Carrier Usage Audits: Why Regular Checkups are the Key to a CSP’s Bottom Line Health

By Brian Silvestri
Audits are not rare; they are everyday events.  For example, when a waiter hands you the final bill at a restaurant, you scan it, check the addition, and then detect a charge for a Margarita you never ordered.    The waiter then corrects the bill and you’ve just completed a rudimentary cost assurance process complete with audit, dispute, and reconciliation.

Translate this simple restaurant bill process to the one behind a full-scale carrier audit and there are a lot of similarities when you don’t count things like: a big increase in rating complexity; the addition of millions to billions of line items to check; and the need to synchronize input from multiple data sources and internal organizations.

The money at risk is the big difference, of course.   An error on a restaurant bill might cost you an extra $10.   Bad inter-carrier bills could cost your company 10s of millions of dollars in undetected discrepancies each year.

My mission in this column is to change some thinking around carrier audits.   Rather than a once a year or one a quarter audit, I’m going to make the case why carriers need to perform audits on a more regular basis.  Carrier invoices are such a major expense for CSPs, it’s well worth the price to conduct monthly audits to ensure the charges are accurate.  

What’s more, many telecom executives are wholly unaware of the many risks of not having a solid auditing program.   So, I’m going to shed some light on this subject and briefly discuss: the different types of audits; the organization involved; the dangers of not auditing frequently; and the factors you should consider when selecting a cost management vendor.

By the way, I will focus exclusively on usage (or transaction) audits.  Audits on the fixed/circuit facilities side are important too, but we’ll save that discussion for another time. 

The Variety of Usage Audits Performed in Cost Management

Many types of audits are performed across the enterprise to ensure contract compliance.   And, based on the situation and your company’s objectives, some audits will deliver more value than others.  So, here is a short list of the most common types of audits a CSP can conduct in the Cost Management area:

• Contractual rates vs. Actual rates
• Switch vs. Invoice volume (records and/ or MOUs)
• Contractual Rates vs. LCR System Rates
• Jurisdiction validation (Inter/Intra State, MTA, LATA, etc.)
• Termination validation (Mobile or Landline)
• Rated CDRs to Invoice totals (Expense, Volumes, etc.)

Why Most CSPs Need to Perform Monthly Usage Audits

Regular carrier audits should be an essential component of a CSP’s overall Business Assurance Plan.  In our discussions across the industry many CSPs perform an audit only once a year.  But, our experience across many North American clients tells us that almost every CSP is better off performing usage or transaction audits once a month

There are two good reasons for auditing monthly.   First, depending on the contracts involved, you may not be able to collect anything if you wait too long to dispute.   Many contracts set limits on how far back a CSP can dispute a charge.  Typically these are set to 30, 90 or 120 days.   So, if you’re only checking every 365 days and actually find something, you’re limited on what you can collect in the dispute filing. 

The second reason for performing monthly audits is to keep abreast of quickly changing  3^rd party modifications as the following case study shows:

*****************************     Case Study      ***************************

For the first two months of 2011 our netCLARUS system reported very small discrepancies between the contracted and billed rates at one of our Tier I customers.  Then, in mid-March, we observed a major unexplainable spike.  Nothing had changed on the vendor side and Carrier Management confirmed that no new rates or new discounts were applied to the bills.

Following an enterprise-wide investigation we found that the client’s engineering group had modified their data enrichment process for routing purposes.   While that change was perfectly fine and necessary from a routing perspective, it caused havoc on the vendor’s billing system, i.e. that of the Inter eXchange Carrier ( IXC).  This seemingly innocent enrichment change caused the nationwide IXC is mis-rate our client’s calls to the tune of $800,000 per month. 

After a detailed analysis, Connectiv collaborated with our client to put together a comprehensive and compelling dispute package containing the painful details.  In the end our client recovered 99% of the disputed amount. 

And, because the error existed within our other existing clients, we ended up issuing disputes for those clients that amounted to nearly $10 million dollars over a 9 month period. 

The point of the case study is it emphasizes the importance of constantly refreshing your audit reports so you can catch things before they get out of hand.  Fortunately, because our clients were conducting audits as part of regular Business Assurance Process, our clients received 99% of what disputed as a credit.

