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 3rd 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.
***************************************************************************
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.
