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SAP Value Proposition for North Carolina Department of Revenue. July, 2007. Enabling the Department’s Goals. Statement of Confidentiality and Exceptions.
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SAP Value Proposition for North Carolina Department of Revenue July, 2007 Enabling the Department’s Goals
Statement of Confidentiality and Exceptions No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. The furnishing of this document shall not be construed as an offer or as constituting a binding agreement on the part of SAP to enter into any relationship. SAP provides this document as guidance only to estimated costs and benefits of the predicted delivery project. These materials are: (i) based upon external and assumptions that are subject to change; (ii) illustrations of potential performance and cost savings; (iii) not guaranties of future performance or cost savings; and (iv) provided solely for internal review and use by the subject Company. SAP AG and its affiliated companies ("SAP Group") make no representations or warranties of any kind with respect to these materials, and SAP Group shall not be liable for errors or omissions with respect to the materials.
Executive Summary – SAP Value Proposition Appendix 1: SAP Background Appendix 2: SAP Commitment to Public Sector Appendix 3: Customer Success Stories
SAP Analysis Approach Understanding of Industry Dynamics • Industry and solution resources • Product development resources • Management consulting resources with Public Sector experience Triangulated Approach to Deliver “Outside-in” Analysis Leveraging of Industry and SAP Benchmarks Analysis ofOrganizationIssues • Industry best practices • SAP benchmarks and typical benefit ranges • Customer references • Analyst reports • Executive presentations • Industry research • Recent publications
State of North Carolina has performed well in recent years: Total net assets increased by $2.78 B in FY 2006, an increase of 10.7% over FY 2005 The state maintained its AAA bond rating with S&P and Fitch Despite strong performance, State of North Carolina needs to be wary of certain trends: Rise in interest rates to 5.25% and increase in energy prices may lead to slowdown of economy General fund tax is expected to grow only by 3.3% in FY 2006-07 Job growth and retail sales projections are not expected to improve in next fiscal year Individual and corporate income tax growth rate is declining Growth rate of state tax rate per capita has reduced by 60 basis points over last fiscal year Analysis shows significant realizable value potential for the Department of Revenue which could provide additional resources to meet the development goals of the State of North Carolina State of North Carolina – Department of Revenue: Key Findings • SAP believes its Tax & Revenue Management (TRM) solution is distinctly qualified to combine near-term impact with long-term strategic alignment: • Near-term: Capture ~$66 M - $127 M savings annually while providing lowest total cost of ownership through process improvements in: • Collections & Disbursements • Taxpayer Registration & Returns Processing • Taxpayer Management • Revenue Accounting • IT Management • Processes & Forms • Long-term: Deep commitment to the Public Sector industry ensures continued development and excellence Source: State of North Carolina, CAFR, FY 2006; SAP Analysis
Our Understanding of the Department of Revenue’s Goals Improve responsiveness to customers by providing timely, clear, accurate, comprehensive and courteous response Enhance accessibility and consistency in the overall approach of delivering customer service Maintain professionalism, implement quality management and best practices to ensure better services to customers Expand communication capability both within the department and with the customers Improve Taxpayer Services Serve the People of North Carolina Provide improved tools and processes that will allow taxpayers to easily & voluntarily comply with tax laws Offer effective customer-centric services to encourage compliance and increase revenue collection Increase public awareness of taxes, procedures, rules and regulations Reduce revenue leakage through effective revenue accounting processes Increase Tax Collections Improve operational efficiencies through automated assistance and support to customers Enhance teamwork, promote problem-solving, encourage innovation and a spirit of cooperation among employees Provide comprehensive training and development to employees Offer an integrated tax system which can be enhanced and modified according to changing tax statutes Enhance Employee Effectiveness and Organizational Integrity Source: State of North Carolina, CAFR, FY 2006; Department of Revenue Website: http://www.dor.state.nc.us/
