Using analytics to reduce the specter of capitalizing all operating leases[Infographic]

Josh Leonard
Partner, Real
Estate Consulting,
Deloitte Financial
Advisory Services LLP

 

Use any metaphor that comes to mind: going down the rabbit hole, stepping into the looking glass, landing in an alternate universe—whatever your preference, the depiction is apt. When Financial Accounting Standards No.13 (FAS 13) goes away and new operating lease accounting rules takes effect, there will be disconcerting, monumental change in many companies’ balance sheets, and it is not likely to be a pretty one.

As things stand now, companies can account for operating leases off balance sheet. Not so when the new changes come into play. At a stroke of FASB’s pen, approximately 1.5 trillion dollars’ worth of operating lease expenses will be need to be capitalized (which had previously been shown only as a footnote to the financial statements) which will add some really ugly numbers to the balance sheet for companies whose portfolios contain big chunks of real estate and leased equipment.

Scary as it sounds, though, the rule change is not the bogeyman here. Almost everyone will have to comply; the playing field will be level. That would be good if companies knew what the playing field looked like. Most do not. In fact, according to a February 2011 survey by Deloitte, 93% of companies are not prepared to comply with the new standards. A little more than 66% have not even analyzed the possible effects the change will have on their business.1

It does not really need to be said that these numbers are frightening, does it? Many companies in the survey did not have a good handle on what they should do to deal with the changes. Abandoning leasing toward acquisition was the choice of 25% of respondents. Some 40% said they would look at shorter term leases that would have a lesser effect on the balance sheet. Another 44% said they would try to alter lease terms. It is going to be a real upheaval.

What to do? Crystal balls would be good. Maybe one of those 1970s' magic eight balls would do. Do not have one? No problem; they do not work anyway. What does work is a commitment by companies to face the problem and use the data at their disposal to look at the numbers and try to understand how the changes wrought by the significant changes to FAS 13 will affect the bottom line.

Absent black magic and outdated toys, there is an option that companies can use to help them understand how the changes will affect their business. Analytics is that option. Analytics techniques such as scenario analysis and predictive modeling can provide companies with the ability to look at the future, play around with it, and try to build best-case scenarios to deal with the massive changes FAS 13 will bring.

As an example, let us look at what will happen to the balance sheet and the profit and loss when the new rule takes effect. You can take all of your operating lease information, run scenario modeling on it, and look at it over multiple time horizons—say one year, three years, or five years. You can see how capitalizing these operating leases will hit the books in the short term and the long term. You can answer questions, such as “How is this going to look on my balance sheet over time?” and “How is this going to impact the bottom line?” You can also figure out the implication of lease versus buy over time.

That is only one example of the power of analytics. Companies can also use analytics to model tax changes, buy-versus-lease options, lease-term options—the list is almost endless. The point is that using analytics can help companies get out of that woeful group of the 93% of companies who are not prepared to deal with the significant changes in FAS 13 and move into the group that is prepared. The new lease accounting is coming, no doubt. Which group do you belong to?

[1] A Deloitte survey on the FASB's proposed changes to lease accounting standards, 2011

Subodh Naik
ERS Director,
Deloitte LLP

Using analytics to reduce the specter of capitalizing all operating leases

Much has changed since our original research findings, which were published last year. There has been extensive ongoing debate about the finer accounting aspects of the standard—and a final standard will most likely be issued in 2013. Still, many companies are only beginning to realize the sheer magnitude of the efforts involved in inventorying their total population of leases and collecting necessary operational and financial data to support the requirements of the standard.

In my opinion, the industry should take a dual approach. First, industry leaders should voice their points of view to the FASB to refine the exposure draft where there is a compelling argument to be made. Simultaneously, they should also commence efforts to gather lease data in a systematic and organized manner so that they will not get caught flatfooted when the standard is issued. Finally, because of the significance of the issue, the sooner companies begin this effort, the better off they will be when it comes time to implement!

This publication contains general information only and Deloitte Financial Advisory Services LLP ("Deloitte FAS") is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser.

Deloitte FAS shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, “Deloitte” means Deloitte Financial Advisory Services 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.

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

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Value-based Pricing for Pharmaceuticals

Health care reform and industry trends are driving pharmaceutical (pharma) companies to rethink strategy in their U.S. pursuits. Value-based pricing—the alignment of incentives between purchasers and manufacturers—is a paradigm shift that calls for companies to provide pharmaceuticals that demonstrate real, measurable value, and to innovate in their approaches to commercialization and pricing.

Value-based pricing for pharmaceuticals: Implications of the shift from volume to value, an Issue Brief from the Deloitte Center for Health Solutions, summarizes what is known to date about value-based pricing and identifies opportunities for additional exploration. The study’s topics include:

The impetus for value-based pricing for pharmaceuticalsExamples of previous value-based agreementsBarriers to implementing value-based pricing for pharmaceuticalsPossible benefits of value-based pricing for pharmaceuticalsConsiderations for stakeholders: pharma companies, health plans (private and public), employers, PBMs, prescribers/health care providers, consumers, and policy-makers (state and federal government)

Successful, widespread implementation of a value-based pricing system is dependent on key actions such as developing and adopting useful and workable value metrics, providing adequate reward for value, and establishing electronic exchange of health information to capture data from the entire consumer experience. All stakeholders must collaboratively work together to help ensure these key actions are achieved.

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What is keeping CFOs up at night?

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Some core concerns of CFOs, such as ongoing external volatility, are obvious, while others, such as time creep, threaten the overall performance of finance itself.

The pressures on CFOs are enormous — and mounting. Some, such as the ongoing external volatility, are obvious, while others, such as time creep, threaten the overall performance of finance itself.

But what risks are actually bubbling to the top for CFOs, and which ones are bubbling over?

To answer that, we have gleaned information over the past two years from our CFO Forums, our CFO Transitions Labs, and our CFO Signals survey. And in this issue of CFO Insights, we list our top 10 core concerns of CFOs and outline why they are leading to so many restless nights.

Download the full CFO Insights article, What is keeping CFOs up at night?, above to learn more.

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What is your data trying to tell you?

Uncertainty, issue convergence and factors beyond your control will continue to transform market places, government and business in the foreseeable future. And that’s okay. Understanding that transformation, how it impacts your company and what to do about it enables you to use those changes to your advantage.

Transformation is here, and to worry about it or delay its progress will only cost you in the end. Instead, use it as fuel for accelerating ahead.

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see http://www.deloitte.com/view/en_US/us/About/index.htm 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.

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What strategic buyers want to know about structuring the perfect M&A deal

The consummation of a strategic acquisition is never easy, whether you’ve done it once, or a number of times. In fact, at times the complex reporting requirements of the business combination rules can make the process seem overwhelming.  Getting advisers involved early, having a view as to what others are doing in the marketplace, and successfully navigating a few of the more complicated areas, however, can be extremely helpful in ensuring your deal meets expectations rather than falling short of its mark. 

This latest M&A insights article addresses some of the questions most frequently asked as companies try to structure and account for the elusive “perfect deal,” and also highlights a few pitfalls along the way.

As you think about the possible value proposition of your current deal, you might be asking yourself – “What am I missing?”

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What’s next? Perspectives of health technology officers

Health care information officers face myriad challenges as they work to address their organizations’ information technology (IT) needs, from ICD-10 conversion to adoption of electronic health records (EHRs), among others.

The Deloitte Center for Health Solutions recently interviewed health system Chief Information Officers (CIOs), Chief Medical Information Officers (CMIOs) and other informatics leaders (collectively referred to as “CXOs”) from a broad range of U.S. hospitals and health systems on their activities and attitudes about IT and data management. The results show widespread agreement about key issues, but often strikingly different views about priority and need.

This Issue Brief features interview highlights, conclusions, and implications for health care industry stakeholders. Among key findings:

Each CXO’s starting point is different, so priorities and strategies vary.Drivers to aggregate data differ widely, as does perception of need.The ultimate role and value of health information exchanges (HIEs) remain unclear as “private” HIEs become part of physician alignment strategy.

Given increased pressures and requirements, CXOs are cautiously optimistic about successful implementation of their IT strategies; however, questions and concerns remain.

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When crafting corporate strategy, should social business be bolted on or baked in?

