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COVID-
19 and fraud―a security measures refresher

04.10.20

Read this if you would like a refresher of common-sense approaches to protect against fraud while working remotely.

Coronavirus (COVID-19) has imposed many challenges upon us physically, mentally, and financially. Directly or indirectly, we all are affected by the outbreak of this life-threatening disease. Anxious times like this provide perfect opportunities for fraudsters. The fraud triangle is a model commonly used to explain the three components that may cause someone to commit fraud when they occur together:

  1. Financial pressure/motivation 
    In March 2020, the unemployment rate increased by 0.9 percent to 4.4 percent, and the number of unemployed persons rose by 1.4 million to 7.1 million.
  2. Perceived opportunity to commit fraud 
    Many people are online all day, providing more opportunities for internet crime. People are also desperate for something, from masks and hand sanitizers to coronavirus immunization and cures, which do not yet exist. 
  3. Rationalization 
    People use their physical, mental, or financial hardship to justify their unethical behaviors.

To combat the increasing coronavirus-related fraud and crime, the Department of Justice (DOJ) launched a national coronavirus fraud task force on March 23, 2020. It focuses on the detection, investigation, and prosecution of fraudulent activity, hoarding, and price gouging related to medical resources needed to respond to the coronavirus. US attorney’s offices are also forming local task forces where federal, state, and local law enforcement work together to combat the coronavirus related crimes. Things are changing fast, and the DOJ has daily updates on the task force activities. 

Increased awareness for increased threats

Given the increase in fraudulent activity during the COVID-19 outbreak, it’s important for employees now working from home to be aware of ways to protect themselves and their companies and prevent the spread of fraud. Here are some of the top COVID-19-related fraud schemes to be aware of. 

  • Phishing emails regarding virus information, general financial relief, stimulus payments, and airline carrier refunds
  • Fake charities requesting donations for illegitimate or non-existent organizations 
  • Supply scams including fake shops, websites, social media accounts, and email addresses claiming to sell supplies in high demand but then never providing the supplies and keeping the money 
  • Website and app scams that share COVID-19 related information and then insert malware that could compromise the device and your personal information
  • Price gouging and hoarding of scarce products
  • Robocalls or scammers asking for personal information or selling of testing, cures, and essential equipment
  • Zoom bombing and teleconference hacking

If you have encountered suspicious activity listed above, please report it to the FBI’s Internet Crime Complaint Center.

Staying vigilant

To protect yourself from these threats, remember to use proper security measures and follow these tips provided by the Federal Bureau of Investigation (FBI) and DOJ:

  • Verify the identity of the company, charity, or individual that attempts to contact you in regards to COVID-19.
  • Do not send money to any business, charity, or individual requesting payments or donations in cash, by wire transfer, gift card, or through the mail. 
  • Understand the features of your teleconference platform and utilize private meetings with a unique code or password that is not shared publicly.
  • Do not open attachments or click links within emails from senders you do not recognize.
  • Do not provide your username, password, date of birth, social security number, insurance information, financial data, or other personal information in response to an email or robocall.
  • Always verify the web address of legitimate websites and manually type them into your browser.
  • Check for misspellings or wrong domains within a link (for example, an address that should end in a ".gov" ends in .com" instead).

Stay aware, and stay informed. If you have specific concerns or questions, or would like more information, please contact our team. We’re here to help.
 

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Read this if you are a timber harvester, hauler, or timberland owner.

The USDA recently announced its Pandemic Assistance for Timber Harvesters and Haulers (PATHH) initiative to provide financial assistance to timber harvesting and hauling businesses as a result of the pandemic. Businesses may be eligible for up to $125,000 in financial assistance through this initiative. 

Who qualifies for the assistance?

To qualify for assistance under PATHH, the business must have experienced a loss of at least 10% of gross revenue from January, 1, 2020 through December 1, 2020 as compared to the same period in 2019. Also, individuals or legal entities must be a timber harvesting or timber hauling businesses where 50% or more of its revenue is derived from one of the following:

  • Cutting timber
  • Transporting timber
  • Processing wood on-site on the forest land

What is the timeline for applying for the assistance?

