Innovative strategies for cost recovery and savings for states Deloitte Consulting LLP March 2012.

Innovative strategies for cost recovery and savings for states

Deloitte Consulting LLPMarch 2012

Copyright © 2012 Deloitte Development LLC. All rights reserved.2

Introduction

Fuel excise tax refund — Karen Warner

Bankruptcy case management — George Mitchell

Large County example — George Mitchell

Questions

Contents

Helping recover monies due the stateFuel excise tax refund


• The federal excise tax is imposed on motor fuels such as gasoline and diesel fuel.

• State government agencies and their instrumentalities pay millions of dollars in fuel taxes, use tax-paid fuel in non-taxable manners, and are eligible for fuel tax refunds.

• The applicable fuel tax exemptions allow the state and government agencies to claim tax refunds for federal fuel excise tax paid for nontaxable use.

• Most state and city governments render similar services to the local communities similar to the services the corporations in different industries render to their customers.

• Many public sector organizations fail to claim fuel tax credits or refunds due to a complex fuel tax recovery process and limited knowledge of the complicated excise tax statutory rules.

Introduction


Alternative Fuel Credit

An incentive tax credit of $.50 cents per gallon for certain “alternative fuels” sold for use or used as a fuel in a motor vehicle. Alternative fuels qualifying for the tax credit include, but are not limited to, liquefied petroleum gas (“propane”), compressed natural gas, and liquefied natural gas.

Off-Highway Use

Refund is available for tax-paid fuel used in a separate motor to operate special equipment such as a refrigeration unit, pump, generator, or mixing unit. Federal refund is also available for federal excise tax paid on clear diesel, if used to power auxiliary units or off-road motor vehicles, such as construction equipment.

State and local government exempt from federal excise fuel tax

Refund is available for tax paid on fuel used exclusively by a state or local government: Gasoline and CNG ($0.183/gallon) Undyed diesel, kerosene and LNG ($0.243/gallon).

Certain Intercity and Local Buses

Refund Rate of $.17 per gallon is applicable if bus is engaged in scheduled transportation along regular route OR nonscheduled transportation if seating capacity is at least 20 adults, excluding the driver.

Fuel tax refund/credit opportunities


Comprehensive tax strategy


Data analytics tool for indirect tax recovery process and recovery

Data security and privacy capabilities

• Proven track record on engagements with extensive experience in handling data that spans across — Classified (can be classified at Secret or Top Secret level); Sensitive but unclassified; Public open source type of data

• Data received will be transferred using SFTP protocol, treated as SBU and maintained on-shore in a secure enclave environment

The Deloitte Difference: Tools and technology

Data Analytics Platform

Rules EngineData

Visualization Geospatial Unstructured Data

Mining Case Management

Structured Unstructured Third Party/Public

Dat

a

So

urc

es

An

aly

tics

L

aye

r P

res

en

tati

on

La

ye

r

Off line reporting Web based user interface Executive Dashboard

AP, AR, Payroll, GL, Work Order Data,

PO, Disbursement, HR, Master Vendor

Ex: Oracle, SAP, JD Edwards, People Soft

Electronic images of Invoices,

E-mails, documents, data files,

journals, video/audio

Tax Rates, State Audit List,

Address Verification,

SIC codes, PEP list

Helping recover monies due the stateBankruptcy Quick Claim System


Bankruptcy Case Management Solution• Many States are challenged to file accurate and complete claims with the Bankruptcy

Court due the fact that tax debts and other accounts receivable are tracked on a multitude of separate systems.

• Our solution automatically searches all systems, collects all open obligations and automatically files a claim with the court. This reduces the number of staff involved and increases the ability to claim and recover assets.

Deloitte’s Bankruptcy Quick Claim System

Bankruptcy Court

Electronic

File

Tax Obligations

Workers Comp

Child Support

Search Results

Approval

File Upload

As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

http://www.deloitte.com/us/about


Deloitte’s Bankruptcy Quick Claim System (cont.)


Process

Bankruptcy case management

Intake Bankruptcy Cases

Process CaseProcess Case

Post Claim Filing

Process Payments

Close Case

• Bankruptcy Court Issues Petitions

• Receive Notification of Bankruptcy

• Research Petitions• Create Bankruptcy

Candidate List• Create Bankruptcy

Case• Set Bankruptcy

Flag to Taxpayer• Bankruptcy Block to

Open Financial Items

• Update Case with Correspondence

• Receive Eligible Bankruptcy Liabilities

• Calculate P&I• Link Claims to

Bankruptcy Cases• File Proof of Claims

to Bankruptcy Court

• Bankruptcy Court Issues Judgment

• Receive Notice of Dismissal, Payment, Conversion

• Update P&I Calculation

• Update Case Status

• Write Off Discharged Receivables

• Receive Payment• Allocate Payment

to Receivables• Update

Bankruptcy Case• Link Payment to

Bankruptcy Case

• Review Case

• Wrap up Activities

• Close Case

Reporting/Dashboard — Case status


Current challenges • Multiple agencies Involved• Mostly a paper driven process• Debts, receivables, obligations are

tracked across multiple systems• Manual research required• Limited available staff to assign to this

task• Filing the claim by the Bar Date is always

a challenge• Estimated claims are often used which

don’t stand up in bankruptcy court• Too much paperwork• Hard to process payments against

multiple obligations• Limited budget to improve process

What are the challenge that most states face?

