Why 'Canned Audits' Are the Rotten Fruit of Cost Assurance Software

Canned software is a great concept because it allows you to reap the benefit of someone else’s work. For me, “canning" conjures up images of sweet peaches ladled with thick, delicious syrup. It takes me back to my childhood when we preserved strawberries, raspberries and other fruits of the harvest so we could enjoy them during the long New Hampshire winter.

Per Wikipedia: "Canning provides a typical shelf life ranging from one to five years, although under specific circumstances a freeze-dried canned product, such as canned, dried lentils, can last as long as 30 years in an edible state."

The key words here are “shelf life." In software terms, shelf life means I can use the software over and over again, and its functionality can be applied to the needs of many carriers, not just one. And that makes great sense in telecom expense management.  Why reinvent the wheel when you can quickly get your hands on advanced software at a reduced price via either a SaaS or an in-house solution?

Canned Software vs. Canned Audits

While the notion of “canned software" is great, you need to be very careful when you hear the term “canned audit."

Many telecom expense-management vendors, for example, advertise that in addition to the basic functionality that comes with their cost assurance software, you also get access to “hundreds of canned audits."

Now “canned audits" sounds mighty similar to “canned software." But it’s my contention that using the term “canned audits" is just a marketing ploy to make you believe their software is inherently more valuable. “Canned audits" seems to imply you gain access to a powerful industry knowledge base gleaned from the many impressive client names the vendor posts on its website. So you get lulled into believing that these “canned audits" will save you the time and expense of developing this expertise for your own business.

But honestly, when you look behind this notion of “canned audits," you soon realize that there’s absolutely nothing behind it. In properly designed cost-assurance software, canned-audit routines are totally unnecessary. It’s a straw man – a scarecrow – something that’s made to look like something real or valuable but is actually not.

In the rest of this blog, I’m going to illustrate this point to you and explain why auditing carrier invoices is not a “black box" process at all, but can be a very simple one that anyone can understand.

The Invoice Reconciliation Process

Let’s first take a quick look at the major steps in the invoice reconciliation or cost assurance process. There are actually three main process groups:

1. Pre-Audit Processes.  It’s here that you enter your accounting cost codes, your network inventory/ordering details, and the unique contract terms you have with your suppliers. Other important pre-audit processes include invoice parsing and loading across hundreds of billing formats. And here it’s definitely useful to have a library of “canned" templates available to use. This functionality is really the crux of the value position – getting the invoices into a consistent layout to facilitate automated auditing.
2. The Audit Process. This is the meat of what invoice reconciliation is all about, but there’s nothing particularly magical here (as I’ll more fully explain soon). The audit step is merely the number crunching phase of the reconciliation process. What makes the number crunching possible is all the pre-audit preparatory work of entering your unique suppliers, contracts, inventory and invoices into the system before the audit process is actually run.
3. Post-Audit Processes. Finally, there are the steps that occur after the audit process such as approval routing and claims creation/management. Then there are all the processes around payments, such as recording the workflow final output for the invoice; and calculating what to pay, what to dispute, and what to accrue.  

So a comprehensive cost-assurance solution, the process that manages the pre-audit and post-audit steps I just described, should come complete with the software. That’s standard industry practice and it’s in those processes where much of the software’s intellectual property resides, and where providers can differentiate themselves.

So now let’s discuss the audit process itself and think through this claim that there are “hundreds canned audits" you can employ.

When a vendor touts its "canned audits," what they are really saying is that you get access to audit routines developed from their work with previous clients. But think about that for a second. How can something developed with no understanding of your unique blend of vendors, products and terms be useful to your operation? And if those audit steps are highly customized to the previous client, they obviously have little value to the next prospect. Is there any “shelf life" here?

Here’s the truth. Service procurement and invoicing processes – from one carrier to the next – are very similar. Service is ordered, delivered and then invoiced. And the services you buy and the vendors you buy them from are not static, but are constantly changing. And with those changes, your cost structure changes as well.

So it’s this mix of suppliers, terms and facilities that really makes your operation unique and all that information is fully entered into your software in the pre-audit phase of the reconciliation. In reviewing your business terms and invoices, you derive the audits required to validate your cost structure. The software should have the ability to apply your unique business terms, in a consistent, easy-to-understand, methodical manner. The audit is not “canned," but the process is. 