Timber harvesting or timber hauling businesses can apply for financial assistance through the USDA from July 22, 2021 through October 15, 2021

Visit the USDA website for more information on the program, requirements, and how to apply.
If you have any questions about your specific situation, please contact our Natural Resources team. We’re here to help. 

Article
Temporary USDA assistance program for timber harvesters and haulers

Read this if you are a State Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, or State Procurement Officer—or if you work on a State Medicaid Enterprise System (MES) certification or modernization efforts.

You can listen to the companion podcast to this article, Organization development: Shortcuts for states to consider, here: 

Over the last two years, the Centers for Medicare and Medicaid Services (CMS) has undertaken an effort to streamline MES certification. During this time, we have been fortunate enough to be a trusted partner in several states working to evolve the certification process. Through this collaboration with CMS and state partners, we have been in front of recent certification trends. The content we are covering is based on our experience supporting states with efforts related to CMS certification. We do not speak for CMS, nor do we have the authority to do so.

What organization development (OD) shortcuts can state Medicaid agencies consider when faced with competing priorities and challenges such as Medicaid modernization projects in flight, staffing shortages, and a retiring workforce?

The shortcuts include rapid development and understanding of the “why”. This requires the courage to challenge assumptions, especially around transparency, to allow for a consistent understanding of the needs, data, environment, and staff members’ role in impacting the health of the people served by a state’s Medicaid program. To rapidly gain an understanding of the “why”, state Medicaid agencies should:

  1. Accelerate the transparency of information and use of data in ways that lead to a collective understanding of the “why”. Accelerating a collective understanding of the why requires improved communication mechanisms. 
  2. Invest time to connect with staff. The insistence, persistence, and consistency of leaders to stay connected to their workforce will help keep the focus on the “why” and build a shared sense of connection and purpose among teams.
  3. Create the standard that planning involves all stakeholders (e.g., policy, operations, systems staff, etc.) and focus on building consensus and alignment throughout the organization. During planning, identify answers to the following questions: What are we trying to achieve, what are the outcomes, and what is the vision for what we are trying to do?
  4. Question any fragmentation. For example, if there is a hiring freeze, several staff are retiring, and demand is increasing, it is a good idea to think about how the organization manages people. Question boundaries related to your staff and the business processes they perform (e.g., some staff can only complete a portion of a business process because of a job classification). Look at ways to broaden the expectations of staff, eliminate unnecessary handoffs, and expect development. Leaders and teams work together to build a culture that is vision-driven, data-informed, and values-based.

What are some considerations when organizations are defining program outcomes and the “why” behind what they are doing? 

Keep in mind that designing system requirements is not the same as designing program outcomes. System requirements need to be able to deliver the outcomes and the information the organization needs. With something like a Medicaid Enterprise System (MES) modernization project, outcomes are what follow because of a successful project or series of projects. For example, a state Medicaid agency looking to improve access to care might develop an outcome focused on enabling the timely and accurate screening and revalidation for Medicaid providers. 

Next, keeping with the improving access to care example, state Medicaid agencies should define and communicate the roles technology and staff play in helping achieve the desired outcome and continue communicating and helping staff understand the “why”. In Medicaid we impact people’s lives, and that makes it easy to find the heart. Helping staff connect their own motivation and find meaning in achieving an outcome is key to help ensure project success and realize desired outcomes. 

Program outcomes represents one of the six major categories related to organizational health: 

  1. Leadership
  2. Strategy
  3. Workforce
  4. Operations and process improvement 
  5. Person-centered service
  6. Program outcomes

Focusing on these six key areas during the analysis, planning, development, and integration will help organizations improve performance, increase their impact, and achieve program outcomes. Reach out to the BerryDunn’s Medicaid and Organization Development consulting team for more information about how organization develop can help your Medicaid agency.
 

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Outcomes and organization development, part II

Read this if your facility or organization has received Provider Relief Funds.

