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How Do You Know What Your TEM Doesn't Know?

An employee of a large enterprise customer recently explained that his company no longer audits its telecom agreement because they have telecom expense management ("TEM") software/services, and TEM "catches everything." This company is not alone: for many customers, TEM is now the only line of defense against billing errors and overcharges.

But how do you know how well your TEM is doing its job? How certain are you that it's not overlooking something important? In short, how do you know what your TEM doesn't know?

Unfortunately, the answer for most enterprises is "we don't."

There's an understandable aversion to hiring someone to check the checker. But relying on TEM without any kind of backstop could result in missed savings and optimization opportunities. This article discusses the decline and fall of audits, and it offers a way to test claims that TEM solutions render audits or reviews superfluous. Finally, it offers suggestions for improving management of the TEM and the carriers.

My goal is not to denigrate TEM, which is an essential tool. The point is that the only way to be sure about the quality of your TEM's work is to develop mechanisms that make it possible to check the performance of both your TEM and your carriers. "Trust, but verify" should be the order of the day.

The Decline of Audits and the Rise of TEMs
The rise of the TEM dovetails with the decline of "deep dive" audits into contract compliance. For years, enterprise telecom customers insisted on clauses permitting them to perform audits (usually annually) of carrier invoices and related records. These audits, usually conducted with the help of an outside auditor working on a contingency fee basis, were an essential part of ferreting out chronic and costly billing errors.

Audit rights began to erode as a result of several cascading factors:

* Downward pricing pressures incented carriers to cut costs. One casualty was audit clauses because of their burdensome documentation requirements and costly repayment clauses.

* The ratcheting down by carriers of dispute windows to reduce liabilities for overcharges (and audit recoveries).

* TEMs, with their software-based solutions, identified most of the traditional billing errors.

As audits faded, many enterprises saw TEMs as the "go-to" solution for managing and resolving telecom billing errors. Over time, even many customers who have the leverage to insist on audit rights and reasonable dispute intervals came to rely on TEM instead.

TEMS and Audits
Which returns us to the original question: should you worry about whether your TEM is catching everything? The answer is "yes," because unless you check, there is no way to know whether TEM is detecting significant errors and identifying saving opportunities.

Our experience is that, although TEMs catch many billing errors, substantial savings remain undetected. Indeed, even if software-based solutions find every single billing error (defined as a discrepancy between a service's contract price and the actual invoice), audits remain a powerful tool for detecting more subtle mistakes and money-saving opportunities. Here are several examples where the TEM may not (and probably will not) uncover every savings opportunity:

Purchases outside the contract: A customer buys a circuit with a speed that was not specially-priced under the contract and pays "rack rates" as a result. Comparing the bill to the contract price will not flag the charge. Nor will it suggest amending the contract to get discounted pricing.

Optimization/Grooming: Many software-based solutions do not highlight optimization opportunities. A customer with multiple T1s could save money if it replaced them with a larger, less expensive circuit. Any TEM that just checks the bills on multiple circuits against their pricing will miss this and similar opportunities. Unless you are paying for inventory management/provisioning services (see the discussion of scope below), your TEM may not catch services that are still billing at sites that are closed. You may even have circuits billing correctly under the contract but that were provisioned incorrectly-for example, an access circuit in Indiana could be going to a central office in Texas. Mix-ups like these can--and do--happen. But because the charges match the contract, TEM software would not flag this.

Scoping Issues: Some TEMs sell their services in a modular fashion, and customers need to understand what is in-scope and what is not. For example, invoice processing may be one module, while inventory management and tracking MACDs (moves/adds/changes/deletions) are separate modules. Customers who don't understand scope may not understand that the TEM may not be paying attention to certain issues because those issues are out of scope.

Mistakes: Other factors can introduce errors into the process of invoice review and identification of savings opportunities. Human error is one problem: one TEM service never loaded a customer's new contract pricing. When doing billing reviews, it just compared each new bill with the ones that preceded it. Because all of the bills contained similar types of overcharges, the TEM never flagged a variance.

Complexity: Large and highly-customized telecom agreements, which couple multiple discounts and credit structures in various parts of the contract, make it difficult to audit purely on a software basis or on the basis of variance vs. previous months' billings.

The "Moving Target" Problem: Telecom agreements are dynamic: a large customer-carrier relationship can generate a dozen (or more) amendments every year. If the TEM does not receive contract amendments on a timely basis, it may not catch certain errors and overcharges.

Next page: A Modest Proposal

A Modest Proposal
These TEM pitfalls bring me to my modest proposal: issue this challenge to any TEM that asserts that it catches every significant error and spots 99% of the optimization opportunities: "If an auditor finds significant billing errors and savings opportunities that you missed, will you make the customer whole for the lost savings and the cost of the audit?" And no, liability caps (which are alarmingly low in many TEM agreements) or other "gotchas" don't apply.

If the TEM agrees (and I doubt there will be many takers), hire an auditor (working on a contingency fee), and see what the audit uncovers (and let me know the results).

If your existing or future TEM doesn't accept this challenge, that should tell you something: you need to put a system in place to check the effectiveness of your TEM and the accuracy of your carriers' bills. Here are a few tips:

* What services is the TEM offering? Invoice review? Inventory management? Optimization? You need to know what is in included and what is not.

* Will the TEM agree to periodic audits of its performance and/or related SLAs? If not, why not?

* If you decide to perform an audit, and it determines that the TEM missed certain threshold savings, what will the TEM do? Will it

--Pay for the cost of the audit;

--Submit a request for a refund on your behalf to the carrier (or help you to do so);

--Pay you (with interest) for some or all of the time-barred recoveries--i.e., money the carrier would owe you, but which you can't collect because the contracted window for claiming the refund has closed; and/or

--Allow you to terminate your agreement?

The TEM's answers to these questions will tell you a lot.

There's work to do on the carrier side, too.

* Review your telecom agreements to determine if they have reasonable windows for disputing bills and for withholding payment of dispute amounts. Eliminate clauses that let the carrier determine what constitutes an error. Fixing these provisions will give you a "second chance" for recovering overcharges and other savings opportunities that TEM might miss.

* Customers with significant annual spend should demand the right to audit the carrier's compliance with the contract

TEM is an essential tool for enterprise customers. When used in conjunction with periodic audits, it can find common errors, provide valuable reports, and furnish the information needed to find other, more complex errors and savings opportunities.

But TEM can't replace an experienced auditor any more than TurboTax can replace an experienced tax accountant. TEM can miss errors and opportunities, especially in complex deals with customized terms. Enterprises need to understand this. Customer ownership, management and oversight of its TEM relationship are essential to TEM's success and cannot be outsourced to the outsourcer. That is what makes a mechanism for validating TEM performance essential.