The audit process will loop through each of your invoice line items and ask three questions:

• Inventory: Is the Asset Mine?
• Rate Elements: Are the Line Charges Applicable?
• Rate Elements: Are the Rates Correct? 

If your software can sequentially ask and answer each of these questions, it performs a complete audit and you will identify all of your cost discrepancies. So as you can see, the audit process is conceptually a simple process that relies on your specific business terms and conditions. The “canned" audit sounds good and implies you can hit the ground running, but in reality, you will need to either make your data fit the canned audit input requirements or edit the canned audit to fit your data, in which case it is not canned.   

The Fundamental Tenets to Any Cost Review

An automated system can perform the same audit checks that a human does. In fact, it’s as good an auditor as the intelligence that is put into the system – but with more attention to detail and less chance of human error. And by helping your personnel evolve into strategic cost analysts instead of data clerks, automated audits will capture more errors and achieve greater cost reductions.

An automation system is not black-box magic. It merely replicates the same steps your own auditors should be performing time and time again. But if you still don’t believe auditing can be automated effectively, think about it this way: When you review your credit card bill at the end of the month, you intuitively follow a systematic audit process without even thinking about it. Here are the steps:

1. Asset validation – You first ask yourself: “Should I be getting this invoice at all?" Is this my credit card? If it isn’t, I’m going to quit right there and call the bank to complain.
2. Line Item audit – Did you actually buy each item listed on the invoice with your credit card? If not, you would likely dispute those charges. This includes quantity checks, is the tax applicable, and so on.
3. Rate audit – The last thing you check is if the price of the item matches what you paid at the store.

So these three audit steps – asset, line item, and rate audits – are the same things we check for in telecom invoice charge review. The diagram below illustrates how these audit steps are applied in Contact Telecom’s Billing Data Analyzer (BDA) audit automation platform.

Basically, the automation platform merely loops through every invoice and every record in that invoice and either validates the bill or triggers an exception that kicks off a dispute routine. The steps of that process are essentially the same series of questions we described earlier:

1. Is the Asset Mine? First, a database dip is performed to determine if the line facilities shown in the bill reflect actual facilities and valid liabilities in your inventory.
2. Are the Line Charges Applicable? Second, the system checks if the services or invoice items associated with these lines are valid. The asset itself may be valid, but the line item may not. Here is where you check things such as UDP charges, facilities charge, trunk charges, federal surcharge, tax and many more. Likewise, there are various enhanced services attached to phone numbers such as call waiting, voice mail, conference calling. Then there could be usage charges as well – local calls, LD calls, etc. If a service or record is not applicable, you would dispute that line charge.
3. Are the Rates Correct?  Finally after the previous two checks, you check to see that the correct rates are being applied to each bill item.

So this is what an automated audit system does, and why it’s an essential component to a mature cost-management practice. The process is intuitive and our BDA service includes putting many pre-audit procedures in place. Contact Telecom’s Billing Data Analyzer platform has automated routines for taking in monthly bills, confirming the data integrity and presenting accurate reports to the client within minutes of file receipt. Applying our library of parsing algorithms supports invoices and call-detail records to more than 1,250 vendor file formats nationwide, and over 95 percent of the invoice and call-record data retrieval, processing and reporting is automated. This includes invoices from many different types of service providers, such as LECS, RLECS, IXC, wireless, CABs and others.

These audit questions asked above, simple and short, are effective. The answers lie with you and how you apply the values in your current agreements and tariffs against your invoices.  

It is not the list of canned audits you may never apply, but rather it is the ability to apply your unique business terms in a robust auditing tool to ensure 100 percent of your costs are audited and the invoice charges fully validated. 

Applying audits specific to your business, using a robust invoice processing and auditing application, the results are what you want canned.

Peter Yelle is a partner at Contact Telecom LLC . With more than 20 years of professional engineering and product management experience in the telecom and wireless industries, he has been instrumental in bringing effective telecom solutions to market.  Yelle holds a Bachelor of Science in Electrical Engineering from Northeastern University in Boston.