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Many companies recognize that social business offers new tools and rules for competing in the marketplace. But should social strategy be integrated into the overall corporate strategy? Or should it stand alone?

Social media has amplified customer and employee voices to levels that companies can ill afford to ignore. Today, leading companies are not just listening, but responding – fast. So what’s next? Incremental improvements may not be enough to sustain your market leadership – it may be necessary to embrace the fundamental shift brought about by social business to "change the game" in your industry.

To this end, some enterprises are positioning social business as a stand-alone discipline that informs their corporate strategy. Others see social business as possessing the power to transform business and disrupt industries – and they are diffusing social business throughout their overall strategy. Which approach should you take to put this trend to work for your organization?

Here’s the debate:

Bolt it on.
Social business can more effectively serve the enterprise as a stand-alone discipline, employing sophisticated tools and dedicated resources. Until it is a more mature discipline, social business deserves a page in the corporate strategy book, but shouldn’t replace it.Bake it in.
Social business possesses transformational powers that could disrupt entire industries. Considering people, process, technology - and their convergence – from the start can allow strategists to plan smarter.Leadership’s not convinced.
Executive management is not willing to bet the farm on social – and who can blame them? A smarter approach tests social initiatives in isolated areas and builds from there. If the value is there, you can eventually build a business case that can get leadership’s attention.How much proof do they need?
In many organizations, sales and marketing are already believers in the power of social initiatives, with human resources, recruiting and product development following close behind. But these strategies in isolation are not as powerful as they are together and not likely to generate the potential synergies of a broad strategy.Social business supports small steps.
Sure, social business can improve collaboration and productivity. These incremental improvements are worthwhile pursuits, but they are not going to revolutionize our business.Social business supports big leaps.
Social conversations can trigger expansive, new ways to think about your business and enable innovation. There can be value in serendipity. Breakthrough ideas often come from unexpected places.Why take on a transformation project when a social networking page will do?
It's the domain of marketing and public relations today and they have it handled with our social networking pages and social media accounts.That’s postponing the inevitable.
Even on a small scale, you’ll need people to manage systems and interactions – not to mention security and integration issues that are likely to occur. Plan to disrupt or risk being disrupted.My take

Chris Heuer, Specialist Leader, Deloitte Consulting LLP

Can social business deliver more potential value when it’s baked into a company's strategy, or when it stands alone? The answer varies from industry to industry, but if you want to increase the chance to win, bake it in and enjoy the sweetness of a warm chocolate chip cookie. Consider changing your thinking and then changing your strategy, to meet the changing dynamics of the market. Make big bets – but make them smart bets – to out-compete others in your marketplace.

For example, the risks and rewards for consumer-facing companies are often clear, so their social initiatives tend to be more far reaching than those of business-to-business companies. And, regardless of industry, collaborative cultures are more likely to create greater value, improve performance and enable you to retain talent.

You can start from where ever you are. If your organization has leadership support and a track record of effective bottom-up social initiatives, think big. How could your core processes and capabilities be reinvented to create more value, more quickly, in a society that’s interconnected by expanding social networks?

But if your organization is not ready to incorporate social business strategy across the enterprise, start small. Focus on building a solid business case based on results that are measurable and attributable. Stand-alone initiatives – with the big picture in mind – can be used to introduce a social mindset to leaders and employees that supports enterprise-wide collaboration and idea sharing, paving the way for more broad social strategies.

Sometimes it’s important to do something first, but often it’s more important to do it well. Companies that do social business well – building corporate strategies that align the passions of their people with the needs of their customers – hold the potential to not only capture their market, but to create passionate, loyal customers AND engaged employees.

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When it comes to enterprise mobility, can ‘slow and steady’ win the race?

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Some enterprises are taking a slow, steady approach by adopting mobile technology to do what they’ve always done more effectively. Others are using mobile to jumpstart transformative changes in their business or operating models, doing fundamentally different things. Which is more effective?

In many organizations, mobile initiatives are popping up in almost every business unit, department and region. Some are pushing existing solutions and processes from the web and desktop to mobile devices. Others are reimagining their business without location constraints. Both have the potential to improve efficiencies and effectiveness, but which is likely to have the more significant payback?

Here’s the debate:

Take it slow.
Mobile is exploding in the consumer world, but business is different. Companies with remote sales forces and field services might have a lot to gain, but others should avoid significant investments until they’re confident this trend is here to stay.Don’t hold back.
What might be accomplished by an untethered workforce? The potential leaps in enterprise productivity could touch virtually every functional area. Those who drag their feet will likely be left in the dust by those who use mobile technology to fundamentally change how business works.The security risk is just too great.
Too often you hear about a smartphone being stolen. What do we do when our company’s confidential data gets into the wrong hands?Possible risk doesn’t equal acceptable risk.
Is the risk associated with a lost smartphone or tablet any greater than a laptop? Many find that increased productivity and connectivity can create value that offsets their reasonable risks.Smartphones aren’t for everyone.
Mobile devices designed for consumers aren’t built for many working conditions. You can’t swipe a touchscreen wearing leather gloves or risk dropping a mobile device in water.It’s more than phones and tablets.
Mobile technology allows organizations to communicate with many types of assets – people and things. Embedded sensors can track parts across a supply chain, locate employees during an emergency and monitor fuel performance in a nationwide fleet.It’s better to wait until things settle down.
Mobility players are constantly churning. How can you know which platform—or vendors—will have staying power?You may be waiting forever.
While consolidation in the app world continues, the major platforms are relatively stable. It’s smart to find a solution that works today and build from that.My take

Mike Brinker, Principal, Deloitte Consulting LLP

Wireless connectivity and mobile devices have already transformed the way many of us work. I anticipate that within five years we won’t be talking about enterprise mobility as a stand-alone topic—by then it’s likely to be an integral part of day-to-day business.

The business case for mobile solutions varies based on the business and industry. Some will choose to apply enterprise mobility to tweak existing processes, while others could use it to disrupt their industry. Many forward-thinking CIOs representing both groups are building a foundation of mobile capabilities, from developing talent with intuitive design abilities to addressing complex issues around integration, security and maintenance.

Delivering effective mobile solutions typically requires new skills, new mindsets, new application architectures, new methodologies and new approaches to problem solving. Change this massive won’t happen overnight. If you’re not already on the mobile track, you can learn a lot just from getting started. Consider developing your roadmap with a six-month horizon to account for rapid technology changes. Over time, you’ll become prepared to make bolder bets and move toward a mobile-first mentality with capabilities in place to help meet the demands of business in an untethered world.

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Workforce analytics as a sales tool? Here’s how

We’ve discussed here on HR Times the rise of workforce analytics as a tool to give HR leaders insights that can help them support broad organizational goals. In fact, workforce analytics is one of the eight human capital trends discussed in the report Leap Ahead. Another is HR’s growing role in supporting sales force effectiveness, which has HR implications ranging from talent strategies and organization design to learning and development, compensation, governance and change management. Now, we’re seeing these two trends converging—specifically, how a specialized type of analytics that looks at the formal and informal networks within organizations can help lead to more effective sales forces as well as increased organizational effectiveness overall.

For example, consider that many companies organize their sales force by geography, which seems perfectly logical and is quite common. However, for one of our clients, when we analyzed the way its sales force actually works—the people sales representatives interact with and the networks they belong to, both formal and informal—we found that much of this interaction was not oriented around their geography. Instead, they interacted more with people who sold the same product or served the same type of industry, no matter where in the world they might be located.

We are using this information to help the client develop a structure more consistent with and supportive of the way work is actually done. In this case, a more matrixed structure, built around certain products or types of customers, would likely better serve the needs of the sales force and the broader organization.

Because an organization’s networks are largely people-built and people-driven, HR is perhaps the most effective/most significant equipped function to help harness them to work in the organization’s interest. This type of network analysis may be something of a “brave new world” for HR, but it is right in line with HR’s mandate to become a more strategic member of the organization—one that supports and enables the overall business strategy.

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.

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Workforce analytics is a journey and a process

Posted by Rishi Agarwal on April 12, 2012

The journey
Many HR organizations have a desired destination in mind, one where they have the analytics capability to make predictions about their workforce for which they can then develop targeted responses. For example, they want to be able to predict the likelihood of turnover for a particular role or individual, so they can devise specific retention strategies. Or they want to predict which high potentials have the best chance of success as a senior leader. In our experience, there are many steps on the workforce analytics journey and organizations sit at different points along the journey based on their information maturity.