State of North Carolina has Performed Well in Recent Times… Unemployment Rate Per Capita Income (%) ($) More than 68,900 new jobs were created during the period May, 2006 to May, 2007; registering a growth of ~1.5% over May,2006 North Carolina demonstrated an all around improvement in the economic indicators over the last few years, reflecting the strong position of its economy Unemployment rate has continuously reduced over the past few years, coming down from 6.7% in FY 2002 to 4.5% in FY 2006. Also, the unemployment rate since FY 2004 is lower than country’s average rate North Carolina has shown a strong growth in per capita income as it increased by over 3.7% (4-Year CAGR) YoY to reach $31,198 for FY 2006 State’s governmental funds in FY 2006 reported combined ending fund balances of $5.23 B, a 28% increase from the last fiscal year State has enjoyed ‘AAA’ bond ratings with both S&P and Fitch due to its sound fiscal management Source: State of North Carolina, CAFR, FY 2006; SAP Analysis
…But the State Needs to Be Cautious About Certain Trends Individual Income Tax Growth Rate Corporate Income Tax Growth Rate (%, FY 2004-06) (%, FY 2004-06) Individual income tax growth rate has come down to 9% in FY 2006, a reduction of 6.7% over FY 2005 Corporate income tax has also shown a significant reduction in growth rate in FY 2006, decreasing by 36.2% over the previous fiscal year General fund tax is expected to grow by only 3.3% in FY 2006-07 according to official projections A rise in short-term interest rates to 5.25% (9.25% for prime rate) combined with persistently high energy prices may eventually lead to “mid-decade slowdown” similar to 1984-86 and 1995 High oil and gas prices could further impact economic growth Fiscal year 2006-07 economic outlook is cautious with projection of slower job growth and retail sales being projected, which may be accompanied by unforeseen international events Source: State of North Carolina, CAFR, FY 2006; SAP Analysis
…And the State has the Opportunity to Improve Tax and Revenue Management FY 2006 State Tax Revenue per Capita* Key Observations ($; FY 2006) • Growth rate of state tax per capita has reduced to 8.3% in FY 2006, a decrease of 60 basis points as compared to FY 2005 • Also, state-wise comparison of tax revenue per capita shows potential improvement in tax collections • Per capita tax collection of North Carolina is lower than the national average of $2,364 • North Carolina could improve its tax revenues through efficient returns processing and settlement, and by improving compliance and reducing revenue leakages • Consistent with its strategy, the Department of Revenue should focus on utilizing tools and processes that facilitate easy and voluntary compliance of tax payers • An integrated, customizable tax system delivering clear and personalized communication to taxpayers would help drive tax revenues for North Carolina • Potential areas of opportunity • Tax & Revenue Management • Processes and Forms State Tax Per Capita Growth Rate Historical Trend (%, FY 2004-2006) Source: State of North Carolina, CAFR, FY 2006; US Census Bureau Website: http://www.census.gov; Federation of Tax Administrators Website: http://www.taxadmin.org/ ; SAP Analysis * Analysis based on states having income tax rates within 4-9% bracket
Financial Position of the States Today • Most states continue to experience stable financial conditions in fiscal 2007, largely due to continued revenue growth that has exceeded budgeted expectations • In fiscal 2007, revenues exceeded originally budgeted projections in 27 states, were on target in 14 states and were lower than projections in 9 states • Although state fiscal conditions remain strong, total balances as a percentage of expenditures are far from their peak levels of the late 1990s and early 2000s • Persistent pressures in areas such as health care, infrastructure, education, employee pension systems and employee benefits will make it difficult to meet increasing expenditure expectations with limited revenues • Previous economic downturn in 2001-2003 has underlined the importance of maintaining sufficient fund balances through sound Tax and Revenue Management Source: National Association of State Budget Officers (NASBO) “The Fiscal Survey of the States,” June 2007