How we address these challenges• Automatic interface with U.S. Bankruptcy

Court to import new filings quickly• Integration with key agency systems to

automatically search and find all debts and receivables

• Case management tools to review, modify and approve claims

• Only exceptions require manual effort• Automatic file upload of approved claims

to the Court• Case management tools store all

correspondence to support court documents

• Automatic payment allocation to multiple systems and debts

• No up-front costs to implement

Helping government do more with lessHow value creation helped a Large County strategically reduce its costs and improve performance and compliance


We typically begin with a Value Creation Review that identifies the principal areas the County can extract value.

Typical value creation review

Key deliverables

Data Request

High-level workplan

Baseline Cost Model Opportunity Assessment

Prioritized Opportunities

Quantified Savings and Costs

Performance management, metrics and tools

Implementation action plans

Recommendations for prioritized opportunities

Op

po

rtu

nit

y G

atin

g P

roce

ssService Delivery Model Analysis

$98.2

$22.0

$1.2$5.3

$4.2$0.9$2.1$10.0

$3.9$27.0

$24.0

$-

$25

$50

$75

$100

Equip Reloc Severance Infrastructure Upgrades Ramp-Up Travel FG Moves Other Contingencies Outsourcing Total

Financial Performance Operational Performance

Strategic Initiative Dashboard

10%

25%

0%

15%

5%

10%

PercentComplete

Food Ingredients North America

Food Ingredients Latin America

Food Ingredients Europe

CommentsTwo Weeks Previous

Previous Week

Current Week

Project Status

E-Business

Fertilizer/Salt

Ag Producer Services

Project

10%

25%

0%

15%

5%

10%

PercentComplete





Previous Week

Current Week

Project Status

E-Business

Fertilizer/Salt


Project

Ventures

$98.2

$22.0

$1.2$5.3

$4.2$0.9$2.1$10.0

$3.9$27.0

$24.0

$-

$25

$50

$75

$100

Equip Reloc Severance Infrastructure Upgrades Ramp-Up Travel FG Moves Other Contingencies Outsourcing Total

Financial Performance Operational Performance

Strategic Initiative Dashboard

10%

25%

0%

15%

5%

10%

PercentComplete





Previous Week

Current Week

Project Status

E-Business

Fertilizer/Salt


Project

10%

25%

0%

15%

5%

10%

PercentComplete





Previous Week

Current Week

Project Status

E-Business

Fertilizer/Salt


Project

Ventures

10%

25%

0%

15%

5%

10%

PercentComplete





Previous Week

Current Week

Project Status

E-Business

Fertilizer/Salt


Project

10%

25%

0%

15%

5%

10%

PercentComplete





Previous Week

Current Week

Project Status

E-Business

Fertilizer/Salt


Project

Ventures

(60.0)

(40.0)

(20.0)

0.0

20.0

40.0

60.0

80.0

100.0

2002 2003 2004 2005 2006 2007 2008

Year

Disc

ount

ed D

olla

rs ($

M)

Net Cash Flows Discounted Cash Flows Cumulative Discounted Cash Flows

Initial Change Mgmt Plan Confirmed Change Management Plan

Distribution of PRs in increments of $50K

# of reviews / PR and MRM resources

Average expense per PR & MRM FTEs

Number and expense of FTEs reduced when 60 – 180 days collections was moved to A

Current expense allocation from A

Number and expense of FTEs from 1 – 60 days collections

Anticipated expense allocation from A

Headcount / application (manual process)

FTEs reduced as auto decisioning increased from t% to x%

Overlap of activities in Locations A, B, C

Capacity/ throughput/operational metrics of FTEs in different locations (to determine excess capacity)

Headcount and average expense of FTEs in Locations A - D

Data Required

Personnel expense reduction net of Outsourcer A allocation

Move 1 – 60 days (remaining) collections to Outsourcer A

Net headcount reduction

–Periodic Review reduction

–MRM increase

Net personnel expense reduction

Risk exposure increase

• Raise threshold on Periodic Reviews

Headcount and personnel expenses reduction

Improvement in auto decisioningfrom x% to y %

Headcount reduced by XX

Personnel expense reduced by XX

Consolidate "Risk Activities" in Locations A, B and C into one lower cost location (either domestically or internationally) – Location A or D