The workforce analytics journey

Source: Deloitte Analytics

Knowing your starting point comes first. For some organizations, the “You are here” dot falls squarely at step one: data quality and integrity. Some aren’t even sure how many employees they have and many don’t have global data standards. Those farther along are able to convert data into basic reports: employee lists and extracts, compliance reporting and the like. Some have moved on to being able to perform basic analytics for a single process, such as recruiting, using a single source of data. Next are those who can integrate multiple sources of data (HR and nonHR) to conduct cross-functional and cross-process analytics, such as sales force effectiveness. Finally, are those organizations that have reached the sought-after destination and are able to conduct advanced predictive analytics about their organization, workforce and jobs.

The process
Workforce analytics is a process enabled by technology. It is helpful to start by tackling a particular workforce issue and seeing it through—from data to insights to actions. For example, suppose you have critical skills gaps in your workforce that need to be filled. Here’s how you might proceed.

Skills gaps in our workforce—critical jobs are unfilledWhat do we need to know to tackle the issue?What skills and competencies apply to those jobs?How can we decrease time to hire to fill the gaps sooner?How can we reduce our sourcing cost?What data/reports/measures are available (or needed)?Critical Jobs reportApplications by Job reportApplications by Source reportTime to Fill Critical Jobs report (by time period)Open Requisitions by Critical Jobs reportInternal Movement report (by location, skills, and competency)What insights do the data offer?Time to fill critical jobs has doubledNumber of vacancies has increased in key organizationsInternal skills and competency are not filling the voidCertain sources are not providing skilled candidatesApplicant pool is shrinkingWhat actions could we take based on the insights?Reduce sources/suppliers not providing good candidatesIncrease applicant pool using social recruiting techniques (e.g., social networking sites; professional networking sites)Change hiring policies to recruit from other countriesWhat might be the results of those actions?May decrease sourcing costs by 40 percentMay decrease time to hire by 25 percentMay increase costs to issue visas for overseas candidates, but lower salary/compensation levelsMay increase productivity leading to increase in sales

The process allows you to focus on an issue and can be enabled by technology. You can leverage your investments in existing technology systems, or cloud-based analytics solutions are also a good way to jump-start your effort without incurring the in-house costs to host, license, implement and support an analytics platform.

In summary, organizations need to decide their place on the journey based on the information maturity, focus on the workforce issue and use technology as an enabler. The important thing is to act on the analysis; otherwise analytics quickly becomes shelfware. Positive results at the basic level can help build momentum for future analytics initiatives.

Rishi Agarwal is a principal of Deloitte Consulting LLP and the national co-leader for the Workforce Reporting and Analytics practice. He is a frequent speaker and writer on the topic of Workforce Analytics.

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Workforce analytics: Using advanced analysis to manage talent and risk

Given the importance of talent and people in the financial services industry (FSI), it’s time to move beyond instinct, gut and tribal wisdom in making workforce decisions. If you’re not using workforce data and analytics to drive your talent decisions, you may be behind the curve — and at risk of losing your competitive edge. As HR works with FSI leaders on the front lines, analytics are becoming critical in making more effective decisions related to workforce planning and recruitment, risk management, compensation, development programs and deploying critical talent.

Workforce analytics involves using statistical models that integrate internal and external data to predict future workforce and talent-related behavior and events. These models can help financial services organizations focus limited resources on critical talent decisions. For example, models have been demonstrated to predict the likelihood that a particular employee will leave in the next six months — and can provide likely reasons for the prediction.

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GAO-13-132T, Identity Theft: Total Extent of Refund Fraud Using Stolen Identities is Unknown, November 29, 2012

Understanding the extent and nature of identity theft-related refund fraud is important to crafting a response to it, but Internal Revenue Service (IRS) managers recognize that they do not have a complete picture. Program officials said that one of the challenges they face in combating this type of fraud is its changing nature and how it is concealed. While perfect knowledge about cases and who is committing the crime will never be attained, the better IRS understands the problem, the better it can respond and the better Congress can oversee IRS's efforts. IRS officials described several areas where the extent and nature of identity theft is unknown.

Total number and cost of fraudulent returns. IRS does not know the full extent of the occurrence of identity theft. Officials said that they count the refund fraud cases that IRS identifies but that they do not estimate the number of identity theft cases that go undetected.Identity of the thieves. Unless IRS pursues a criminal investigation, IRS generally does not know the real identity of the thieves.Whether a fraudulent return is an individual attempt or part of a broader scheme. Identifying new schemes or significant cases, such as one thief using numerous taxpayer identities, depends on analysts noticing patterns or other indications that a few cases may be part of a larger scheme. As a result, some schemes or cases involving multiple taxpayers may go undetected.Characteristics of known identity theft returns. IRS officials told us that the agency does not systematically track characteristics of known identity theft returns, including the type of return preparation (e.g., paid preparer or software), whether the return is filed electronically or on paper, or how the individual claimed a refund (e.g., check, direct deposit, or debit card).

While much remains unknown about identity theft, IRS has taken steps to organize what it knows in a newly developed Refund Fraud and Identity Theft Global Report (Global Report). The Global Report consolidates and tracks information about identity theft incidents and IRS detection and resolution efforts from multiple sources within IRS. The report provides information to IRS senior management and a standard source of information for responding to data requests from external entities. GAO's selected review of the Global Report against key attributes of successful performance measures found that it had many of the attributes useful for program monitoring, but also had some areas where additional information or clarification would make the report more helpful. Updating the Global Report to provide information on definitions, data sources, and limitations such as the unknown number of undetected fraudulent returns, could help ensure users have a more complete picture of the data and its strengths and limitations. The quality of the report will also be enhanced by the institution of process controls to help ensure consistency in how the data in the report are compiled, verified and validated.

Identity theft is a growing and evolving problem that imposes a financial and emotional toll on its victims. As of September 30, 2012, IRS had identified almost 642,000 incidents of identity theft that impacted tax administration in 2012 alone, a large increase over prior years. A taxpayer may have his or her tax refund delayed if an identity thief files a fraudulent tax return seeking a refund using a legitimate taxpayer's identity information.

GAO was asked to describe identity theft issues at IRS and limits to what is known about the extent of identity theft. GAO updated its analysis on identity theft with current data on identity theft cases and interviewed IRS officials. GAO also reviewed past GAO reports to identify key attributes of successful performance measures and compare information provided by the Global Report

To improve information available to IRS management and Congress, GAO recommends that IRS update the Global Report to provide definitions and data sources, where such information is missing; document procedures used to compile and validate the data; and describe limitations of the data presented.

IRS officials agreed with our recommendations. Based on their comment, we revised language in the report to clarify that, like other forms of fraud, IRS conducts criminal investigations only in the most serious identity theft-related refund fraud cases.

For more information, contact James R. White at (202) 512-9110 or whitej@gao.gov.

Review Pending-GAO has not yet assessed implementation status.Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.Review PendingOpenClosed - implementedClosed - not implemented

Recommendation: To improve the identity theft information available to IRS management and Congress, the Acting Commissioner of Internal Revenue should update the Refund Fraud and Identity Theft Global Report to provide definitions, data sources, and the frequency of data updates for data elements where such information is missing.

Agency Affected: Department of the Treasury: Internal Revenue Service

Status: Review Pending

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: To improve the identity theft information available to IRS management and Congress, the Acting Commissioner of Internal Revenue should update the Refund Fraud and Identity Theft Global Report to document procedures used to compile and validate data.

Agency Affected: Department of the Treasury: Internal Revenue Service

Status: Review Pending

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: To improve the identity theft information available to IRS management and Congress, the Acting Commissioner of Internal Revenue should update the Refund Fraud and Identity Theft Global Report to describe limitations of the data presented.