Key Opportunities for SAP to Support Department of Revenue’s Goals Key Strategic Goals Key Functional Opportunities Key Value Drivers 1. Collections & Disbursements Reduce tax receivables through automated dunning processes Reduce bill presentment costs through electronic bill presentment Reduce revenue leakage through improved visibility into tax collections Reduce error rate through exception checks Reduce communication expense by enabling taxpayer self service Improve efficiency by reducing manual processes in registration and returns processing Reduce invoicing effort and expenses through process automation 2. Taxpayer Registration & Returns Processing Improve Taxpayer Services Reduce dispute resolution efforts through integrated information flow and complete view of taxpayer Improve taxpayer satisfaction through faster query and dispute resolution Reduce compliance monitoring expenses via improved process automation 3. Taxpayer Management Increase Tax Collections 4. Revenue Accounting Reduce effort in reconciliation and closing processes Reduce effort in reporting Improve budget planning and creation process efficiency Lower technology delivery costs by leveraging common platforms Support organization operations with robust information sharing Enable business process flexibility to promote business owned modeling and analytics Improve standardization and integration across the organization Enhance Employee Effectiveness and Productivity 5. IT Management Eliminate paper forms with on-line and off-line forms Reduce paper forms and need for storage / retrieval Deliver clear personalized communication and improve customer documentation 6. Processes & Forms
Department of Revenue’s Estimated Annual Benefits are Between $66.2M and $126.6M* $66.2 M $126.6 M Conservative Estimate Potential Annual Benefits: Likely Scenario * Analysis is directional in nature; Access to specific operational details and data will be required to develop more accurate estimates Sources: State of North Carolina, CAFR, FY 2006; SAP Analysis
How SAP Helps Governments in Tax & Revenue Management SAP Tax & Revenue Management Solution Provides Public Sector Customers with End-to-End Integrated Capabilities
Goals and Objectives SAP Tax & Revenue Management Benefit Drivers Enhance Accounting: Collections, Workflow Improve Performance and Customer Service Integrate Multiple Systems Increase Voluntary Compliance Offer Better Information
SAP Tax & Revenue Management Benefit Drivers Improved constituent services and interaction, facilitating greater voluntary compliance • Speed up and simplify taxpayer interaction • Integrated communication channels (e.g., call center, internet, face to face, paper-based) • Convenient access to government services Improved administration efficiency and productivity enabling governments to offset revenue reductions • Streamlined processes • Increase revenue collection • Reduce tax fraud cases or non-filing • Improve performance of revenue services • Assignment of appropriate treatment streams for each audit and collection case • Improved enforcement capacity with better information Reduced administration cost • Reduced processing cost with `intelligent´ forms and case management • Eliminate multiple systems for various revenue types and consolidate into one system
Fully Integrated, Closed-Loop Process All Five Steps of the Process are Integrated and Seamless 1. Registration • Taxpayer/Debtor Registration • Process Admission/ Licensing Fees 2. Filing • Verification • Calculation and Billing • Notifications 5. Follow-Up Late/ Missing Payments • Dunning Procedures • Collection Analysis 4. Dispute Resolution • Case Management • Open Item Management • Refunds/Credits 3. Assess & Collect • Credit Assessment • Match Case with Treatment Stream • Cash Collection
Integration to Other Key Business Processes Total Value Potential can Only be Achieved by Seamlessly Integrating All Critical Business Processes • Call Center Management • Case Management • Postings to GL • Cash Collection • Tax and Revenue Distribution • Dunning Procedures Core ERP Solution CompleteCRM TRM • Taxpayer Registration • Interaction Centers • Taxpayer Collections • Detecting Audit and Collection Cases • Credit Assessment • Case Treatment Analysis • Performance Benchmarking Self-Service Business Analytics
Strategic Benefits of an Integrated TRM Solution • Enables compliance by having a 360˚ view of all taxpayer receivables • Improves predictability, particularly with the assessment of credit worthiness and matching cases with corresponding treatment stream • Connects registration, filing, collections and dispute resolutions all in one consolidated view of taxpayer • Speeds up the collection process • Improves labor efficiency and helps revenue organization focus on verification and compliance execution
