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Innovative strategies for cost recovery and savings for states Deloitte Consulting LLP March 2012
Copyright © 2012 Deloitte Development LLC. All rights reserved. 1 Introduction Fuel excise tax refund — Karen Warner Bankruptcy case management — George Mitchell Large County example — George Mitchell Questions Contents
Helping recover monies due the state Fuel excise tax refund
Copyright © 2012 Deloitte Development LLC. All rights reserved. 3 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
Copyright © 2012 Deloitte Development LLC. All rights reserved. 4 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
Copyright © 2012 Deloitte Development LLC. All rights reserved. 5 Comprehensive tax strategy
Copyright © 2012 Deloitte Development LLC. All rights reserved. 6 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 Engine Data Visualization Geospatial Unstructured Data Mining Case Management StructuredUnstructured Third Party/Public Data Sources Analytics Layer Presentation Laye 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, s, documents, data files, journals, video/audio Tax Rates, State Audit List, Address Verification, SIC codes, PEP list
Helping recover monies due the state Bankruptcy Quick Claim System
Copyright © 2012 Deloitte Development LLC. All rights reserved. 8 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 As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see 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.www.deloitte.com/us/about
Copyright © 2012 Deloitte Development LLC. All rights reserved. 9 Deloitte’s Bankruptcy Quick Claim System (cont.)
Copyright © 2012 Deloitte Development LLC. All rights reserved. 10 Process Bankruptcy case management Intake Bankruptcy Cases Process Case Process 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
Copyright © 2012 Deloitte Development LLC. All rights reserved. 11 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 less How value creation helped a Large County strategically reduce its costs and improve performance and compliance
Copyright © 2012 Deloitte Development LLC. All rights reserved. 13 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 ModelOpportunity Assessment Prioritized Opportunities Quantified Savings and Costs Performance management, metrics and tools Implementation action plans Recommendations for prioritized opportunities Opportunity Gating Process Service Delivery Model Analysis Initial Change Mgmt PlanConfirmed Change Management Plan Initial Hypotheses Cost management 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
Copyright © 2012 Deloitte Development LLC. All rights reserved. 14 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 2010 Apr–Sep 2011 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
Copyright © 2012 Deloitte Development LLC. All rights reserved. 15 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
Copyright © 2012 Deloitte Development LLC. All rights reserved. 16 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 Complexity Time to Value = Size of Savings PR-01 PB-01 Tier 1 Common Themes Sourcing/demand management for specific categories Business process simplification Tier 2 Common Themes Broader sourcing/demand management Initial short to mid-term service delivery changes Targeted technology enablement Tier 3 Common Themes Broader service delivery model changes Broader technology enablement Asset Management: < 3 months3-6 months> 6 months Tier 1Tier 2Tier 3 PB-03 PR-03 GM-02 GM-03 PB-02 AP-02 AP-01 AP-03 GM-01 PA-01 PA-02 AM-02 AM-01 Preliminary Improvement Opportunities
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