The rules over the use of the HHS Provider Relief Funds (PRF) have been in a constant state of flux and interpretation since the funds started to show up in your bank accounts back in April. Here is a summary of where we are as of June 14, 2021 on HHS’ reporting requirements. Key highlights:

These requirements apply to:

  • PRF General and Targeted Distributions
  • the Skilled Nursing Facilities (SNF) and Nursing Home Infection Control Distribution
  • and exclude:
    • the Rural Health Clinic COVID-19 Testing Program
    • claims reimbursements from HRSA COVID-19 Uninsured Program and the HRSA COVID-19 Coverage Assistance Fund (CAF)

This notice supersedes the January 15, 2021 reporting requirements.
Deadline for Use of Funds:

Payment Received Period

Deadline to Use Funds

Reporting Time Period

Period 1

4/10/20-6/30/20

6/30/21

7/1/21-9/30/21

Period 2

7/1/20-12/31/20

12/31/21

1/1/22-3/31/22

Period 3

1/1/21-6/30/21

6/30/22

7/1/22-9/30/22

Period 4

7/1/21-12/31/21

12/31/22

1/1/21-3/31/23

Recipients who received one or more payments exceeding $10,000 in the aggregate during each Payment Received Period above (rather than the previous $10,000 cumulative across all PRF payments) are subject to the above reporting requirements 

Responsibility for reporting:

  • The Reporting Entity is the entity that registers its Tax Identification Number (TIN) and reports payments received by that TIN and its subsidiary TINs.
  • For Targeted Distributions, the Reporting Entity is always the original recipient; a parent entity cannot report on the subsidiary’s behalf and regardless of transfer of payment.

Steps for reporting use of funds:

  1. Interest earned on PRF payments
  2. Other assistance received
  3. Use of SNF and Nursing Home Control Distribution Payments if applicable (any interest earned reported here instead), with expenses by CY quarter
  4. Use of General and Other Targeted Distribution Payments, with expenses by CY quarter
  5. Net unreimbursed expenses attributable to Coronavirus, net after other assistance and PRF payments by quarter
  6. Lost revenues reimbursement (not applicable to PRF recipients that received only SNF and Nursing Home Infection Control Distribution payments)

PORTAL WILL OPEN ON JULY 1, 2021!

Access the full update from HHS: Provider Post-Payment Notice of Reporting Requirements.

Article
Provider Relief Funds: HHS Post-Payment Notice of Reporting Requirements

Read this if you are a State Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, or State Procurement Officer—or if you work on a State Medicaid Enterprise System (MES) certification or modernization efforts. 

The companion podcast to this article, Organization development: Preparing for Medicaid Enterprise Systems (MES) modernization, can be found in our virtual library.  


What is organization development (OD)? 

The purpose of OD is to improve organizational performance and outcomes. OD focuses on improving an organization’s capability through the alignment of strategy, structure, people, rewards, systems, metrics, and management processes.  

OD is a science-backed, interdisciplinary field rooted in psychology, culture, innovation, social sciences, quality management, project management, adult learning, human resource management, change management, organization behavior, and research analysis and design, among others.  

OD typically starts with a clear sense of mission, vision, and values that answers the question “what we are trying to be?” OD develops the culture and behaviors that reflect the organizational values.  

OD facilitates the transformation of the workplace culture to become strategic, meaning: vision-driven, values-based, and goals-aligned. This may include talent development for leaders and staff and redesigning organizational infrastructure. 

What is the scope of an OD effort? 

OD efforts are most effective when they encompass the entire organization becoming the basis for a strategic plan. OD can be just as effective when applied to a MES modernization project. In this application of OD, we facilitate stakeholder engagement with the intent of person-centered service, concurrent design for operations, processes, and training side-by-side with the systems design and development. This approach is also referred to as human-centered design (HCD).  

Regardless of the scope, OD reinforces benchmarks of high-performance organizations including: 

  • Transparent and data-informed decision making 
  • Developed leadership building connections with consistent expectations 
  • Culture of continuous improvement and innovation 
  • Team-based success and ownership for outcomes 
  • Person-centered service 

What does OD look like in action? 