Politics, Stakeholders, Government Agencies Strategic Planning Operation Support Service Delivery Citizens, Constituents Human Capital Management Employee Resource Management Position Plan Management Government Procurement Public Tendering Contract Management & Administration Operational Procurement Procurement Services Public Sector Accounting Budget Formulation and Preparation Budget Execution Social Services and Social Security Outreach Relationship Management Case Management Financial Management Administration Management Grants Management Grants Management for Grantee Grants Management for Grantor Government Programs Constituent Services Tax and Revenue Management Taxpayer Identification and Returns Processing Collections and Disbursements Case Management Revenue Accounting Financial Customer Care for Public Sector Organization Management & Support SAP’s Span Across the Public Sector Value Chain
Politics, Stakeholders, Government Agencies Strategic Planning Operation Support Service Delivery Citizens, Constituents Human Capital Management Government Procurement Public Sector Accounting Social Services and Social Security Grants Management Government Programs Tax and Revenue Management Organization Management & Support Analytics Strategic Enterprise Management Financial Analytics Operations Analytics Workforce Analytics Financials Financial Supply Chain Management Financial Accounting Management Accounting Corporate Governance Corporate Services Travel Management Environment, Health and Safety Incentives Management Real Estate Management Records Management Operations Support Life-Cycle Data Management Project & Portfolio Management Quality Management Global Trade Services Global Trade Management Enterprise Asset Management SAP’s Span Across the Public Sector Value Chain
SAP’s Value Proposition to State of North Carolina -Department of Revenue Breadth and Depth of Solution 2. Accelerate Value Realization • Provide full visibility of business (taxpayers & employees) • Optimize business processes end-to-end to enable operational efficiencies, lower costs and focus on core value-added competencies • Support growth • Seamlessly extend solution to meet future business needs $66.2M - $126.6M of annual benefits using SAP solutions, with potential for further benefits Shorten delivery time for new services • Minimize development requirements with full solution Four Reasons Why SAP should be Partner of Choice • Rich resource pool for depth of talent and ready availability Lower Cost of Ownership Reduce Risks Lower design effort to address critical business issues • Solution for regulatory compliance • Improved controls and visibility • Scaleable performance to meet need for e-Government services • Significant investment in R&D annually • SAP executive commitment to solution needs in Public Sector Minimize need for interfaces and legacy systems Lower integration costs to non-SAP systems Adapt to industry/customer needs quickly without new development
Executive Summary – SAP Value Proposition Appendix 1: SAP Background Appendix 2: SAP Commitment to Public Sector Appendix 3: Customer Success Stories
SAP Today SAP AG in 2006 revenues: $12.35 billion • More than 38,000 companies run SAP software • Providing 29 industry solutions • 39,355 SAP employees (December, 2006) 12 million users in 120+ countries team with us to… • Integrate their business processes • Extend their competitive capabilities • Get a better return on investment at a lower total cost of ownership Unique Partner Ecosystem • More than 2,200 partners • Overall more than 180,000 SAP partner certificates
Revenue € Employees Operating Income € SAP's Performance in the Last 10 Years 39,355 CAGR total revenues 1997-2006: 13% CAGR operating income* 1997-2006: 15% 35,873 9,402 32,205 8,513 29,610 28,797 28,410 7,514 7,413 7,341 7,025 24,178 20,975 6,265 19,308 2,705 5,110 2,410 2,086 12,856 4,316 1,880 1,688 1,471 3,022 1,244 901 796 775 796 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Executive Summary – SAP Value Proposition Appendix 1: SAP Background Appendix 2: SAP Commitment to Public Sector Appendix 3: Customer Success Stories
Why Other Public Sector Organizations Choose SAP Business Benefits • Integration across all facets of government to achieve complete coverage of both front-office and back-office processes • Seamless integration of administrative and operational processes, including: • Financial, treasury and grants management • Purchasing (including e-Procurement), inventory and warehouse management • Human resources and payroll • Maintenance and project management • Flexible, customizable solutions that support many types of government organizations, including federal, state, local, K-12, higher educational, and healthcare institutions • Support for e-procurement, including electronic communication and collaboration between employees and suppliers • Enhanced personalization and service to internal and external stakeholders, including support for materials planning and self-service for employees and vendors
