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Audits are not rare; they are everyday events. 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 intercarrier bills could cost your company tens 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 once-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 organizations 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.
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:
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 third-party modifications as the following case study shows:
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 its 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 to mis-rate our client’s calls to the tune of $800,000 per month.
After a detailed analysis, WeDo Technologies collaborated with our client to put together a comprehensive and compelling dispute package containing the painful details. In the end, our client recovered 99 percent 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 nine-month period.
The point of the case study is that 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 a regular business-assurance process, they received 99 percent of what was disputed as a credit.
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, at right is a quick list that matches different types of source data with the organizations.
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 that 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:
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 percent 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.
This article first appeared in Billing and OSS World.
Copyright 2012 Black Swan Telecom Journal