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MSM Faculty and Alumnae Publish in Applied Artificial Intelligence Journal

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American University of Armenia (AUA) Master of Science in Management (MSM) Program Chair Dr. Vardan Baghdasaryan and former Manoogian Simone College of Business and Economics (CBE) Assistant Professor Hrant Davtyan, together with alumnae Zaruhi Navasardyan (MSM ‘20) and Arsine Sarikyan (MSM ‘20), and support from the Manoogian Simone Research Fund (MSRF), have developed a fraud prediction model based on machine learning tools, with gradient boosting as the primary choice for the State Revenue Committee of Armenia. The team has also authored a research article, Improving Tax Audit Efficiency Using Machine Learning: The Role of Taxpayer’s Network Data in Fraud Detection, recently published in the Applied Artificial Intelligence peer-reviewed journal.

Using a broadly defined perception of fraud, diverse classifications of taxpayers, and a relatively small sample, the research team successfully derive important features from tax returns with minimal additional information. Among the key fraud predictors are the historical record of fraud and audit, the relative share of administrative costs, and external economic activity. The researchers see two primary contributions with generalizable practical implications for tax audit authorities. Firstly, by focusing on the lift score of the top decile, they demonstrate that even moderately accurate models can improve upon the existing level of accuracy of rule-based approaches. Secondly, and more importantly, they show that the information contained in the supplier and buyer network of a taxpayer can be used whenever significant predictors of fraud, such as a history of prior audit and fraud, are not available. This is particularly useful for use with newly established companies, which would otherwise be undetected of probable fraud.

“There were a number of factors that contributed to the success of this project,” notes Dr. Baghdasaryan, the Principal Investigator for the project. “First of all, the leadership of the IT directorate of the State Revenue Committee (SRC) was genuinely interested in not only the potential results of our work, but also  closely collaborated with us in the process. This ensured the overall positive engagement by SRC staff. Second, by engaging new MSM graduates, we were able to infuse the project with fresh ideas and energy. Students and more recent alumni are always motivated to experiment with innovative approaches and discover new tools. Finally, we saw a clear link between the theoretical contribution and practical application of our model, which was important considering the dual objective of the MSRF to promote scientific research and evidence-based decision making in the public sector.’’ 

Founded in 1991, the American University of Armenia (AUA) is a private, independent university located in Yerevan, Armenia, affiliated with the University of California, and accredited by the WASC Senior College and University Commission in the United States. AUA provides local and international students with Western-style education through top-quality undergraduate, graduate, and certificate programs, promotes research and innovation, encourages civic engagement and community service, and fosters democratic values.