We facilitate leaders to assess their organization through the eyes of stakeholders, particularly staff and people served. Collaboratively, with no blame or shame, the leaders articulate where they are today and where they need to be in the future, and build a roadmap or strategic plan to get there. In the assessment and roadmap we use the following six focal points of the organization:  

  • Excellent leadership 
  • Effective strategy 
  • A workforce that is confident, competent, consistent, and compassionate 
  • Quality operations and process improvement 
  • Person-centered service that results in a positive client experience 
  • Quality program outcomes for the communities served 

The roadmap or strategic plan typically includes talent development, and redesign of the infrastructure, including structure, processes, communication mechanisms, performance management processes, deployment of resources, and job skills development approaches.  

Talent development ensures that your leaders are aligned, prepared, and most importantly leading and inspiring their people toward that vision and the development of the workforce. Talent development provides staff with the skills, knowledge, and abilities needed, and reinforces positive attitudes, beliefs, and willingness to work together towards common goals. This might also include restructuring business process redesign, it might include expanding roles or shifting roles.  

Principles of lean are an important component of organization development when redesigning processes and helps organizations, such as state Medicaid agencies, do more with the current resources. With so many constraints placed on organizations, the lean approach is a critical component of optimizing existing resources and finding cost savings through changing “what we do” and “how we do it”, as opposed to cutting “what we do” or “changing who does it”. Resource optimization is just one of the benefits of organization development. 

Why is it important to redesign your organization and develop your staff when you're implementing a new technology system, such as a new Medicaid Enterprise System module? 

For state Medicaid Agencies, the organization goal isn't to modernize a system, the goal is for competent and compassionate staff serving clients and providers to improve health and wellness in our communities. Our goal is streamlined processes that improve accuracy and timeliness. Look at the outcomes of the program, then design the systems that enable business processes and the people who make that process happen every single day. We go back to why we are doing anything in the first place. Why do we need this change? What are we trying to accomplish? If we're trying to accomplish better service, a healthier community, and streamline processes so we are cost effective, then it leads us to modernizing our enterprise system and making sure that our people are prepared to be successful in using that system. Aligning to the organizational goals, or what we call the North Star, sets us up for success with the enterprise efforts and the human efforts. 

What can clients do to navigate some of the uncertainties of a modernization effort, and how can they prepare their staff for what's next? 

First articulate the goals or why you want the modernization, and build a foundation with aligned, and effective leaders. Assess the needs of the organization from a “social” or people perspective and a technical or systems perspective (note: BerryDunn uses a socio-technical systems design approach). Then, engage staff to develop a high-performance, team-based culture to improve lean processes. Design and develop the system to enable lean business processes and concurrently have operations design standard operating procedures, and develop the training needed to optimize the new system.  

Leaders must lead. If leaders are fragmented, if they are not effective communicators, if they do not have a sense of trust and connection with their workforce, then any change will be sub-optimized and probably will be a frustrating experience for all.  

If the workforce is in a place where staff live with suspicion or a lack of trust, or maybe some dysfunctional interpersonal skills, then they are not in a place to learn a new system. If you try to build a system based on a fragmented organizational structure or inconsistent processes, you will not achieve the potential of the modernization efforts and will limit how people view your enterprise system. The worst thing you can do is invest millions of dollars in the system based on a flawed organizational design or trying to get that system to just do what we've always done. 

By starting with building the foundation of engaging employees, not just to make people feel good, but also to help them understand how to improve their processes and build a positive workplace. Do we have the transparency in our data so that we understand what the actual problems are? Can employees articulate the North Star goals, the constraints, the reasons to update systems, then the organizations will have a pull for change as opposed to a push.

