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August 2012

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

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

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.

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)
  • Switch vs.  LCR system
  • Jurisdiction validation (inter/intra state, MTA, LATA etc.)
  • Termination validation (mobile or landline)
  • Rated CDRs to invoice totals (expense, volumes, etc.)
  • Cost to revenue or margin audit

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 third-party modifications as the following case study shows:

Case Study: Data Enrichment = $800K a Month Billing Error

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.

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.

WeDo Technologies Audit Data Sources

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.

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 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:

  • 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 that 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 that 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 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

 
Brian Silvestri

Brian Silvestri

Brian Silvestri is Founder of SilverEcho Consuliting and provides technical and strategic business advice to companies in the telecom eco-system — including software, service and communications providers.

SilverEcho help companies map out business strategies by promoting collaboration across multiple departments with clear objectives, success metrics and timelines.

Based in Washington, DC, Brian is the former head of North American Sales for WeDo Technologies and prior to that was CEO of Connectiv Solutions, a specialist in traffic analytics and cost assurance, a firm that WeDo acquired.   Contact Brian via

Black Swan Solution Guides & Papers

cSwans of a Feather

  • TEOCO Brings Bottom Line Savings & Efficiency to Inter-Carrier Billing and Accounting with Machine Learning & Contract Scanning interview with Jacob Howell — Learn the challenges and benefits of developing of new Machine Learning and Computer Vision system for wholesale billing accounting and inter-carrier contract reading.
  • Special Report: Wholesale Systems for Advanced Services by Dan Baker — Plenty of technology and market changes are disrupting the telecom wholesale market: advanced services, new kinds of partners,,and the need to monitor relationships and services more closely than was ever required in the circuit voice world.  This article introduces a TRI special report discussing the kind of Wholesale Systems needed in this challenging marketplace.
  • Data Integrity Issues Go Global in the Telecom Wholesale Exchange interview with Vic Bozzo — Wholesale systems enable operators to expand their global reach and work efficiently with partners in an increasingly interdependent telco business.  In this article, you’ll learn about: how many subsystems work together in support of the global trading exchange, why data integrity has become critical, and how wholesale business trends are affecting wholesale systems at Tier 1 and mobile operators.
  • Carrier Usage Audits: Why Regular Checkups Are the Key to a CSP’s Bottom-Line Health by Brian Silvestri — Many telecoms are wholly unaware of the risks of not having a solid usage auditing program for interconnect bills.  Rather than a once-a-year or once-a-quarter audit, this article makes the case for regular monthly audits.  Also discussed are: the different types of audits and organizations involved; the dangers of not auditing often; and factors to consider when selecting a cost-management vendor.
  • Invoice Audit Productivity: From 19th Century Textile Mill to SaaS by Peter Yelle — When it comes to invoice reconciliation, are your processes and tools modern and efficient, or is your company stuck in a 19th century time warp?  This article show how operators can vastly reduce their manual audit steps by automating via a SaaS solution.  The  detailed case study and diagram show which tasks were automated to achieve an 80%+ productivity gain.
  • An Automated Self-Audit Approach to Telecom Cost Assurance interview with — What’s the value of an automated approach to invoice validation?  This article explains the power of the SaaS model where the vendor supplies the data-processing expertise, relieves the operator of tedious manual work and boosts auditor productivity so more money is saved.
  • Cost Assurance: Dealing with Rating Variety in Wholesale Bills by David West — Validation of intercarrier wholesale invoices seems like a fairly straight forward process.  But regulatory rules and a variety of bill rating methods have made it very complex.  This article details the challenge by walking through a wireless carrier case, then laying out the argument why operators should opt for a custom solution based on a core reporting engine.

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