Agency Affected: Department of the Treasury: Internal Revenue Service

Status: Review Pending

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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GAO-13-164T, U.S. Coins: Benefits and Considerations for Replacing the $1 Note with a $1 Coin, November 29, 2012

GAO reported in February 2012 that replacing $1 notes with $1 coins could potentially provide $4.4 billion in net benefits to the federal government over 30 years. The overall net benefit was due solely to increased seigniorage and not to reduced production costs. Seigniorage is the difference between the cost of producing coins or notes and their face value; it reduces government borrowing and interest costs, resulting in a financial benefit to the government. GAO’s estimate takes into account processing and production changes that occurred in 2011, including the Federal Reserve’s use of new equipment to determine the quality and authenticity of notes, which has increased the expected life of the note thereby reducing the costs of circulating a note over 30 years. (The $1 note is expected to last 4.7 years and the $1 coin 30 years.) Like all estimates, there are uncertainties surrounding GAO’s estimate, especially since the costs of the replacement occur in the first several years and can be estimated with more certainty than the benefits, which are less certain because they occur further in the future. Moreover, changes to the inputs and assumptions GAO used in the estimate could significantly increase or decrease the results. For example, if the public relies more heavily on electronic payments in the future, the demand for cash could be lower than GAO estimated and, as a result, the net benefit would be lower.

In March 2011, GAO identified potential shorter- and longer-term costs to the private sector that could result from the replacement of the $1 note with a $1 coin. Industry stakeholders indicated that they would initially incur costs to modify equipment and add storage and that later their costs to process and transport coins would increase. However, others, such as some transit agencies, have already made the transition to accept $1 coins and would not incur such costs. In addition, for such a replacement to be successful, the $1 coin would have to be widely accepted and used by the public. Nationwide opinion polls over the last decade have indicated lack of public acceptance of the $1 coin. Efforts to increase the circulation and public acceptance of the $1 coins have not succeeded, in part, because the $1 note has remained in circulation.

Over the last 48 years, many countries, including Canada and the United Kingdom, have replaced low denomination notes with coins because of expected cost savings, among other reasons. The Canadian government, for example, saved $450 million (Canadian) over 5 years by converting to the $1 coin. Canada and the United Kingdom found that stopping production of the note combined with stakeholder outreach and public education were important to overcome public resistance, which dissipated within a few years after transitioning to the low denomination coins.

Since coins are more durable than notes and do not need replacement as often, many countries have replaced lower-denomination notes with coins to obtain a financial benefit, among other reasons. Six times over the past 22 years, GAO has reported that replacing the $1 note with a $1 coin would provide a net benefit to the federal government of hundreds of millions of dollars annually.

This testimony provides information on what GAO’s most recent work in 2011 and 2012 found regarding (1) the net benefit to the government of replacing the $1 note with a $1 coin, (2) stakeholder views on considerations for the private sector and the public in making such a replacement, and (3) the experiences of other countries in replacing small-denomination notes with coins. This testimony is based on previous GAO reports. To perform that work, GAO constructed an economic model to assess the net benefit to the government. GAO also interviewed officials from the Federal Reserve and Treasury Department, currency experts, officials from Canada and the United Kingdom, and representatives of U.S. industries that could be affected by currency changes.

GAO has recommended in prior work that Congress replace the $1 note with a $1 coin. GAO continues to believe that replacing the $1 note with a coin is likely to provide a financial benefit to the federal government if the note is eliminated and negative public reaction is effectively managed through stakeholder outreach and public education.

For more information, contact Lorelei St.James at (202) 512-2834 or stjamesl@gao.gov.

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GAO-13-186T, Air Passenger Screening: Transportation Security Administration Needs to Improve Complaint Processes, November 29, 2012

In summary, TSA receives thousands of air passenger screening complaints through five central mechanisms, but does not have an agencywide policy, consistent processes, or a focal point to guide receipt and use of such information. Also, while the agency has several methods to inform passengers about its complaint processes, it does not have an agencywide policy or mechanism to ensure consistent use of these methods among commercial airports. In addition, TSA's complaint resolution processes do not fully conform to standards of independence to ensure that these processes are fair, impartial, and credible, but the agency is taking steps to improve independence. To address these issues, we made four recommendations to TSA with which the agency concurred, and it indicated actions it is taking in response. Finally, TSA officials stated that the agency is undertaking efforts to focus its resources and improve the passenger experience at security checkpoints by applying new intelligence-driven, risk-based screening procedures, including expanding its Pre?™ program. TSA plans to have this program in place at 35 airports by the end of the calendar year and estimates that it has screened more than 4 million passengers to date through this program.

This testimony discusses the findings of our November 2012 report assessing the Transportation Security Administration's (TSA) efforts to improve the air passenger screening complaints processes. TSA screens or oversees the screening of more than 650 million air passengers per year at 752 security checkpoints in more than 440 commercial airports nationwide, and must attempt to balance its aviation security mission with competing goals of efficiency and respecting the privacy of the traveling public. The agency relies upon multiple layers of security to deter, detect, and disrupt persons posing a potential risk to aviation security. These layers focus on screening millions of passengers and pieces of carry-on and checked baggage, as well as tons of air cargo, on a daily basis.

Given TSA's daily interaction with members of the traveling public, air passenger screening complaints reflect a wide range of concerns about, for example, the systems, procedures, and staff that TSA has used for screening air passengers at security checkpoints. This includes concerns related to the use of Advanced Imaging Technology and enhanced pat-down procedures. TSA screens or oversees the screening of more than 650 million air passengers per year at 752 security checkpoints in more than 440 commercial airports nationwide, and must attempt to balance its aviation security mission with competing goals of efficiency and respecting the privacy of the traveling public. The agency relies upon multiple layers of security to deter, detect, and disrupt persons posing a potential risk to aviation security. These layers focus on screening millions of passengers and pieces of carry-on and checked baggage, as well as tons of air cargo, on a daily basis. TSA has processes for addressing complaints about air passengers' screening experience at security checkpoints, but concerns have been raised about these processes. Also, TSA is implementing a Pre?™ program to expedite screening at security checkpoints.

This statement primarily based on our November 2012 report and, like the report, discusses the extent to which TSA has (1) policies and processes to guide the receipt of air passenger screening complaints, and uses this information to monitor or enhance screening operations, (2) a consistent process for informing passengers about how to make complaints, and (3) complaint resolution processes that conform to independence standards to help ensure that these processes are fair and impartial. As requested, the statement also describes TSA's recent efforts to make the screening process more risk-based and selective through use of TSA's Pre?™ program.

For more information, please contact Steve Lord at (202) 512-4379 or lords@gao.gov.

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GAO-13-31, Guantanamo Bay Detainees: Facilities and Factors for Consideration If Detainees Were Brought to the United States, November 14, 2012

As of November 2012, the Department of Defense (DOD) held 166 detainees in five separate facilities in conditions ranging from communal living to maximumsecurity segregated cells that limit detainee interaction. In addition, DOD maintains facilities and infrastructure dedicated to detention support operations. For example, DOD operates an extensive information-technology infrastructure, conducts operations to support the protection of military personnel, and performs other missions at Guantánamo Bay such as securing two courthouses used for military commissions.

Within the United States, DOD operates six corrections facilities that are equipped to confine servicemembers for more than 1 year. On average, as of August 2012, these facilities were operating at about 48 percent capacity, but this varies across different facilities and housing units. GAO identified from interviews with DOD officials and analysis of detention operations documents several factors that would need to be considered in the event that the Guantánamo Bay detainees were transferred to one of DOD’s U.S. facilities. The following four factors, among others such as legal and cost considerations, would have to be considered: (1) ensuring compliance with international law and U.S. laws and policies; (2) ensuring the continued safety and security of DOD personnel and the detainees, as well as the general public; (3) collecting intelligence information from the detainees; and (4) maintaining current missions and services provided by the corrections facilities and associated installations. For example, DOD’s current ability to minimize risks to the public is attributable to Guantánamo Bay’s remote location and limited access, whereas DOD corrections facilities in the United States are generally located on active military installations in close proximity to the general public. Additionally, DOD officials indicated that locating detention operations on an active military installation could present risk to the installation’s core operations such as administrative and training operations.

