Finding Cash in Bad Bills

FRAMINGHAM (03/20/2000) - Remember that satellite office your company shut down six months ago, the one with T-1 access to headquarters? You canceled that T-1, so you no longer pay for it, right?

Maybe. Then again, it might still appear on your company's monthly phone bill, buried among a list of all the other services you buy, written in carrier hieroglyphics you don't really understand.

One way to find out for sure is by auditing your telecom bills, a reality check that can save you thousands or even hundreds of thousands of dollars. "It's like getting money from heaven," says Steven Kraemer, assistant director of academic computing and communication at the University of Illinois (UI), Chicago. He had UI's telecom bills audited and the school ended up $350,000 richer for it.

Phone audits like this have saved enterprises money for years. But now with the advent of competitive local exchange carriers (CLEC) and budget tightening at regional Bell operating companies, enterprises should be even more cautious, experts say.

Newer carriers can be prone to making errors because they're not yet familiar with their own billing systems, says Walter McDermott, who runs Telephone Auditing Service in Ridgewood, N.J. "You ask for a customer service record, and they're not sure what it is. It has taken a week or more in some cases for me to get anyone who can read a bill that they are sending to their customers," McDermott says.

CLECs are also more difficult to deal with in an audit because often they resell a Bell service. "They picked up a bill from the Bell and passed it on, so if there is an error, it wasn't made by them," says Barry Francini of Tariff Billing Specialists in Florham Park, N.J.

RBOCs have experienced turnover and are short-handed, so it's hard to get hold of their billing experts, says Dave Dabney, president of D Squared Communications, a telecom auditing firm in Chicago. "They hide behind their voice mailbox," he says.

So auditors recommend getting your bills reviewed every 18 to 24 months to make sure new errors don't accumulate.

Finding out if you're overpaying can require no upfront money. In many cases, auditors work for a contingency fee - a cut of up to half the overcharges they find.

"There is no downside. Of course, the vendors don't like it because it means they have to pay some money," UI's Kraemer says.

When network executives enter into an audit, many of them expect something other than what they get. For example, auditors never look at whether enterprises are being billed for individual phone calls they didn't make. In the scheme of things, that kind of error is chicken feed.

"I'd have to find a lot of mistakes to make it worthwhile, and then it would only work for this month," Telephone Auditing Service's McDermott says.

Instead, auditors hunt mistakes that can cost tens or hundreds of thousands of dollars if left uncorrected, such as whether canceled T-1s are still showing up on the bill.

Auditors scour bills looking for that kind of error. "We investigate if in fact you have that line, is it working, are they billing you right," Tariff Billing Specialists' Francini says.

Eighty percent of bills contain overcharges that will appear month after month, he says: "It will continue to go on until someone says, 'This is wrong,' and someone does something to correct it."

Auditors target the most expensive services, such as data, point-to-point circuits and alarm telemetry. "The more complex the service, the more the customer doesn't understand the bill," Francini says.

Large companies need auditing more, experts say. Often the biggest corporations have clout to negotiate the best deals, but those special-case deals are often so complex that service providers frequently miscalculate the bills.

Services that were set up on an individual case basis (ICB) are even more ripe for error. "I hear ICB rates and I say, 'Great, we're going to make some money today,'" D Squared Communications' Dabney says.

There are more types of billing errors than you can count. Dabney says he reclaimed $250,000 for a client because the local phone company ha`d been sending the wrong customers' bill for a year and a half. The name at the top was correct, but the network was someone else's.

Embarcadero Systems, a network management firm in San Francisco, won an $18,000 credit for a T-1 line that was billed at the wrong rate for six months. And the company ducked a looming $30,000 penalty because it was about to miss a minimum service agreement. The auditor, Applied Research Technologies, got the penalty forgiven and renegotiated the contract, says Doris Moblech, network manager at Embarcadero.

Auditors employ databases that compute the distances between switching offices to find out whether mileage charges are accurate. They check whether you're being charged at the four-wire rate for a two-wire service.

UI's Kraemer says his long-distance carrier was charging for phone lines that were not used by the university.

In addition to looking for billing errors, auditors take information about customer networks and try to figure alternative - and less expensive - ways to accomplish the same goals.

For example, Applied Research checked the rates Embarcadero was paying for various services and ranked whether it was paying at the high or low end of the acceptable range. Intrastate long-distance was high, so Embarcadero renegotiated for a best-in-class rate, Moblech says.

One auditor says he has found customers still paying 30 cents per minute for long- distance simply because no one ever called the phone company to demand better rates.

Auditors also offer buying strategies for services. One recommendation: Take the long-term discount carriers offer on T-1s. If you don't keep the service for the term of the contract, many carriers simply make you pay back the discount with no additional penalty. So if there is a 40 percent discount for a seven-year commitment to the service, but you cut it off after a year, you pay back the 40 percent for that year, but no penalty for the other six years.

Auditors also advise signing only one-year long-distance contracts because prices are falling so fast, it's worth renegotiating often.

Telecom auditors can play hardball for you, too. If a carrier says it only refunds for errors made over the past six months, but state law requires paybacks for six years, auditors can press that case.

But carriers are generally cooperative. Tariff Billing Specialists' Francini says that in 22 years of auditing, he has appealed cases to state public utilities commissions only a half dozen times.

Once the audit is done and the carrier has agreed to the mistakes found, the auditor should ride herd on the service provider to ensure the changes are made.

"If we never followed up, there's a 90 percent chance they will never get off the ball. Two years later you'll find you are still paying for those two lines you thought you had corrected. You need to follow up by reviewing the bill, or you'll never know for sure it happened," Francini says.

Not to worry

Audits could have political implications. Some telecom managers may fear that if long-standing large errors are found, blame may be placed on their heads.

But UI's Kraemer says he's not concerned about that. He's calling in expert help, just like he does for technical projects. "How can I know if something is a tariffed item or not? I can't know everything, and I would not expect my staff to know everything," he says.

Customers might also be worried about the cost, but in most cases, the auditor's fee comes from the value of the errors discovered. If an audit discovers savings that extend over post-audit years, the auditor gets a cut of that, too.

Embarcadero paid a flat $50,000 for its audit, and Moblech says she prefers that to a percentage, based on experience at a former job in which she hired an auditor that worked on commission alone. "It gave me an uncomfortable feeling to be paying them based on numbers they generated, and I had no way of checking," she says.

Once you decide to get audited, the process is simple. You hire an auditor and sign over authority for the firm to deal with your service providers on your behalf. The auditor takes it from there and within weeks reports back with what it has found.

Initial meetings with the auditor take three or four days, Moblech says. "You describe your network, why you designed it the way you did, what your objectives are," she says.

While the first audit was her CEO's idea, she now plans to do one every two years before negotiating new service contracts with carriers. "It really helps to have a second pair of eyes that know what they're looking for take a look at your bills," she says.

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