The Underlying Issues of End-user Telecommunications Account Management
The most complex and costly area of the telecommunications industry is the
"local carrier service provider sector;"
requiring extensive and exhaustive vendor
data mining and manual auditing processes. Today, Telecommunications Departments,
of large and mid-sized enterprises, do not have the human assets, time, and often
expertise to undertake such projects (Pappalardo, 2002). Recent trends in human
resource rationalization (corporate downsizing) have exacerbated this issue in
most enterprises, as fewer experienced resources are available to manage enterprise
telecommunications accounts and services. Companies now rely heavily on their
Accounts Payable Department to pay invoices, without the ability to identify
inaccurate, extraneous, or problematic accounts. This phenomenon results in
most enterprises failing to audit up to 85% of their telecommunications accounts
(Aberdeen Group, 2005, p. 5).This affects the efficiency of cost structure,
resource, and financial management; contributing to increased capital budget
overages and capital waste.
Communications News (2005, February) cited a 2005 Aberdeen Group report
(Aberdeen Group, 2005) identifying that large corporations lose, on average, more
than $8 million annually in profits, due directly to erroneous and extraneous
telecommunications expenses (p. 6). The article cited that these enterprises
averaged $116 million in annual telecommunications-related expenses and process
over 15,000 telecommunications invoices per month. Meanwhile, mid-market
enterprises processed an average of 3,000 telecommunications invoices (2005, p. 6).
Over the past 17 years, we have found that many enterprises, with more than 500
locations, have multiple invoices for each location. Most locations average two or
three local carrier invoices. This doubles or triples the task of proper auditing
and telecommunications expense management.
There is a tendency for small and mid-sized enterprises (SMEs) to believe
that telecommunications expense problems are inherent to large, vast enterprises
with multitudes of locations, it could not be further from the truth. Click on
the following examples to see why telecommunications issues permeate throughout
the accounts of all companies, regardless of size.
SME Example 1
In 2008, we audited a small chain of five law offices located in three states.
Although the client had few invoices to audit, one of the accounts (PRI ISDN
service) appeared to be invoicing tariff rates (not in a contract). We extracted
the provisioning data of the PRI ISDN account. The account indicated that a
contract had been signed 24 months prior, yet the contract rates should have
reduced the monthly recurring charges to $846.20; the account was invoicing
$2,262.16. The problem: The vendor's provisioning programmer had neglected to
remove the normal tariff rates while, simultaneously adding the new contract
rates; increasing the cost of the account by 167.33 percent. The resulting error
created an overcharge of $33,983.28, while its correction saved an additional
$16,991.64. The total financial impact of the issue was $50,974.92. The Accounts
Payable employee, responsible for reviewing and paying invoices, was unaware
the amount being paid on the account was incorrect since, the invoice was
consistently the same amount each month, triggering no suspicion.
SME Example 2
According to Gillian Flynn (1998), a bank with 21 locations, based in
Michigan, had engaged an outside telecommunications audit firm. The firm
uncovered $800 thousand in overcharges and credits due, while precluding a
further $3.2 million in erroneous charges to continue (Flynn, 1998, p. 2).
The client had only 21 locations, a number that would typically be considered
easily manageable by any client. This was an assumption
made to the client's great disadvantage.