The Department of Justice (DOJ), through its Bureau of Prisons and Marshals Service, uses over 2,000 facilities to hold about 280,000 individuals charged with or convicted of federal crimes. Facilities range from low to high security and provide various conditions of confinement. GAO identified from interviews with DOJ officials and analysis of detention operations documents several factors that would need to be considered in the event that the Guantánamo Bay detainees were transferred to one of DOJ’s U.S. facilities. The following three factors, among others such as legal and cost considerations, would have to be considered: (1) formulation of policies and practices for housing the detainees; (2) ensuring the safety of facility personnel, the detainees, and the general public; and (3) identifying adequate space for housing the detainees and maintaining separation of detainees from the current inmate population. For example, according to DOJ officials, existing facilities would need to be modified or current inmates relocated because the Bureau of Prisons and Marshals Service would segregate Guantánamo Bay detainees from the inmate population for security purposes. Also, as of August 2012, system-wide Bureau of Prisons facilities were about 38 percent overcrowded, and holding Guantánamo Bay detainees could require triple bunking of inmates or expansion of facility capacity in order to maintain security for personnel, inmates, and detainees.

Since 2002, the United States has operated military detention facilities at its Naval Station in Guantánamo Bay, Cuba, to hold individuals detained during overseas counterterrorism operations. In 2009 the President directed the closure of these facilities within 1 year. Since then, a number of statutes have prohibited the transfer of Guantánamo Bay detainees to the United States. GAO was asked to review existing U.S. facilities and identify factors to be considered in the event that restrictions were lifted and Guantánamo Bay detainees were transferred to the United States. This report describes the (1) current Guantánamo Bay detention facilities and infrastructure, (2) DOD corrections facilities and factors to be considered if these facilities were used to hold the detainees, and (3) DOJ facilities holding individuals charged with or convicted of terrorism-related crimes, and factors to be considered if these facilities were used to hold the detainees.

To conduct its work, GAO reviewed relevant laws and policies on detention operations; visited several facilities at Guantánamo Bay and DOD and DOJ sites in the United States selected for their range of housing configurations; and interviewed officials at both agencies. GAO’s review is descriptive and did not include an evaluation of whether specific U.S. facilities would be suitable for holding Guantánamo Bay detainees, nor did GAO address legal factors that are still being adjudicated. GAO is not making any recommendations in this report. In commenting on this report, DOJ stated that it has no plans to transfer detainees to the United States. This report is an unclassified version of a classified report issued in November 2012.

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GAO-13-47, Medicaid: Data Sets Provide Inconsistent Picture of Expenditures, October 29, 2012

Medicaid expenditures in the Medicaid Statistical Information System (MSIS) were generally less than CMS-64 amounts. National expenditures in MSIS were 86, 87, and 88 percent of the amounts in CMS-64 in fiscal years 2007 through 2009, respectively. In fiscal year 2009, MSIS expenditures for states ranged from 59 to 119 percent of CMS-64. Specifically, 40 states reported lower expenditures in MSIS than CMS-64; 5 states and the District of Columbia reported higher expenditures; and 5 states reported similar levels of expenditures.

GAO was able to quantify some, but not all, of the identified differences in expenditures between MSIS and the CMS-64.

GAO adjusted MSIS for expenditures that were not attributed to individual beneficiaries--such as prescription drug rebates. These adjustments increased MSIS to 92, 93, and 94 percent of the amounts in CMS-64 in fiscal years 2007 through 2009, respectively.GAO could not account for the remaining differences in part because of inconsistencies in the Centers for Medicare & Medicaid (CMS) guidance between the two data sets. For example, CMS officials explained that expenditures for inpatient services as reported by a state in MSIS and as reported in CMS-64 are not necessarily for the same services.

GAO also found that states do not submit timely MSIS information. CMS requires states to submit MSIS data within 45 days and CMS-64 data within 30 days of the end of the quarter. However, states' reporting of MSIS data can be up to 3 years late, whereas CMS-64 data are consistently reported on time. Also, MSIS expenditure data are considered less reliable when compared with CMS-64.

GAO has reported that CMS will need more reliable data for assessing expenditures and measuring performance in the Medicaid program. MSIS and CMS-64 have the potential to offer a robust view of the Medicaid program, enhancing CMS oversight of aggregate spending trends, per beneficiary spending growth, and cross-state comparisons, all of which could be useful in improving the financial integrity of this high-risk program. However, delays in reporting MSIS data and inconsistencies between the two data sets limit their usefulness as oversight tools. CMS has recently completed a pilot study aimed in part at improving the timeliness and consistency of both systems data.

HHS provided technical comments on a draft of this report, which were incorporated as appropriate.

CMS, within the Department of Health and Human Services, and state Medicaid agencies jointly administer the multibillion-dollar Medicaid program, which finances health care for certain low-income individuals. Medicaid is on GAO’s high-risk list because of vulnerabilities to waste, fraud, abuse, and mismanagement. CMS has two data sets that report state Medicaid expenditures. The MSIS data set is designed to report individual beneficiary claims data. The CMS-64 data set aggregates states’ expenditures, which are used to reimburse the states for their Medicaid expenditures. However, neither data set provides a complete picture of Medicaid expenditures.

GAO was asked to compare MSIS and CMS-64 data. This report (1) examines the extent to which MSIS and CMS-64 expenditure data differ and (2) where possible, quantifies the identified differences between the two data sets. GAO reviewed documents, compared Medicaid expenditure data, and interviewed CMS and state officials. GAO used fiscal years 2007 through 2009 data—the most-recent and most-complete data available.

For more information, contact Carolyn L. Yocom at (202) 512-7114 or yocomc@gao.gov.

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GAO-13-8, Nuclear Regulatory Commission: Oversight and Status of Implementing a Risk-Informed Approach to Fire Safety, October 22, 2012

The Nuclear Regulatory Commission (NRC), together with plant operators, has made progress in resolving three fire safety issues raised in GAO's 2008 report by implementing GAO's recommendations or taking other actions. NRC implemented the recommendation on multiple spurious operations (malfunctions caused by fire that could cause safety-related equipment to malfunction) by issuing new guidance or requiring additional modifications at the 36 plants with 57 reactors operating under deterministic regulations. NRC did not implement the recommendations to address the effectiveness of fire wraps or the extended use of interim compensatory measures plants use instead of repairing or replacing damaged safety equipment; however, NRC did take some actions, including (1) evaluating and reporting on corrective actions plants used to mitigate safety concerns associated with fire wraps and (2) developing metrics to gauge the progress of NRC's staff in resolve underlying issues related to the extended use of compensatory measures.

According to NRC, plants transitioning to a riskinformed fire safety approach are continuing to resolve these issues through modifications and analyses required as part of the transition process. GAO visited two transitioning plants and observed examples of such modifications. According to NRC officials, plant operators, and others GAO spoke with, the riskinformed regulatory approach to fire safety offers benefits over the deterministic approach, but NRC made adoption of the risk-informed approach voluntary because it considers plants that meet deterministic requirements to be safe. NRC officials stated that the risk-informed approach (1) will provide plant operators with information to help them quantifiably reduce risk and with flexibility in areas that do not affect risk and (2) allow operators to more easily demonstrate compliance with simplified licensing requirements. According to some of the plant operators, consultants, and experts GAO spoke with, plants will improve their safety using the risk-informed approach. NRC considered mandating the riskinformed approach, but it did not do so because of uncertainties over whether the agency could determine if the approach could improve protection of health and safety enough to impose new regulations. NRC considers plants that meet deterministic requirements to be safe, including plants that do so through approved exceptions to these requirements; thus, it does not plan to further analyze whether the risk-informed approach should be mandatory.

Plant operators, consultants, and experts GAO spoke with identified three challenges that may affect NRC's transition schedule and the number of plants that ultimately transition to the risk-informed approach. First, transition costs have been higher than initially expected, and operators from all of the nontransitioning plants GAO contacted cited this as reason they are remaining under the deterministic approach. Second, according to some operators, consultants, and experts, the absence of fire data may hinder the development of realistic risk assessments and contribute to overly conservative NRC risk assessment guidance, potentially leading to a misallocation of resources. NRC and other stakeholders disagreed with this assessment. Third, few people have expertise in risk analysis and fire modeling, and some operators, consultants, and experts expressed concern that the need for such expertise could compete with other safety-related efforts. However, most consultants and experts GAO spoke with believed that the number of people with expertise will be sufficient to support the transition effort.

In 1975, a fire at a nuclear power plant damaged critical control cables and hampered operators' ability to monitor the status of the plant's reactor. NRC subsequently issued deterministic fire safety regulations for plants to follow, but differences in plant design, coupled with changes in NRC guidance, made it difficult for most plants to meet the regulations without seeking numerous exemptions. In 2004, NRC issued a regulation permitting plants to voluntarily transition to risk-informed fire protection requirements. This new approach mirrors NRC's efforts to adopt a more risk-informed regulatory approach to nuclear safety in general. In 2008, GAO reported on three key fire safety issues and recommended NRC take action to address them.