I mpact / Analysis RequiredHypothesis

Distribution of PRs in increments of $50K

# of reviews / PR and MRM resources

Average expense per PR & MRM FTEs

Number and expense of FTEs reduced when 60 – 180 days collections was moved to A

Current expense allocation from A

Number and expense of FTEs from 1 – 60 days collections

Anticipated expense allocation from A

Headcount / application (manual process)

FTEs reduced as auto decisioning increased from t% to x%

Overlap of activities in Locations A, B, C

Capacity/ throughput/operational metrics of FTEs in different locations (to determine excess capacity)

Headcount and average expense of FTEs in Locations A - D

Data Required

Personnel expense reduction net of Outsourcer A allocation

Move 1 – 60 days (remaining) collections to Outsourcer A

Net headcount reduction

–Periodic Review reduction

–MRM increase

Net personnel expense reduction

Risk exposure increase

• Raise threshold on Periodic Reviews

Headcount and personnel expenses reduction

Improvement in auto decisioningfrom x% to y %

Headcount reduced by XX

Personnel expense reduced by XX

Consolidate "Risk Activities" in Locations A, B and C into one lower cost location (either domestically or internationally) – Location A or D

I mpact / Analysis RequiredHypothesis

Initial Hypotheses

Co

st m

an

agem

ent

Phase 1:

Assess Current State, Establish Baseline and Size Opportunities

Phase 2:

Refine Value Creation Recommendations

Phase 4:Implement

Phase 0: Pre-Launch

Phase 3:

Develop Action & Implementation

Plans


A large county in the U.S. initially engaged Deloitte (at shared risk) to identify cost saving opportunities across Finance functions, and Strategic Sourcing emerged as the highest priority.

Large County example

Financial management

service assessment

• The county’s Financial Management Services Assessment Report recommended contracting with a third party to do the business process management/mapping (BPM) and redesign.

• Deloitte was engaged to identify cost savings and revenue enhancement opportunities and develop a roadmap to make these savings sustainable over time.

• Multiple cost reduction opportunities were identified; strategic sourcing was considered the highest and fastest ROI opportunities

Strategic sourcing

wave 1

Sep

–Oct

201

0A

pr–

Sep

201

1 • The County Manager announced the objective of achieving significant savings through strategic sourcing initiative

• County included $42 MM cost reduction program in its FY12 budget, $3 MM of which comes from strategic sourcing initiative

• Deloitte was engaged to execute the strategic sourcing initiative with the goal of realizing $3 MM savings in FY12 and fees to be paid from realized savings


Phase 1 — the Financial Management Service Assessment — identified multiple ways for the County to achieve significant cost reductions.

Large County example (cont.)

Assessed Current State of Finance Function

Identified Cost Reduction Opportunities and Developed

Business Case for Change

Prioritized Opportunities for Immediately Execution

• Identified three tiers of opportunity

– Tier 1: Procurement and Accounts Payable

– Tier 2: Process Accounting, Revenue Recording and Asset Management

– Tier 3: Planning and Budgeting and Grants Management

• Developed business case supporting each tier of opportunity

• Conducted 9 workshops in core finance process areas

• Compared current state to industry benchmarks and leading practices

• Identified Procurement as the highest yielding opportunities with the greatest speed to benefit realization

• Benefits were identified in three sourcing phases:

– Phase I: <3 months — $1.6MM

– Phase II: 3-6 months — $1.3MM

– Phase III: >9 Months $11.5MM

• Elected to fund a technology fit-gap assessment from the procurement savings to identify opportunities to leverage technology and drive greater process efficiency


Opportunities were prioritized and strategic sourcing emerged as the highest priority.

Large County example (cont.)

PR-02

PR

AP

RR

PA

GM

AM

PB

Procurement

Accounts Payable

Process Accounting:

Revenue Recording:

Grants Management:

Planning and Budgeting:

High

Low

Com

plex

ity

Time to Value= Size of Savings

PR-01

PB-01

Tier 1Common Themes• Sourcing/demand

management for specific categories

• Business process simplification

Tier 2Common Themes• Broader

sourcing/demand management

• Initial short to mid-term service delivery changes

• Targeted technology enablement

Tier 3Common Themes• Broader service delivery

model changes• Broader technology

enablement

Asset Management:

< 3 months 3-6 months > 6 months

Tier 1 Tier 2 Tier 3

PB-03

PR-03

GM-02

GM-03

PB-02AP-02

AP-01

AP-03 GM-01

PA-01PA-02

AM-02AM-01

Preliminary

Improvement Opportunities

Questions?

Copyright © 2012 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu Limited

Innovative strategies for cost recovery and savings for states Deloitte Consulting LLP March 2012.

Documents

taxpaid fuel

fuel tax refunds

fuel tax credits

federal fuel excise

federal excise fuel

federal excise tax

applicable fuel tax

diesel fuel