Medicaid agencies and other organizations can create a pull for change by engaging with their resources who can identify what gets in the way of serving the clients, i.e., what gets in the way of timeliness or adds redundancy or rework to the process. The first step is building that foundation, getting people leaning in, and understanding what's happening. By laying the foundation first, organizations help reduce the barriers between operations and systems, and ensure that they're working collaboratively toward organizational goals, always keeping the ‘why’ in mind and using measures to know when they are successful. 

How does a state focus on organization development when they are facing budget and staffing constraints? 

It is too easy to say, "invest in your people". In reality, the first thing that state Medicaid agencies or other organizations need do is redefine their sense of lean. Many inaccurately believe that lean means limited resources working really hard. Lean is tapping into the potential creativity and innovation of each staff member to look for ways to improve the process. Organizations should look at everything they do and ask “Does this add value to the end recipient of our service?” Even if I'm processing travel reimbursement requests, I still have a customer, I still have a need for timeliness and accuracy. If state Medicaid agencies can mobilize that type of focus with every single employee in their organization, they can achieve huge cost savings without the pain of cutting the workforce.   

In one state where BerryDunn’s organization development team provided this level and type of organizational transformation, there was a very deliberate focus on building this foundation prior to a large-scale system modernization.

By developing the leaders and training the employees in how to improve their processes, improve teamwork and trust, and align to the goal of a positive client experience, they were able to effectively implement the new system and seamlessly move to remote pandemic conditions. Once the state Medicaid agency had aligned the technical systems and the people systems to the organizational goals, they were successful and more resilient for future changes.   

If you have any questions, please contact our Medicaid consulting team. We're here to help.

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Outcomes and organization development 

Read this is you are at a financial institution and concerned about fraud.

The numbers tell a story: Financial fraud 

Back in 2016, BerryDunn’s Todd Desjardins wrote about occupational fraud at financial institutions. This article mainly cited information from a 2016 Report to the Nations (2016 Report) published by the Association of Certified Fraud Examiners (ACFE). Fast forward to 2021, and ACFE’s 2020 Report to the Nations: Banking and Financial Services Edition (2020 Report) displays that occupational fraud continues to be a concern.

Financial institutions account for 19% of all occupational fraud worldwide, up from 16.8% in the 2016 Report. These fraud causes have a median loss of $100,000 per case—down from $192,000 per case in the 2016 Report. Cases had risen slightly from the 2016 Report to 386—up from 368 cases.

What does a fraudster look like, and how do they commit their crimes? How do you prevent fraud from happening at your organization? And, how can you strengthen an already robust anti-fraud program? These questions, raised in Todd’s 2016 article, remain relevant today. 

A profile in fraud: Who can it be? 

One of the most difficult tasks any organization faces is identifying and preventing potential cases of fraud. This is especially challenging because the majority of employees who commit fraud are first-time offenders with no record of criminal activity, or even termination at a previous employer.

The 2020 Report reveals a few commonalities between fraudsters. The amounts from the 2016 Report are shown in parentheses for comparison purposes:

  • 3% of fraudsters had no criminal background (3%)
  • Men committed 71% of frauds and women committed 29% (69%, 31%)
  • 56% of fraudsters were an employee, 27% worked as a manager, and 14% operated at the executive/owner level (3%, 31%, 20%)
  • The median loss for fraudsters who had been with their organizations for more than five years was $150,000 compared to $86,000 for fraudsters who had been with their organizations for five years or less ($230,000, $74,500)

Employees who committed fraud displayed certain behaviors during their schemes. The ACFE reported these top red flags in its 2020 Report:

  • Living beyond means: 42% (45.8%)
  • Financial difficulties: 33% (30%)
  • Unusually close association with vendor/customer: 15% (20.1%)
  • Divorce/family problems: 14% (13.4%)

These figures give us a general sense of who commits fraud and why. But in all cases, the most pressing question remains: how do you prevent the fraud from happening?

Preventing fraud: A commonsense approach that works

As a proactive plan for preventing fraud, we recommend focusing time and energy on two distinct facets of your operations: leadership tone and internal controls.

It all starts at the top: Leadership

The Board of Directors and senior management are in a powerful position to prevent fraud. By fostering a top-down culture of zero-tolerance for fraud, you can diminish opportunity for employees to consider, and attempt, fraud.