GAO was asked to examine (1) NRC's progress in resolving the long-standing fire safety issues raised in GAO's 2008 report at plants remaining under the deterministic approach and at those plants transitioning to the risk-informed approach; (2) the potential benefits of transitioning to a risk-informed approach and the basis for NRC's decision to make adoption of this approach voluntary; and (3) challenges, if any, in efforts to transition to a risk-informed approach in regulating fire safety. GAO reviewed documents; analyzed responses from operators at a nonprobability sample of 12 nuclear plants and from nine consultants or academic experts on fire safety issues and risk-informed regulations; and interviewed NRC, industry, and public interest group representatives.

GAO is not making recommendations in this report. NRC found the report to be accurate and complete.

For more information, contact Frank Rusco at (202) 512-3841 or ruscof@gao.gov.

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GAO-13-132T, Identity Theft: Total Extent of Refund Fraud Using Stolen Identities is Unknown, November 29, 2012

Understanding the extent and nature of identity theft-related refund fraud is important to crafting a response to it, but Internal Revenue Service (IRS) managers recognize that they do not have a complete picture. Program officials said that one of the challenges they face in combating this type of fraud is its changing nature and how it is concealed. While perfect knowledge about cases and who is committing the crime will never be attained, the better IRS understands the problem, the better it can respond and the better Congress can oversee IRS's efforts. IRS officials described several areas where the extent and nature of identity theft is unknown.

Total number and cost of fraudulent returns. IRS does not know the full extent of the occurrence of identity theft. Officials said that they count the refund fraud cases that IRS identifies but that they do not estimate the number of identity theft cases that go undetected.Identity of the thieves. Unless IRS pursues a criminal investigation, IRS generally does not know the real identity of the thieves.Whether a fraudulent return is an individual attempt or part of a broader scheme. Identifying new schemes or significant cases, such as one thief using numerous taxpayer identities, depends on analysts noticing patterns or other indications that a few cases may be part of a larger scheme. As a result, some schemes or cases involving multiple taxpayers may go undetected.Characteristics of known identity theft returns. IRS officials told us that the agency does not systematically track characteristics of known identity theft returns, including the type of return preparation (e.g., paid preparer or software), whether the return is filed electronically or on paper, or how the individual claimed a refund (e.g., check, direct deposit, or debit card).

While much remains unknown about identity theft, IRS has taken steps to organize what it knows in a newly developed Refund Fraud and Identity Theft Global Report (Global Report). The Global Report consolidates and tracks information about identity theft incidents and IRS detection and resolution efforts from multiple sources within IRS. The report provides information to IRS senior management and a standard source of information for responding to data requests from external entities. GAO's selected review of the Global Report against key attributes of successful performance measures found that it had many of the attributes useful for program monitoring, but also had some areas where additional information or clarification would make the report more helpful. Updating the Global Report to provide information on definitions, data sources, and limitations such as the unknown number of undetected fraudulent returns, could help ensure users have a more complete picture of the data and its strengths and limitations. The quality of the report will also be enhanced by the institution of process controls to help ensure consistency in how the data in the report are compiled, verified and validated.

Identity theft is a growing and evolving problem that imposes a financial and emotional toll on its victims. As of September 30, 2012, IRS had identified almost 642,000 incidents of identity theft that impacted tax administration in 2012 alone, a large increase over prior years. A taxpayer may have his or her tax refund delayed if an identity thief files a fraudulent tax return seeking a refund using a legitimate taxpayer's identity information.

GAO was asked to describe identity theft issues at IRS and limits to what is known about the extent of identity theft. GAO updated its analysis on identity theft with current data on identity theft cases and interviewed IRS officials. GAO also reviewed past GAO reports to identify key attributes of successful performance measures and compare information provided by the Global Report

To improve information available to IRS management and Congress, GAO recommends that IRS update the Global Report to provide definitions and data sources, where such information is missing; document procedures used to compile and validate the data; and describe limitations of the data presented.

IRS officials agreed with our recommendations. Based on their comment, we revised language in the report to clarify that, like other forms of fraud, IRS conducts criminal investigations only in the most serious identity theft-related refund fraud cases.

For more information, contact James R. White at (202) 512-9110 or whitej@gao.gov.

Review Pending-GAO has not yet assessed implementation status.Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.Review PendingOpenClosed - implementedClosed - not implemented

Recommendation: To improve the identity theft information available to IRS management and Congress, the Acting Commissioner of Internal Revenue should update the Refund Fraud and Identity Theft Global Report to provide definitions, data sources, and the frequency of data updates for data elements where such information is missing.

Agency Affected: Department of the Treasury: Internal Revenue Service

Status: Review Pending

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: To improve the identity theft information available to IRS management and Congress, the Acting Commissioner of Internal Revenue should update the Refund Fraud and Identity Theft Global Report to document procedures used to compile and validate data.

Agency Affected: Department of the Treasury: Internal Revenue Service

Status: Review Pending

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: To improve the identity theft information available to IRS management and Congress, the Acting Commissioner of Internal Revenue should update the Refund Fraud and Identity Theft Global Report to describe limitations of the data presented.

Agency Affected: Department of the Treasury: Internal Revenue Service

Status: Review Pending

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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GAO-13-164T, U.S. Coins: Benefits and Considerations for Replacing the $1 Note with a $1 Coin, November 29, 2012

GAO reported in February 2012 that replacing $1 notes with $1 coins could potentially provide $4.4 billion in net benefits to the federal government over 30 years. The overall net benefit was due solely to increased seigniorage and not to reduced production costs. Seigniorage is the difference between the cost of producing coins or notes and their face value; it reduces government borrowing and interest costs, resulting in a financial benefit to the government. GAO’s estimate takes into account processing and production changes that occurred in 2011, including the Federal Reserve’s use of new equipment to determine the quality and authenticity of notes, which has increased the expected life of the note thereby reducing the costs of circulating a note over 30 years. (The $1 note is expected to last 4.7 years and the $1 coin 30 years.) Like all estimates, there are uncertainties surrounding GAO’s estimate, especially since the costs of the replacement occur in the first several years and can be estimated with more certainty than the benefits, which are less certain because they occur further in the future. Moreover, changes to the inputs and assumptions GAO used in the estimate could significantly increase or decrease the results. For example, if the public relies more heavily on electronic payments in the future, the demand for cash could be lower than GAO estimated and, as a result, the net benefit would be lower.

In March 2011, GAO identified potential shorter- and longer-term costs to the private sector that could result from the replacement of the $1 note with a $1 coin. Industry stakeholders indicated that they would initially incur costs to modify equipment and add storage and that later their costs to process and transport coins would increase. However, others, such as some transit agencies, have already made the transition to accept $1 coins and would not incur such costs. In addition, for such a replacement to be successful, the $1 coin would have to be widely accepted and used by the public. Nationwide opinion polls over the last decade have indicated lack of public acceptance of the $1 coin. Efforts to increase the circulation and public acceptance of the $1 coins have not succeeded, in part, because the $1 note has remained in circulation.

Over the last 48 years, many countries, including Canada and the United Kingdom, have replaced low denomination notes with coins because of expected cost savings, among other reasons. The Canadian government, for example, saved $450 million (Canadian) over 5 years by converting to the $1 coin. Canada and the United Kingdom found that stopping production of the note combined with stakeholder outreach and public education were important to overcome public resistance, which dissipated within a few years after transitioning to the low denomination coins.

Since coins are more durable than notes and do not need replacement as often, many countries have replaced lower-denomination notes with coins to obtain a financial benefit, among other reasons. Six times over the past 22 years, GAO has reported that replacing the $1 note with a $1 coin would provide a net benefit to the federal government of hundreds of millions of dollars annually.

This testimony provides information on what GAO’s most recent work in 2011 and 2012 found regarding (1) the net benefit to the government of replacing the $1 note with a $1 coin, (2) stakeholder views on considerations for the private sector and the public in making such a replacement, and (3) the experiences of other countries in replacing small-denomination notes with coins. This testimony is based on previous GAO reports. To perform that work, GAO constructed an economic model to assess the net benefit to the government. GAO also interviewed officials from the Federal Reserve and Treasury Department, currency experts, officials from Canada and the United Kingdom, and representatives of U.S. industries that could be affected by currency changes.

