Blockchain and Cognitive Technology on Tax, Audit, and Investigations

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Silvia Wade
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1 Blockchain and Cognitive Technology on Tax, Audit, and Investigations

2 Scott Layton IBM Director of Audit and Investigations Asia Pacific, China, Japan Masters Degree in Accounting Information Systems 6 Years in Asia Pacific including Tokyo, Shanghai, Singapore Previously IBM Asia Pacific Controller Former Certified Internal Auditor (CIA) Former Certified Fraud Examiner (CFE)

Blockchain for Business Concepts Append-only

network Shared / Distributed ledger Consensus /

transaction Business terms embedded in transaction

Privacy / Permissions Ensuring appropriate

3 Blockchain for Business Concepts Append-only distributed system of record shared across business network Shared / Distributed ledger Consensus / Validation All parties agree to network verified transaction Business terms embedded in transaction database & executed with transactions Smart contract Privacy / Permissions Ensuring appropriate visibility; transactions are secure, authenticated & verifiable 2017 IBM Corporation Page 3

4 Transforming Finance Processes with Blockchain Finance blockchain solution example Contract and purchase order (PO) Contract and invoice Proof of delivery Goods received note (GRN) Remittance advice Logistics PO Transport 2 Proof of delivery Payment advice Sales order GRN Buyer PO 1 Supplier Invoice 3 Buyer Payment 4.1 Bank Supplier Dispute and collections IBM Corporation Page 4

5 Cognitive Systems differentiated capabilities Understanding Reasoning Learning

6 Three Examples of Cognitive Finance Cognitive Surveillance for Financial Services Cognitive Fraud Detection Cognitive Tax Preparation IBM Watson Financial Services IBM Expense Insights Cognitive Tax

7 Opportunity to Transform Surveillance with Cognitive What do we mean when we discuss surveillance for Financial Services?

8 Opportunity to Transform Surveillance with Cognitive

9 Surveillance Insight for Financial Services

10 BOTTOM Four TOP Four Fraud may account for the loss of 5% of a company s annual revenue Fortune 500 IBM Expense Insights Which industries are hit the hardest? Percentage of People who admit to committing expense Fraud** 19% Entertainment Corporate Revenue $12 Trillion Amount Lost to Fraud $600 Billion* Travel & Transportation Food & Dining 17.1% 16.7% 10% Support & Supplies 3.2% Legal & Finance Non-Profit BOTTOM Four 3.1% *Data source: Association of Certified Fraud Examiners 2016 Global Fraud Study **Data source: Chrome River / SurveyMonkey online Survey of 1072 business travelers, conducted February 2016 Retail Construction & Contractors 2.9% 2.7%

11 14% of all fraud is committed through expense reimbursement 45% Personal purchases claimed as business expenses Most Common Fraudulent Expense Claims 35% Additional Mileage 29% Tips recorded higher than what was actually given 28% Submitting more than allowed for an item IBM Expense Insights Victim organizations that lack anti-fraud controls suffer greater MEDIAN losses in fact TWICE as MUCH Machine Learning Elaborate fraud schemes Detect weak signals Learn from historical patterns Hybrid Cognitive Risk Model Rules-Based Legal requirements Transparency Accountability Data source: Chrome River / SurveyMonkey online Survey of 1072 business travelers, conducted February

12 Bayesian Network Risk Model IBM Expense Insights IBM Expense Insights employs cutting edge network models to identify fraud scenarios Fictitious Expense Cash Pooling Unusual Expense Overuse of Cash Expense Total Cash in Year Not in Frequent Item Set Rare Expense Fraud Risk Inappropriate Expense Non- Business Venue Adult Venue Merchant Category Personal Items Black List Expense Location Risk Use Cases Scenarios Features Note: the network shown here is for illustrative purpose only. 12

13 Cognitive Tax Preparation In-Person Assistance Do-it-yourself Cognitive Tax 10,000 Retail Offices Offices within 5 miles of most Americans Prepared 23.2 million tax returns worldwide Prepared 700 million tax returns since 1955

14 Cognitive Tax Preparation Client experience since the company s inception had not changed much Client wanted a more engaging experience H&R Block wanted to be able to provide a consistent optimized experience for each customer Cognitive Tax

15 Cognitive Tax Preparation Cognitive Tax

16 Cognitive Tax Preparation Cognitive Tax 2 pt Overall Satisfaction 2 pt Intent to Return 3 pt Price/Value

Blockchain Unleashed: Petrochemical Industry Impact

Blockchain Unleashed: Petrochemical Industry Impact 1 Business networks, wealth and markets Business Networks benefit from connectivity Participants are customers, suppliers, partners Cross geography &