Analytics Automation: The “Secret Decoder Ring” for States

Unlocking Insights from the Combined Federal/State Filing Program.

Technology   |   Andy MacIsaac   |   Dec 30, 2022

Technology and innovation have always had a role in transforming government operations to better serve the needs of the public. Like most states, the State of South Dakota receives from the Internal Revenue Service (IRS) a data extract containing federal tax information (FTI). This data extract is sent to state tax agencies on a recurring basis, and the individual state tax agencies use to information to administer their state tax laws.

 

“… in this world, nothing is certain except death and taxes.”
—Benjamin Franklin

 

A lot of information within the IRS shared data extract comes from ability of businesses and individual taxpayers, to use the IRS supported Combined Federal / State Filing (CF/SF) Program which creates a deep degree of convenience for one of the certainties of life — filing and paying taxes. But what is convenient for the taxpayers may also create some challenges for state tax agencies, specifically those charged with audit investigations and enforcement.

 

Decoding Data at Speed

One specific challenge is that the data file used by the South Dakota Department of Revenue contains data from payees in all states and multiple federal tax filing forms. This could include information across ten different 1099 categories. For states like South Dakota (without a state income tax), the focus for their audit investigations and enforcement are most often on items related to sales taxes on goods and services like meals in restaurants and retail stores.

 

This revenue stream is vital to South Dakota’s operating revenue. The sales and use tax revenues are almost 75% of the total state tax revenue and total over one billion dollars annually.

 

According to Kaitlin Biteler, Interim Audit Director for the State of South Dakota, “the IRMF file transmitted to the state may contain eight million rows of data across 26 different files, but for the purposes of the state’s audit compliance project, only 80,000 rows of data would be relevant — mainly information related to 1099Ks.” The 1099K has to do with Payment Card and Third-Party Network Transactions, so for the team in South Dakota, it is vital that they can pull out this data quickly to inform which cases may need to be investigated. Additionally, Alteryx is critical to the state audit team in parsing out the raw file transmitted from the IRS.

 

“Alteryx is the ‘secret decoder ring’ that enables the team to understand the data and key to the information they need.”
—Kaitlin Biteler, Interim Audit Director, State of South Dakota

 

Agility and Repeatability = Greater Access to Insights

With Alteryx, the data team can extract, transform, and load data at speed, accelerating process that used to take weeks. It now only takes 20 minutes to run the new extract through the workflow giving the audit team insights much faster than in the past. Additionally, the agility of Alteryx, which does all the heavy lifting of data clean up, joining, and analysis, enables the team to feed insights into Power BI visualizations that show actual filing activity compared to the1099s filed by business based on their Taxpayer Identification Number.

 

With these easy to consume insights, additional sorting can be done by Industry/SIC Code, allowing the team to quickly identify trends or spot anomalies. One of the most powerful aspects of the process being used by the audit team is that the flexibility of the workflow allows for easy to implement repeatability and automation as new data comes it, but if needed, self-service ad hoc requests are easy to achieve if a new analysis is necessary.

 

The team has also used this process to identify entities that are doing economically significant business in South Dakota but do not appear to be reporting their tax liabilities. Because of Alteryx, these leads are turned over to the Tax Discovery Unit for further investigation.

 

Discovering Hidden Connections in Data

Although early in its implementation, analytics automation is already paying dividends in speeding up access to insights for the team in South Dakota. The audit team is expecting to see an increase in audit effectiveness as better audit candidates are identified. And, as the team becomes better experienced with Alteryx, they are building skills for leveraging tools such as fuzzy matching to find hidden connections in the data that could uncover discrepancies, indicate fraud, and most importantly, help South Dakota optimize the revenue collection processes.

 

“Across the multiple of functions of government finance and revenue operations, Alteryx is empowering teams with the insights they need to optimize operations and preserve resources needed to provide services for people and communities across their judications.”
—Andy MacIsaac, Alteryx, Public Sector

Learn More

See what unified analytics from Alteryx analytics can do for government finance organizations in our recent brief.

 

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