GAO has recommended in prior work that Congress replace the $1 note with a $1 coin. GAO continues to believe that replacing the $1 note with a coin is likely to provide a financial benefit to the federal government if the note is eliminated and negative public reaction is effectively managed through stakeholder outreach and public education.

For more information, contact Lorelei St.James at (202) 512-2834 or stjamesl@gao.gov.

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GAO-13-186T, Air Passenger Screening: Transportation Security Administration Needs to Improve Complaint Processes, November 29, 2012

In summary, TSA receives thousands of air passenger screening complaints through five central mechanisms, but does not have an agencywide policy, consistent processes, or a focal point to guide receipt and use of such information. Also, while the agency has several methods to inform passengers about its complaint processes, it does not have an agencywide policy or mechanism to ensure consistent use of these methods among commercial airports. In addition, TSA's complaint resolution processes do not fully conform to standards of independence to ensure that these processes are fair, impartial, and credible, but the agency is taking steps to improve independence. To address these issues, we made four recommendations to TSA with which the agency concurred, and it indicated actions it is taking in response. Finally, TSA officials stated that the agency is undertaking efforts to focus its resources and improve the passenger experience at security checkpoints by applying new intelligence-driven, risk-based screening procedures, including expanding its Pre?™ program. TSA plans to have this program in place at 35 airports by the end of the calendar year and estimates that it has screened more than 4 million passengers to date through this program.

This testimony discusses the findings of our November 2012 report assessing the Transportation Security Administration's (TSA) efforts to improve the air passenger screening complaints processes. TSA screens or oversees the screening of more than 650 million air passengers per year at 752 security checkpoints in more than 440 commercial airports nationwide, and must attempt to balance its aviation security mission with competing goals of efficiency and respecting the privacy of the traveling public. The agency relies upon multiple layers of security to deter, detect, and disrupt persons posing a potential risk to aviation security. These layers focus on screening millions of passengers and pieces of carry-on and checked baggage, as well as tons of air cargo, on a daily basis.

Given TSA's daily interaction with members of the traveling public, air passenger screening complaints reflect a wide range of concerns about, for example, the systems, procedures, and staff that TSA has used for screening air passengers at security checkpoints. This includes concerns related to the use of Advanced Imaging Technology and enhanced pat-down procedures. TSA screens or oversees the screening of more than 650 million air passengers per year at 752 security checkpoints in more than 440 commercial airports nationwide, and must attempt to balance its aviation security mission with competing goals of efficiency and respecting the privacy of the traveling public. The agency relies upon multiple layers of security to deter, detect, and disrupt persons posing a potential risk to aviation security. These layers focus on screening millions of passengers and pieces of carry-on and checked baggage, as well as tons of air cargo, on a daily basis. TSA has processes for addressing complaints about air passengers' screening experience at security checkpoints, but concerns have been raised about these processes. Also, TSA is implementing a Pre?™ program to expedite screening at security checkpoints.

This statement primarily based on our November 2012 report and, like the report, discusses the extent to which TSA has (1) policies and processes to guide the receipt of air passenger screening complaints, and uses this information to monitor or enhance screening operations, (2) a consistent process for informing passengers about how to make complaints, and (3) complaint resolution processes that conform to independence standards to help ensure that these processes are fair and impartial. As requested, the statement also describes TSA's recent efforts to make the screening process more risk-based and selective through use of TSA's Pre?™ program.

For more information, please contact Steve Lord at (202) 512-4379 or lords@gao.gov.

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GAO-13-47, Medicaid: Data Sets Provide Inconsistent Picture of Expenditures, October 29, 2012

Medicaid expenditures in the Medicaid Statistical Information System (MSIS) were generally less than CMS-64 amounts. National expenditures in MSIS were 86, 87, and 88 percent of the amounts in CMS-64 in fiscal years 2007 through 2009, respectively. In fiscal year 2009, MSIS expenditures for states ranged from 59 to 119 percent of CMS-64. Specifically, 40 states reported lower expenditures in MSIS than CMS-64; 5 states and the District of Columbia reported higher expenditures; and 5 states reported similar levels of expenditures.

GAO was able to quantify some, but not all, of the identified differences in expenditures between MSIS and the CMS-64.

GAO adjusted MSIS for expenditures that were not attributed to individual beneficiaries--such as prescription drug rebates. These adjustments increased MSIS to 92, 93, and 94 percent of the amounts in CMS-64 in fiscal years 2007 through 2009, respectively.GAO could not account for the remaining differences in part because of inconsistencies in the Centers for Medicare & Medicaid (CMS) guidance between the two data sets. For example, CMS officials explained that expenditures for inpatient services as reported by a state in MSIS and as reported in CMS-64 are not necessarily for the same services.

GAO also found that states do not submit timely MSIS information. CMS requires states to submit MSIS data within 45 days and CMS-64 data within 30 days of the end of the quarter. However, states' reporting of MSIS data can be up to 3 years late, whereas CMS-64 data are consistently reported on time. Also, MSIS expenditure data are considered less reliable when compared with CMS-64.

GAO has reported that CMS will need more reliable data for assessing expenditures and measuring performance in the Medicaid program. MSIS and CMS-64 have the potential to offer a robust view of the Medicaid program, enhancing CMS oversight of aggregate spending trends, per beneficiary spending growth, and cross-state comparisons, all of which could be useful in improving the financial integrity of this high-risk program. However, delays in reporting MSIS data and inconsistencies between the two data sets limit their usefulness as oversight tools. CMS has recently completed a pilot study aimed in part at improving the timeliness and consistency of both systems data.

HHS provided technical comments on a draft of this report, which were incorporated as appropriate.

CMS, within the Department of Health and Human Services, and state Medicaid agencies jointly administer the multibillion-dollar Medicaid program, which finances health care for certain low-income individuals. Medicaid is on GAO’s high-risk list because of vulnerabilities to waste, fraud, abuse, and mismanagement. CMS has two data sets that report state Medicaid expenditures. The MSIS data set is designed to report individual beneficiary claims data. The CMS-64 data set aggregates states’ expenditures, which are used to reimburse the states for their Medicaid expenditures. However, neither data set provides a complete picture of Medicaid expenditures.

GAO was asked to compare MSIS and CMS-64 data. This report (1) examines the extent to which MSIS and CMS-64 expenditure data differ and (2) where possible, quantifies the identified differences between the two data sets. GAO reviewed documents, compared Medicaid expenditure data, and interviewed CMS and state officials. GAO used fiscal years 2007 through 2009 data—the most-recent and most-complete data available.

For more information, contact Carolyn L. Yocom at (202) 512-7114 or yocomc@gao.gov.

View the original article here

GAO-13-47, Medicaid: Data Sets Provide Inconsistent Picture of Expenditures, October 29, 2012

Medicaid expenditures in the Medicaid Statistical Information System (MSIS) were generally less than CMS-64 amounts. National expenditures in MSIS were 86, 87, and 88 percent of the amounts in CMS-64 in fiscal years 2007 through 2009, respectively. In fiscal year 2009, MSIS expenditures for states ranged from 59 to 119 percent of CMS-64. Specifically, 40 states reported lower expenditures in MSIS than CMS-64; 5 states and the District of Columbia reported higher expenditures; and 5 states reported similar levels of expenditures.

GAO was able to quantify some, but not all, of the identified differences in expenditures between MSIS and the CMS-64.

GAO adjusted MSIS for expenditures that were not attributed to individual beneficiaries--such as prescription drug rebates. These adjustments increased MSIS to 92, 93, and 94 percent of the amounts in CMS-64 in fiscal years 2007 through 2009, respectively.GAO could not account for the remaining differences in part because of inconsistencies in the Centers for Medicare & Medicaid (CMS) guidance between the two data sets. For example, CMS officials explained that expenditures for inpatient services as reported by a state in MSIS and as reported in CMS-64 are not necessarily for the same services.

GAO also found that states do not submit timely MSIS information. CMS requires states to submit MSIS data within 45 days and CMS-64 data within 30 days of the end of the quarter. However, states' reporting of MSIS data can be up to 3 years late, whereas CMS-64 data are consistently reported on time. Also, MSIS expenditure data are considered less reliable when compared with CMS-64.