It is crucial to start at the top. Not only does this send a message to the rest of the company, but frauds committed at the executive level had a median loss of $1,265,000 per case, compared to a median loss of $77,000 when an employee perpetrated the fraud. This is compared to a median loss of $500,000 and $54,000 per case, respectively, in the 2016 Report.

Improving your internal control culture

Every financial institution uses internal controls in its daily operations. Override of existing internal controls, lack of internal controls, and lack of management review were all cited in the 2020 Report as the most common internal control weaknesses that contribute to occupational fraud in the banking and financial services industry.

The importance of internal controls cannot be overstated. Every organization should closely examine its internal controls and determine where they can be strengthened—even financial institutions with strong anti-fraud measures in place.

We have created a checklist of the top 10 controls for financial institutions, available in our white paper on preventing fraud. This is a list that we encourage every financial leader to read. By strengthening your foundation, your company will be in a powerful place to prevent fraud. 

Get the keys to prevent fraud—free fraud prevention white paper

Employees are your greatest strength and number one resource. Taking a proactive, positive approach to fraud prevention maintains the value employees bring to a financial institution, while focusing on realistic measures to discourage fraud.

In our white paper on preventing financial institution fraud, we take a deeper look at how to successfully implement a strong anti-fraud plan.

Commit to strengthening fraud prevention and you will instill confidence in your Board, employees, customers, and the general public. It’s a good investment for any financial institution. If you have any questions, please contact our team. We’re here to help. 
 

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In 2021, an anti-fraud plan is the best investment your financial institution can make

Read this if you work in an alcohol control capacity for state government.

The COVID-19 outbreak has changed the alcoholic beverage industry significantly over the last 14 months. Restrictions forced people to stay at home, limiting their travel to restaurants, bars, and even some stores to purchase their favorite spirits. In at least 32 states, new legislation allowed consumers the option to buy to-go cocktails as a way to help these establishments stay in business. As a result, consumers took advantage of alcohol delivery services. 

There were two large shifts in consumer purchasing for the alcoholic beverage industry in 2020. The first was a shift from on-premise to off-premise purchasing (for example, more takeaway beverages from bars, breweries, and other establishments). The second was the explosion of e-commerce sales for curbside pickup and home delivery. A study by IWSR, an alcoholic beverage market research firm, stated that alcohol e-commerce sales grew 42% in 2020. The head of consumer insights for the online alcoholic beverage delivery service, Drizly, attributes this growth to the “increased consumer awareness of alcohol delivery as a legal option, as well as an overall shift in consumer purchasing behavior toward online ordering and delivery”. 

How state agencies responded

The move to an e-commerce model has impacted state agencies who regulate the distribution and/or sale of alcohol. States such as Oklahoma, Alabama, and Georgia recently passed legislation allowing alcohol delivery to consumers’ homes. In alcoholic beverage control states, where the state controls the sale of alcohol at the wholesale level, curbside pickup programs (New Hampshire) were implemented, while others started online home delivery services (Pennsylvania). 

In a fluid legislative environment, states agencies are working to meet consumer needs in a very competitive marketplace, while fulfilling their regulatory obligation to the health and safety of their constituents.

How alcoholic beverage control states can adapt

Now is an opportune time for control state agencies to keep pace with consumer demand for more flexible purchasing options, such as buying online with home delivery, or some form of curbside and/or in-store pickup programs. Every one of the 17 alcoholic beverage control states has passed legislation to allow the delivery of either beer, wine, and/or distilled spirits in some form, with some limitations.

While for some the COVID-19 outbreak has necessitated these more distant shopping experiences, the option of these sales channels has brought consumers flexibility they will expect going forward. This calls for control state agencies to act on this changing consumer demand. By prioritizing investing in and taking ownership of new sales channels, such as e-commerce and curbside pickup, control state agencies’ technology and logistics teams can develop strategies and tools to effectively adapt to this new demand. 