Why Other Public Sector Organizations Choose SAP Key Differentiators • Streamline and automate processes for employees, vendors and citizens • Provide integrated, web-enabled solutions based on latest technology and innovative business tools that support a variety of business models • Ensure effective and secure financial and operational transactions • Helping 2,100 public sector organizations in 53 countries fulfill their missions incorporating best business practices • Support an open architecture, based on international standards providing easier connectivity with legacy and other third-party solutions • Offer a complete, e-government solution for better collaboration and constituent service • Solutions provided by a commercially stable and highly reputable technology development company • A complete solution with full integration to all financial and accounting systems, providing true TCO capabilities • Full visibility into the entire communications process, with access to constituent information, supply chain, financial systems, marketing and call centers across multiple departments and jurisdictions
SAP Thought Leadership in Public Sector • Federation of Tax Administrators (FTA) • ASUG Public Sector Industry Group includes Special Interest Groups (SIGs): Government SIG, Higher Education SIG, K-12 Education SIG, Healthcare SIG • SLG Customers participate in global SAP Public Sector Advisory Council • GFOA • National Assn. Of State Auditors Controllers and Treasurers (NASACT) • National Assn. Of State Chief Info Offers: (NASCIO) • National Assn. Of Counties (NACO) • National Assn. Of State Personnel Officers (NASPO) • American Public Transit Assn. • Council of Great County Schools • Kennedy School of Government at Harvard University
Selected U.S. Public Sector Customers • State of Washington • State of Florida Department of Revenue • City of Houston • Houston ISD • Tarrant County, Texas • Bexar County, Texas • City of San Antonio • Erie County, New York • Monroe County, New York • Gwinnett County, Georgia • Multnomah County, Oregon • Brevard County, Florida • Clark County, Nevada • County of Sacramento, California • City of San Diego, Streets Division • North Carolina Department of Transportation • Commonwealth of Pennsylvania • Pennsylvania Turnpike Commission • State of North Carolina (BEACON Project) • California Department of Water Resources • State of Louisiana • State of South Carolina • Washoe County, Nevada • Marin County, California • City of Phoenix, Arizona
SAP Investment Impact on Public Sector R&D Investment€ Millions A significant amount of SAP R&D investment is benefiting the Public Sector: • Constituent Interaction Center • Fund Accounting • Budget Preparation • Position Budget Control • Grants Management • Case Management • Tax & Revenue Management • Government Services • E-Procurement • Records Management • Social Services • Homeland Security “Importantly, the stronger margin does not appear to becoming at the expense of future growth – R&D headcount is up Q/Q and Y/Y and S&M headcount is down marginally quarter-on-quarter and up year-on-year – both indicating that capacity and product investment are not being curtailed.” * From unaudited financial reports
Executive Summary – SAP Value Proposition Appendix 1: SAP Background Appendix 2: SAP Commitment to Public Sector Appendix 3: Customer Success Stories
SAP Delivers Value In an era of government doing more with less, FDOR calculates a return on investment (ROI) of 8 to1. Over the past six years, for every budgeted dollar expended on SUNTAX technology and staff, there has been an increase of eight dollars in revenue. Over $638 million additional revenue has been realized from SUNTAX’s enhanced capabilities of integrated receivables and registration, account management, data mining, and data matching. The Revenue Management Project will improve customer service through the consolidation of debt portfolios, multiple channels for interacting with government, leading edge technologies, industry best practices, and streamlined billing, payments and collections processes. In addition, the Project will generate significant financial benefits from reduced bad debt expenses and lower borrowing costs to government. "OSR's original business case to search for a new solution was driven by the challenge and issue of compliance. The goal was to identify clients that we didn't know about to help collect more revenue. SAP's solution has helped us achieve this and improve compliance." “We increased our [on-time] collection rate from 87% to 92% in the 6 months after we implemented SAP Tax and Revenue Management for Public Sector. When you think that we collect US$6 billion a year, [5%] really, really counts.”