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Confusing Internal Communication & Source Data

As we just saw, because so many internal and external organizations are involved in the carrier management process, Murphy’s Law applies: things go wrong when you least expect them.

Unfortunately, most business units speak different languages and have different success KPIs.  The result can be miscommunication, a lack of reliable data, poor collaboration, and missed opportunities.   For example, Engineering and Finance both support network operations, but come at the problem from completely different perspectives and objectives. 

One of your first steps to ensuring a successful audit process is to establish a common language between the organizations.   This is important when you consider the many data sources involved.   For instance, you should not assume that another party or organization interprets a data field of a particular data source in the same way that you do.   You might be surprised how many times folks run into errors because poor assumptions were made at the beginning. 

To show you how many cooks and are stirring the kettle, here’s a quick list of that matches different types of source data with the organization(s) typically responsible for maintaining it.

Source Data	Organization
Contract/Negotiated Rates/Terms	Carrier Management (i.e. Negotiated Discounts)
Updated Rate Decks	Carrier Management or Engineering
Raw Switch Records	Engineering or IT
LCR Records	Engineering or Translations
Network Inventory	Engineering
Rated/Vendor CDRs	Vendor (i.e. IXC)
Invoice	Vendor (i.e. IXC)
Industry Source Data	3rd Party Vendors

How to Qualify an Audit Firm

Your selection of a third party firm to conduct that audit is critical.   We’ve seen plenty of cases where a service provider hired a firm who could not produce good results because the vendor lacked the requisite experience.  Here are some key questions to ask to ensure you select the right audit partner:

• Expertise - How long has the audit firm been performing the specific audit being requested (as opposed to generic usage audits)?   Is the vendor conversant with all business units of the enterprise who need to be involved in the audit?   Select a vendor who can demonstrate a thorough understanding of the telco engineering, finance, and carrier management sides of the usage analysis audit you need.
•  Tools - You should raise a red flag if the audit firm is leveraging Excel or MS Access to audit billions of transactions across complex rating algorithms.  Does the firm have the right tools in place to support your company’s volume?    Be careful about selecting a vendor who touts its “big data” platform, but lacks the specific audit expertise in question.
• References - Speak to other companies that have used the audit firm.  Did they get the attention to detail they required?
• Success Rate - Not all audits will result in a win, but if disputes are filed, did the vendor deliver enough compelling data to win the dispute?   If so, how much did they collect and what were the time frames involved?

Revenue Share or Fixed Price Contract

Once you select your audit vendor, the other key question you need to address is how to engage with them. There are two basic engagement models: fixed price contract or revenue share.  Both of these models have their pros and cons. 

The basic merit of a revenue share model is: if the audit firm finds something, they get a percentage of what is captured and returned.  If nothing is found, no money is exchanged.    At face value, that sounds like a prudent way to go.

But, what happens if the audit firm finds $50 million and the contract is worth 20% of the recovered fee?  Will the CSP hand over $10 million?  It will be tough to convince your CFO or COO to pay an audit firm millions of dollars.   Will the CFO want to renegotiate because he thinks $10 million is excessive? 

On the other hand, if the audit firm finds nothing, isn’t there some value in the work the audit firm performed?    We’re happy to pay a medical doctor for an exam that gives us a clean bill of health.   The audit firm found no discrepancies.   Assuming the firm did a thorough job, which should be good news to the CSP. 

OK, now let’s look at the fixed price option.   The beauty of a fixed price contract is that the CSP can clearly forecast the cost of the audit.  In turn, the audit firm can use the monies to subsidize the cost of the work involved in performing the audit. 

If you want the best of both worlds, why not have a fixed price contract and offer the audit firm a small percentage upside based on savings recovered.   I think that’s a very good model because it encourages collaboration and keeps everyone focused on the real goal.  It also minimizes the need for legal wrangling around what is -- and what is not -- a disputable charge.  

After all, the point of an audit is not just to find discrepancies.  It’s to change the business process so discrepancies don’t repeat themselves over and over again. 

Usage audits will continue to be an essential piece of a carrier’s Business Assurance Plan. But, they need to be conducted regularly and with the right auditing partner to ensure the maximum amount of invoice errors are detected, disputed, and collected on.

So, happy hunting -- and don’t forget to check that restaurant bill.