Adapting technology and logistics

Through technology, control state agencies can take advantage of e-commerce and curbside pickup sales channels, to drive more revenue. We recommend control states consider the following: 

Define the current capabilities to support an online sales strategy

An important first step is to define how to address constituents’ evolving needs as compared to the current e-commerce capabilities control state agencies can support. Considerations include:

  • Are current staff capable of developing and supporting new website capabilities to meet the increased demand on the website?  
  • How will the current customer support team(s) expand to support concerns from the new channels?
  • How will new e-commerce order volume be fulfilled for home delivery (including order errors, breakage, returns, etc.)?   

Control state agencies should complete current and future state assessments in each area above to confirm what capabilities they have today and which they would like to have in the future; which will allow for an accurate gap analysis and comparison to their future state needs. Once the current state assessment, future state strategy, and gap analysis are complete, control state agencies can define the projects required to support the future state requirements. 

Reevaluate existing fulfillment, inventory, and distribution processes

Each control state has existing product fulfillment, inventory and distribution processes, and information technology (IT) tools for delivering alcohol, to their own or licensed retail stores and businesses. These current processes and IT systems should be assessed as part of the current state capabilities assessment mentioned above, to help define the level of change needed to support the control state agency’s future needs in the e-commerce channel. Key assessment questions control state agencies should ask themselves include: 

  • Can the current IT systems (e.g., inventory management, customer relationship management [CRM], customer support/call center, financial, point of sale [POS], and website infrastructure) support required upgrades?
  • Can retail teams and today’s infrastructure support order taking, inventory, fulfillment, and buy online pickup in store programs?
  • How will warehouse and retail stores track and manage the e-commerce shipments and returns related to this channel?
  • If home delivery is part of the strategy, define how the delivery logistics will be met through state or vendor resources.
  • What staffing model and skill sets will support future business needs?
  • What is the total cost of ownership for these new e-commerce capabilities so that the short and long-term costs and profits can be accurately estimated? 

The answers to these questions will help to inform a future e-commerce strategy and accommodate the cost and staff impacts. 

Bring in online retail expertise

It is important to ensure that the control state agency has website and mobile capabilities to support today’s consumer needs. This includes the ability to order a wide range of products online for either home delivery or buy online pickup in store. The design of the website and mobile transactional capabilities is critically important to the success of this channel, the true growth in revenues. Being marketing focused (e.g., allowing consumers to view and order products, save items for later, and see similar products) will help drive traffic and sales on this upgraded channel. 

For control state agencies with a more static product website, consider purchasing a commercial off-the-shelf (COTS) e-commerce product with existing retail-focused website features, or contract with a vendor to build a website that meets more unique needs. The control state agency should bring in at least one online retail subject matter expert vendor to help set the direction, design the upgrades or new site, manage the project(s) needed to implement the online capabilities, and potentially manage the operational support of the website and mobile solution.

BerryDunn provides state alcoholic beverage control boards and commissions with many services along the IT system acquisition lifecycle, including planning, needs assessment, business process analysis, request for proposal (RFP) development, requirements development, technology contract development, and project management services. 

For the full list of steps to consider and to learn more about how you can successfully position your control state agency to adapt to the changing alcoholic beverage landscape, contact us.
 

Article
COVID-19 and the e-commerce explosion

Read this if your organization operates under the Governmental Accounting Standards Board (GASB).

Governmental Accounting Standards Board (GASB) Statement No. 93 Replacement of Interbank Offered Rates

Summary

With the global reference rate reform and the London Interbank Offered Rate (LIBOR) disappearing at the end of 2021, GASB Statement No. 93 was issued to address the accounting and financial impacts for replacing a reference rate. 

The article below is focused on Hedging Derivative Investments and amendments impacting Statement No. 87, Leases. We have not included guidance related to the Secured Overnight Financing Rate or the Up-Front Payments. 

Background

We have all heard that by the end of 2021, LIBOR will cease to exist in its current form. LIBOR is one of the most commonly used interbank offered rates (IBOR). Now what?

