase rates of voluntary compliance, all of these technology initiatives are worth exploring. To see how they can fit within a wider digital transformation strategy, download a comprehensive guide from Microsoft and PwC: Digital Transformation of Tax Administration.

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• Data and Indicators – Help assessing and benchmarking countries’ digital readiness through data and diagnostic tools;
• Digital Economy and Innovation – Drive innovation and create new markets through the development of digital platforms & solutions;
• Internet Access for All – Create new business models that include a focus on enhanced connectivity and Internet access for emerging countries – with an emphasis on access for the poor and people living in rural areas; and finally
• Digital Government – Establish digital government infrastructures and services for all.

Technology is a powerful agent of change for solving many of the challenges facing countries today as they move toward sustainable growth and inclusive development models that are made possible through Digital Transformation. Accordingly, we are looking at areas where we can accelerate economic development by harnessing the effective deployment of technology innovations. Two examples are illustrating the power of partnership and innovation.

1. To improve technology access for citizens who are currently without Internet access, Microsoft and Kenyan Internet Service Provider Indigo have partnered to help the Kenyan Ministry of Information and Communications deliver high-speed internet access to areas lacking even basic electricity. The deployment is called “Mawingu,” which is Kiswahili for cloud. It is the first deployment pairing solar-power with TV white spaces, a technology partially developed by Microsoft Research, and it is bringing new opportunities for commerce, education, healthcare and delivery of government services across Kenya.
2. Establishing intelligent transportation is another key to economic development for emerging economies. Embedding the Internet of Things not only within vehicles but within a country’s infrastructure so that goods, labor and routes are all connected will make huge strides in a region’s progress and economic opportunity. The Trans Kalahari Corridor, as an example, is a high-volume network of roads spanning some 1,200 miles across Botswana, Namibia and South Africa. With intelligent transport, we can find out how many trucks and goods are going through, manage the flow, and increase operational efficiency in crossing borders. It is also about knowing what citizens and businesses should expect, digitally filling forms so containers can be tracked easily, as well as shortening times on routes and at border stops.

As the World Bank works to address these digital development issues, Microsoft will continue to be a willing partner, committed to facilitating access to affordable broadband access for all, to promoting and protecting the digital infrastructure, and to mainstreaming digital innovations so that people all over the world can benefit. When we work together and embrace the power of trusted, responsible, and inclusive technology, there is so much more that we can achieve. Microsoft is proud to be a part of the Digital Development Partnership for enabling digital dividends for all. #MSFTempowers

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When I learned about the energy savings that Darrell Smith, Director of Facilities and Energy at Microsoft, achieved at the company’s headquarters, I had to learn how he did it so I could put it into action in Arlington, Massachusetts. I knew the technology had the power to transform not only our town but municipalities across the country.

Smith told me about the Microsoft project and showed me how the fault detection and diagnostics technology (FDD) operated, drilling down to how each piece of equipment was functioning at that moment.

I realized this had real potential, and, even though the Town of Arlington isn’t Microsoft, I was going to make this happen. Smith introduced me to ICONICS, the Microsoft 2014 CityNext Partner of the Year, which is located only 45 minutes away in Foxborough. ICONICS provided the fault detection software, Facility AnalytiX, which is the brains of the system.

Working with ICONICS, we installed the Facility AnalytiX software in the Peirce School because that’s where the school district recently consolidated summer-school classes. We had already invested in a new chiller to air condition the entire elementary school. We created an Internet of Things system, tying the HVAC equipment sensors to the Internet and deploying Facility AnalytiX on Microsoft Azure, which allows us to store and analyze an incredible amount of data.

This is extremely sophisticated software managing very complex systems, but data is disseminated in a way that a layperson can understand and use. That’s important as we try to do more with less. We don’t have a mechanical engineer on staff and we aren’t super tech-savvy.

During the Peirce pilot, we reduced the time it took to find problems by at least 15 percent, and it reduced natural gas consumption in a colder-than-normal winter by 20 percent. I can’t wait until June when I can see full-year figures.

We now plan to roll it out to a second school, and our goal is to incorporate Facility AnalytiX into any school or town building we can. Any construction going forward will be “FDD ready.”

That includes the potential for a new high school, which we are discussing now. Arlington High School is the biggest consumer of energy in town due to its age, size, and configuration. In fiscal year 2014, the high school used 12,119 MMBTUs and emitted 1.5 million pounds of CO2. It consumed 25% more energy than our middle school. I’m looking forward to using FDD to lower those numbers.

Arlington’s energy savings were presented to the state, which is now considering allowing other Massachusetts municipalities designated as Green Communities to apply for fault detection software as part of its state-sponsored energy reduction funds. We really can’t buy more efficient boilers, but with FDD technology, we can actively manage energy consumption. It’s the next big thing for facilities management and smart, sustainable cities.

Read the full case story here.

Microsoft CityNext
Empowering more sustainable, prosperous, and economically competitive cities-with a simplified approach that puts people first! For more information please visit: www.microsoft.com/citynext

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