The telecom money pit: How to use audits to find significant discrepancies and big savings

A third-party audit offers a low-risk opportunity to drive savings and maintain a clean billing environment free of errors

This vendor-written tech primer has been edited by Network World to eliminate product promotion, but readers should note it will likely favor the submitter’s approach.

Analysts estimate that 10% to 20% of telecom charges are billed in error, and the financial impact can range from a few dollars to tens of thousands of dollars a month.

On any given monthly statement the items being over-billed run the gamut of services delivered by the provider, and can include charges for invalid circuits, billing disputes, contractual issues, fraudulent charges, set-up fees and improper rates.  These charges can appear on the invoice or can be buried within the bundled services comprising monthly recurring charges. 

Over-charges, to a large extent, reflect the byzantine complexity of telecom agreements. While carriers don’t intentionally doctor their invoices, they’ve done little to improve their billing and invoicing processes or to facilitate customers’ ability to identify and recover costs.  Indeed, customers who attempt to recover credits from overbillings and resolve billing anomalies face huge challenges. 

One is documentation. In past years, carriers provided written documentation detailing charges for utilization, physical inventory and circuits installed and decommissioned.  As services became increasingly complex, the documentation has moved to offline formats and has become increasingly difficult to access.

At the same time, carriers have experienced significant turnover, and today lack account reps who have the expertise to navigate the vagaries of invoices and billing platforms.  This has led to a buyer beware mentality, where customers increasingly bear the onus for ensuring that statements are accurate and that negotiated discounts are actually applied.  

Specifically, many carriers are putting contractual terms in place to limit the amounts that customers can recover from overcharges. For example, contracts may stipulate a window of six to 12 months to as little as 30 days during which a customer can document a billing discrepancy and receive credit for the overage.  If the claim is made beyond the window, the carrier isn’t liable for any reimbursement. Basically, the carriers are saying, “By paying the bill, you agree that it’s accurate.”

To further complicate matters, several factors significantly increase the risk of billing discrepancies. One is organizational change.  Any merger, acquisition or divestiture within an enterprise drives disruption and can result in circuits, lines and services that a customer no longer uses, but that continue to appear on invoices and continue to be paid for.

Another factor is the migration to new technologies, such as SIP, which frequently results in legacy assets and services falling through the cracks.  Following a network transition, existing PSTN services often remain in place and continue to be billed. In addition to driving unnecessary cost, this undermines the business case and anticipated savings of the migration initiative by reducing the amount of cost savings realized.

The combination of organizational and technological change, along with carrier intransigence, has wreaked havoc with telecom charges. In this climate, customers are recognizing the need for vigilance and turning to thorough and systematic audits of telecom statements to manage costs and support their network strategies.

auditor Thinkstock
auditor Thinkstock

New approaches to telecom audits

Approaches to telecommunications audits have evolved in recent years. Initiatives originally focused on validating carrier invoices before payments, and involved experienced telecom professionals reviewing bills and manually peeling back layers of billing to identify the root causes of billing discrepancies. Over time, third-party Telecom Expense Management (TEM) providers gradually moved to a more profitable cost model that deployed automated software tools and processes.  This automation-focused approach, however, tends to be limited to surface layer issues and often misses significant errors at the sub-process level.

Today, customers are aiming to conduct more effective telecom audits by leveraging a combination of automation tools along with a renewed reliance on practitioner expertise.  Industry knowledge is being recognized as necessary to ensure that all proper discounts are appropriately applied, that charged rates reflect the governing tariff or contract, that services and/or charges are applicable and that services being used are in working condition.

Alignment between contract terms and actual bills is critical. But because contracting and invoicing involve different activities and skill sets, transparency between the two functions is often lacking, which contributes to disconnects and billing issues. By establishing linkages between contract terms and billed charges, an effective audit can provide the necessary visibility between the two areas.  Moreover, aligning utilization with contract terms and invoices helps ensure that circuits being paid for are actually being used, and allows customers to determine which circuits can be decommissioned and which should stay in place

The ability to analyze invoices at a granular level is also essential, as billing issues are rarely discernible at the cost layer.  For example, charges for a circuit are typically based on 3 to 4 Universal Service Ordering Codes (USOCs) or service components.  A customer seeking reimbursement for an overcharge on that circuit must identify the specific component that is driving the overcharge. Moreover, the documentation of how the component for the circuit is being billed only exist in specific reports and records that can only be obtained directly from the carrier via a requisition. In other words, expertise is needed to navigate the maze-like system of telecom billing, to identify where billing anomalies are most likely to occur and to understand what questions to ask when rooting out overcharges.

The financial stakes involved in a TEM exercise are sizable. For example, after implementing a new contract, a financial clearing house conducted an audit of its carrier and found that new rates were incorrectly implemented in the billing system. By identifying the root cause of the error in the billing system and submitting a billing dispute ticket to the carrier, the issue was corrected within a single billing cycle. Subsequently, the customer received an $811K credit for the overbilling for the months in question.

In another instance, a retail chain conducted a billing audit focused on identifying circuits that were no longer working and to perform on-site physical inspections at 25 strategically located stores nationwide.  The savings from circuit disconnects and identification of services still being billing at closed facilities was over $58K a month, or roughly $700K annually. The initiative also recovered over $130K in historical refunds.

In terms of timing, a third-party audit of telecommunications spend should be conducted every two to three years. The exercise offers a low-risk opportunity to drive savings and maintain a clean billing environment free of errors.  An audit can ensure that services being paid for are actually utilized, deliver refunds for over-billing situations and optimize the billing environment to the best pricing options with current providers. And by providing visibility into overall telecom spend and contractual portfolios across the enterprise, an audit can support overall network strategy regarding growth and transition to new technologies.

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