In March 2020, the GASB provided guidance to address the accounting treatment and financial reporting impacts of the replacement of IBORs with other referenced rates while maintaining reliable and comparable information. Statement No. 93 specifically addresses previously issued Statements No. 53, Accounting and Financial Reporting for Derivative Instruments, and No. 87, Leases, to provide updated guidance on how a change to the reference rate impacts the accounting for hedging transactions and leases.  

Here are our analyses of what is changing as well as easy-to-understand and important considerations for your organization as you implement the new standards.

Part 1: Hedging Derivative Instruments

The original guidance under Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, as amended, requires that a government terminate a hedging transaction if the government renegotiates or amends a critical term of a hedging derivative instruction. 

Reference rate is the critical term that differentiates Statement No. 93 from Statement No. 53. The newly issued Statement No. 93 provides an exception that allows for certain hedging instruments to hedge the required accounting termination provisions when the IBOR is replaced with a new reference rate. 

In order words, under Statement No. 53, a modification of the IBOR would have caused the hedging instrument to terminate. However, Statement No. 93 now provides an exception to the termination rules as a result of the end of LIBOR. According to Statement No. 93, the exception is allowable when: 

  1. The hedging derivative instrument is amended or replaced to change the reference rate of the hedging derivative instrument’s variable payment or to add or change fallback provisions related to the reference rate of the variable payment.
  2. The reference rate of the amended or replacement hedging derivative instrument’s variable payment essentially equates to the reference rate of the original hedging derivative instrument’s variable payment by one or both of the following methods:
    • The replacement rate is multiplied by a coefficient or adjusted by addition or subtraction of a constant; the amount of the coefficient or constant is limited to what is necessary to essentially equate the replacement rate and the original rate
    •  An up-front payment is made between the parties; the amount of the payment is limited to what is necessary to essentially equate the replacement rate and the original rate.
  3. If the replacement of the reference rate is effectuated by ending the original hedging derivative instrument and entering into a replacement hedging derivative instrument, those transactions occur on the same date.
  4. Other terms that affect changes in fair values and cash flows in the original and amended or replacement hedging derivative instruments are identical, except for the term changes, as specified in number 1 below, that may be necessary for the replacement of the reference rate.

As noted above, there are term changes that may be necessary for the replacement of the reference rate are limited to the following

  • The frequency with which the rate of the variable payment resets
  • The dates on which the rate resets
  • The methodology for resetting the rate
  • The dates on which periodic payments are made.

Many contracts that will be impacted by LIBOR will be covered under Statement No. 93. The statement was created in order to ease with the transition and not create unnecessary burdens on the organizations. 

Part 2: Leases

Under the original guidance of Statement No. 87 Leases, lease contracts could be amended while the contract was in effect. This was considered a lease modification. In addition, the guidance states that an amendment to the contract during the reporting period would result in a separate lease. Examples of such an amendment included change in price, length, or the underlying asset.  

Included within Statement No. 93, are modifications to the lease standard as it relates to LIBOR. In situations where a contract contains variable payments with an IBOR, an amendment to replace IBOR with another rate by either changing the rate or adding or changing the fallback provisions related to the rate is not considered a lease modification. This modification does not require a separate lease. 

When is Statement No. 93 effective for me?

The removal of LIBOR as an appropriate interest rate is effective for reporting periods ending after June 31, 2021. All other requirements of Statement No. 93 are effective for all reporting periods beginning after June 15, 2022. Early adoption is allowed and encouraged. 

What should I do next? 

We encourage all those that may be impacted by LIBOR—whether with hedging derivative instruments, leases, and/or specific debt arrangements—to review all of their instruments to determine the specific impact on your organization. This process will be time consuming, and may require communication with the organizations with whom you are contracted to modify the terms so that they are agreeable to both parties.

If you would like more information about early adoption, or implementing the new Hedging Derivative Instruments or Leases, please contact Katy Balukas or Grant Ballantyne.
 

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The clock is ticking on LIBOR. Now what?