Published : 6 years ago, on 22/11/2018

By Sharon Watkins, CEO of RadiusPoint

There are many questions that come up when considering a one time audit on your telecom or utility invoices versus an ongoing monthly audit.

After years of research, hands on experience, and daily Client interactions, the ongoing audit would most often be more beneficial to an organization.

• Would you rather have overcharges refunded to you each month or would you rather wait for 2 years or more to have an overcharge refunded to your company?
• How much money are you leaving on the table for taxes and interest when you are waiting 2 years or more for an overcharge to be refunded to your company?
• Are the telecom vendors really only giving back 6 months or less of an overcharge found in their favor?
• Are there really that many overcharges identified during the one time or ongoing audit? Is it worth all of the time involved in gathering invoices?
• When you use an Expense Management company, do you relinquish all of your control over the invoices?
• Have your Telecom vendors reduced their refund policy for erroneous charges to 6 months or less?

These are just some of the questions that arise when contemplating a one time audit or the use of an Expense Management company to manage the telecom, wireless and utility invoices and services. Many organizations plan to have their telecom or utility invoices audited every 2 years.  Would it be more advantageous to have that audit monthly and recoup your overcharges each month instead of having your vendors play with your money over that two year period?

There are many things to consider when starting the process of the telecom or utility audit.  If the services are being sent out for a Request for Proposal (RFP), there are certain time consuming tasks you must consider.  These tasks would have to be completed every two years, even if you hire the same audit firm each year:

• Time to create the RFP
• Time to evaluate the RFP
• Expertise to evaluate the different service offerings, i.e. level of service – surface audit or in-depth audit
• Time involved with vendor meetings
• Contract negotiations
• Gathering 2 years of invoice copies
• Gathering vendor contracts
• Gathering other needed documentation for auditors
• Answering questions from auditors regarding the environment, services and locations

The gathering of the documents and time involved in the RFP process may sap your team of time that they need to perform their daily tasks and for some organizations, the time constraints are the biggest obstacle in getting the audit on the schedule.  Maybe it would be easier for the auditor or an Expense Management company to get the invoices on a monthly basis.  But how would they be compensated for this extra work?

An Expense Management company for telecom, wireless or utility invoices would be receiving your invoices monthly as a part of their services to manage the full lifecycle of the invoices, from receipt to payment.  If this vendor is already processing your invoices and allocating the charges on a monthly basis, performing a monthly audit is the next logical step in managing the expenses.

The financial arrangements vary with the audit firms that are hired to perform the one time audit.   Knowing what type of arrangement that you are signing on for is imperative as a complete and thorough understanding will eliminate any confusion on cost.   While it may be appealing to hire a firm on a contingency basis, i.e. they only share in what is found, just know that with this type of arrangement, there can be many pitfalls that will ensure that you are not getting a full and complete audit.

Some of the issues of a contingency based audit are:

• Typically only identifies low hanging fruit
• A full inventory of all services and cost is NOT completed
• There is a charge for savings identified, not realized
• A Cost Avoided charge applies to any overcharges identified or optimization recommendations whether they are implemented or not.
• Your team must identify every issue that has already been reported to the vendor before the work starts, or the audit firm will be able to take credit for any refunds or Costs Avoided.

What is involved when your audit firm only identifies the low hanging fruit?   This most often involves very simple contract issues and third party charges that are on your local service invoices.   This type of surface audit involves your audit firm providing a report of your overcharges or refunds without providing a complete inventory of your services, i.e. every phone number or circuit number identified with the physical address, all monthly charges detailed and the use of the service.

When do the Cost Avoided charges come in to play and how are these calculated?  Most of the Contingency Audit firms expect to be paid on Cost Avoided for a specific period of time.  This would involve the audit firm identifying a phone line that is no longer in use, making a recommendation to cancel the line and then calculating a Cost Avoided for a 12 or 24 month period.   This may or may not involve the audit firm actually canceling the line, so it is imperative that you know who will be responsible for ending the services so that your organization will actually realize the savings.

The example below outlines what a Contingency based audit would charge.

Note the Refund Achieved – this involves a 6 month refund without any interest or taxes being provided as a refund by the vendor.   Telecom and Utility vendors differ in their refund policy and over the past 4 years have shortened their refund time to six (6) months or less.   Many of the vendors have a one (1) month refund policy that has to be fought against by the audit firm just to retrieve monies overpaid by the Client.

So would it be better to have this identification or errors and possible Cost Avoidance as a part of an ongoing monthly audit for all of your telecom and utility invoices?

Let’s explore the pros and cons of each service.

Pros and Cons of One Time audit

Pros and Cons of Ongoing Audit through Expense Management

Hiring an Expense Management company to manage the lifecycle of your telecom, wireless and utility invoices may make more sense, if your company has more than 50 locations, multiple wireless users, has had or plans to have acquisitions or divestitures or if there are staffing constraints.   An Expense Management firm can offer the following services that can augment your current staff, bringing soft dollar savings to your bottom line, as well as, identifying errors or optimization that will result in hard dollar savings.

Invoice Processing                                                          Expense Allocation

Invoice Payment                                                              Invoice Imaging

Contract Management                                                  Reporting at the Cost Center or Location Level

Reporting at the End user level                                 Interface with Accounting Software

How would your organization be affected if you hired an Expense Management company to manage the full lifecycle of your invoices on a monthly basis that included a monthly audit instead of hiring a firm to provide a one time audit?

In the example below, the assumption will be made that the organization has $3MM annual expenses to be managed and the refunds and Cost Avoided in the above Contingency Audit example were identified during the one time audit.

Annual Cost for Expense Management firm in above example: $42,000.00

Savings to utilize an Expense Management firm: $200,595.00

The savings would have to be viewed in a couple of ways due to the refund and Cost Avoided differences in the one time audit and the ongoing audit.  The ongoing audit will allow for an immediate refund or Cost Avoided, eliminating the ongoing overpayment of an error for a 24 month period.  The one time audit will most likely leave 18 months’ worth of overpayment that cannot be recovered due to the vendor’s dispute and refund policies.  In this example, the loss was equal to over $900,000.00 because the audit firm could not get the vendor to refund the entire 24 months of erroneous billing.

So what makes more sense for your organization?  Managing your invoices monthly and using an outside firm to audit every 2 years or having monthly assistance with the full lifecycle management of your telecom, wireless and utility invoices coupled with a monthly audit?