GAO has reported that CMS will need more reliable data for assessing expenditures and measuring performance in the Medicaid program. MSIS and CMS-64 have the potential to offer a robust view of the Medicaid program, enhancing CMS oversight of aggregate spending trends, per beneficiary spending growth, and cross-state comparisons, all of which could be useful in improving the financial integrity of this high-risk program. However, delays in reporting MSIS data and inconsistencies between the two data sets limit their usefulness as oversight tools. CMS has recently completed a pilot study aimed in part at improving the timeliness and consistency of both systems data.

HHS provided technical comments on a draft of this report, which were incorporated as appropriate.

CMS, within the Department of Health and Human Services, and state Medicaid agencies jointly administer the multibillion-dollar Medicaid program, which finances health care for certain low-income individuals. Medicaid is on GAO’s high-risk list because of vulnerabilities to waste, fraud, abuse, and mismanagement. CMS has two data sets that report state Medicaid expenditures. The MSIS data set is designed to report individual beneficiary claims data. The CMS-64 data set aggregates states’ expenditures, which are used to reimburse the states for their Medicaid expenditures. However, neither data set provides a complete picture of Medicaid expenditures.

GAO was asked to compare MSIS and CMS-64 data. This report (1) examines the extent to which MSIS and CMS-64 expenditure data differ and (2) where possible, quantifies the identified differences between the two data sets. GAO reviewed documents, compared Medicaid expenditure data, and interviewed CMS and state officials. GAO used fiscal years 2007 through 2009 data—the most-recent and most-complete data available.

For more information, contact Carolyn L. Yocom at (202) 512-7114 or yocomc@gao.gov.

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Revenue and cash management

Cost cutting is not the only solution to budget shortfalls. Government is seeking additional revenue and cash management opportunities as well. Expectations have shifted from administration and policy to economic and revenue growth. All of this while needing to provide a high level of customer service, maintain a business-friendly environment, provide proper controls and data security, and address an aging workforce. While the challenges can be significant, this environment has allowed new opportunities to emerge.

Deloitte brings broad perspectives and demonstrated solutions. This includes providing guidance on data compliance, evaluation of internal controls, advisory services on tax policy and economic stimulation, and expertise around IT innovation and transformation.

Easier to Do Business
Whether it is identifying opportunities for economic development, centralizing customer contact points, or providing input on tax policy, Deloitte can help make it easier for businesses to do business in your state. We can leverage our unique experiences in tax and consulting to provide insight and perspective that can help states make the decisions that drive business, create employment, and develop a growing tax base.
Mobile Solutions
Our solutions offer real world applications to revenue-specific problems within a mobile platform. These solutions range from interactive real-time information on government services, to secure field-based case management access for field auditors and case workers, and payment capabilities for constituent and business tax payments; all coupled with GPS-related features and functions. While the actual solutions serve as preconfigured capabilities, they likewise demonstrate the possibilities for this new emerging service delivery platform within the industry.
Revenue Advisory Services
Deloitte is positioned to provide a range of revenue-related advisory services. Whether it is leveraging our commercial experience for cash management, auditing existing systems and controls, project management services, or using our preexisting industry models for business process re-engineering, we have the tools and experience to assist with your revenue advisory needs.
Treasury Services
Many state and local governments have implemented an Enterprise Resource Planning (ERP) system, but have not fully utilized the functionality around cash management, debt management, and investment management. Deloitte can help design, improve and implement these important, yet sometimes forgotten financial and treasury management processes.
Federal-State Administrative “Reciprocal” Offset
The Deloitte Liability Offset Integration Exchange (D.LINX) solution is a single, integrated exchange service that supports federal-state and state-federal payment offset processing for collection of delinquent tax and non-tax government debt. This solution is designed to integrate with the U.S. Treasury Offset Program’s (TOP) systems and is demonstrated to generate significant working capital (cash) through the increased collection of delinquent debt.
Bankruptcy
The preconfigured bankruptcy solution provides a mechanism to effectively manage, monitor, and execute bankruptcy-related debts. This solution provides the automated capabilities to reduce staff overhead and identify and manage the life cycle of bankruptcy case through final resolution.
Fraud Detection
Deloitte’s Fraud Detection solution is a combination of leading technology capabilities, powerful analytics tools, and industry knowledge to identify fraud and potential fraud filings. As a learning model, this solution can redefine the parameters required for the identification of fraudulent activities based on actual results.
Integrated Tax
Deloitte provides a pre-configured SAP COTS-based Integrated Tax Solution. We have embedded Deloitte’s knowledge of the state government tax and revenue industry into the leading COTS-based solution to lower the overall implementation cost, duration, and risk while providing a flexible platform for future growth and development.

John Doyle
CXO Services Revenue and Growth Lead
Senior Manager, Deloitte Consulting LLP

Mark Wiggins
Principal, Deloitte Consulting LLP

As used in this document, "Deloitte" means Deloitte Consulting LLP, which provides guidance on data compliance, evaluation of internal controls, advisory services on tax policy and economic stimulation, expertise around IT innovation and transformation, cash management, project management, and business process re-engineering services; and Deloitte & Touche LLP, which provides evaluation of internal controls and auditing existing systems and controls; and Deloitte Tax LLP, which provides advisory services on tax policy and economic stimulation. These entities are separate subsidiaries 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.

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Strategies for going public: The challenging landscape for IPOs

The market for Initial Public Offerings (IPOs) has never been more complex or challenging. The legacy of the financial crisis, and the economic volatility that continues to impact the markets, have made investors even more diligent in their scrutiny of IPOs. Moreover, new legislation introduced since the crisis has only added to the complexity of these transactions. In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the Jumpstart Our Business Startups Act (JOBS Act) have added many new requirements and considerations to the IPO process. Finally, timing is critical and essential, and being able to take advantage of windows of opportunity is key to a successful IPO.

The fourth edition of “Strategies for Going Public: The changing landscape for IPOs,” published by Deloitte in collaboration with American Stock Transfer & Trust Company and Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates, aims to help organizations effectively prepare for an IPO. It provides a straightforward explanation of the process, highlights the common technical terms and language encountered during an IPO, and outlines the new regulatory requirements that organizations will need to take into account as they seek to “go public.”

An IPO is an important event in the life of an organization as it seeks to grow. Executing the IPO is the initial step in being a public company. We hope that this publication takes away some of the mystery and uncertainty surrounding the process and acts as a useful guide as your organization begins its IPO journey.

If you would like to talk with one of our IPO specialists, or request a hard copy of the publication, please contact Sandy Pfeffer.

Download the PDF to learn more.

About Deloitte
As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. 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.

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State Medicaid program management: update and considerations

States are at a critical juncture in managing their Medicaid programs. Challenged with continued slow economic recovery, constrained budgets, diminishing revenues, and looming Affordable Care Act (ACA)-driven enrollment increases, states have to look for creative and innovative ways of controlling medical and administrative program costs while improving quality and outcomes.

Effective management of state Medicaid programs is a hot-button issue. Total Medicaid spending accounts for 2.7 percent of the U.S. Gross Domestic Product (GDP) and in many states, Medicaid is the single largest health care insurer and the largest budget item, second to education.

State Medicaid Program Management: Update and Considerations, an Issue Brief from the Deloitte Center for Health Solutions, provides an update on state Medicaid programs and considerations for stakeholders as states identify ways to improve care management and reduce costs. This Issue Brief:

Summarizes states’ responsibilities in Medicaid administration and financing, and program and benefit design.Examines three drivers impacting Medicaid spending and costs – enrollment, medical inflation, and medical utilization.Reviews select ACA provisions – in particular, Medicaid coverage expansion (Section 2001) – and how they are expected to impact states as they play a major role in the Act’s implementation.Provides snapshots of innovative Medicaid management strategies under way in dozens of states.Identifies key stakeholder considerations for improving Medicaid management.

Local and regional factors, along with unique patient profiles, make a one-size-fits-all approach to controlling Medicaid costs and improving quality unlikely to succeed. Rather, individual states are anticipated to initiate, design, and develop solutions to improve their Medicaid management programs.

To read the full Issue Brief, please download the attachment.

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