Finding and Fixing Billing Errors

On the other side of the data center, a telecom specialist glances over the company's monthly 25-page phone bill and signs her "OK to pay" at the top. She doesn't take the time to go through it carefully, because the bill is incredibly detailed, and the total seems to be approximately what the company paid last month. What she doesn't realize is that the phone bill contains fees for three features the company never uses, two overcharges for tariffed services and monthly tolls for six phone lines the company no longer owns. The company is paying about 35 percent more than it should.

Every day, otherwise cost-conscious IT departments lose money by overlooking one of the most common sources of hidden costs: the vendor's final invoice. One auditing firm estimates that seven out of 10 companies are paying too much on their IT bills. Another auditor reports that enterprises are overpaying their voice and data network services bills by as much as 40 percent per month. An electronic procurement tool vendor suggests that IT departments could recover a full 1 percent of their annual budgets if they simply approved bills faster.

"In 2004, my company saved approximately $68,000 by identifying billing errors and correcting them before payment was made," says the CEO of a small IT consulting firm who asked not to be identified. "We found that invoices were only about 70 percent to 75 percent accurate on first pass." Other IT professionals reported different figures--the percentage of inaccurate invoices ranged from 2 percent to 90 percent--but all reported at least a few errors on their monthly bills.

Network service teams are taking a beating. "It was bad in the old days, when you were only dealing with a few carriers, but now you're dealing with cellular services, Internet services, frame relay services and so many others," says Barbara Clements, president of Auditel, an auditor that specializes in telecom billing analysis. "It's worse now than it ever was."

But isn't this a problem for the finance department? Shouldn't the accounts payable folks handle it? Experts say no, because most accounts payable clerks don't have the knowledge required to refuse payment on a defective router or identify phone services that aren't being used. Finding and correcting billing problems requires a joint effort by accounts payable and IT, they say--a partnership that often doesn't happen.

"In a lot of companies, the IT people assume the bill is right because it comes from accounting, and the accounting people assume it's right because they don't really understand what the bill is for, and they figure the IT people know," Clements says. "The bill just sails through, and nobody really investigates it."

So how can IT and accounts payable improve their accuracy in identifying and reconciling billing problems? The answer, at least in part, depends on what the invoice is for. Bills for hardware, software and other physical goods generally follow a shipping and receiving path; bills for services, such as network transport or outsourcing, require an auditing process. Let's look at each in turn.

When it comes to physical goods, there are three key documents that can be used to verify the accuracy of an invoice: the purchase order, which indicates what the enterprise wanted to buy; a packing slip, which indicates what was delivered; and the invoice, which indicates the final cost for the product, including any taxes and shipping costs. Even in today's world of ERP (enterprise resource planning) and workflow software, many companies still physically route paper invoices around the company to verify against purchase orders and shipping documentation.

"Our business office receives the original invoice and they send a copy to IT for approval," says Scott Bugbee, manager of IT for New Hampshire Public Television. "We sign off and they enter the request for payment into the accounting system."

This manual process may not catch billing errors, because it relies on IT people to remember the item and correlate that shipping information with an invoice that may be riddled with confusing language or hidden charges. The IT professional knows that the item arrived, and usually gives approval without checking the purchase order or the shipping charges, thinking that accounts payable will verify those elements. Although accounts payable may check the invoice against the PO, it often has no way to verify whether all the items were received, or whether the shipping charges are valid. If the IT contact has signed off, accounts payable assumes it should be paid. In many cases, a clerk enters the invoice into an accounting system manually--introducing possible input errors--which generates a check for the vendor. The whole process is usually rushed as accounts payable tries to take advantage of discounts for on-time payment or avoid late fees. An undisputed invoice may be paid in a week or less; a problem invoice may take weeks or even months to resolve.

Many enterprises automate some or all of this paper process by using ERP systems that collect purchase orders and shipping documents, and generate invoices electronically. Invoices can then be routed and approved electronically, and IT professionals can share shipping and purchase-order data online to verify the accuracy of an invoice. However, some companies limit ERP access so that the IT approval manager can only view the invoice but not the related documents. Even in the best ERP environments, those who review the invoice often are forced to correlate the purchase order, packing slip and invoice information by reviewing each document separately, even though all three are available online.For this reason, many enterprises have turned to electronic procurement systems, such as Verian Technologies' ProcureIT, to handle invoice reconciliation and other aspects of the purchasing process. Verian's invoice-management tool not only collects purchase-order, shipping and invoice information, it also automatically correlates those documents to identify discrepancies quickly. Allstate Insurance Co. of Canada recently reported using ProcureIT to cut about 20 percent of its previously paper-based order and invoice processing time.

However, these solutions don't come cheap. ProcureIT's software costs about $50,000 for the invoice management function alone--the full procurement suite ranges up to $500,000. ERP systems, usually deployed at an enterprise level, can cost millions. For the largest companies, these systems often generate a positive ROI, but smaller companies usually are left with the error-prone paper-based system that requires vigilance, both from accounts payable and from the IT people who review the orders and invoices.

Some well-organized small companies have developed their own automated processes for handling accounts payable, and low-end accounting tools such as Microsoft QuickBooks can be extended to include an approval process, but most small companies simply do it the old fashioned way: on paper.

"Check your invoices carefully on all incoming products," says Craig Janssen, an IT consultant at RA Associates. "Don't assume that invoices are correct. Most people think that vendors will never make a mistake on an invoice, by design or accident. But over time, I've saved clients tens of thousands of dollars by verifying invoices at the loading dock. The best thing you can do is not pay until any problems have been resolved first."

Services bills, particularly the monthly phone bill, present a different set of problems for IT and accounts payable. There are no packing slips to prove that the provider isn't billing for unnecessary extras and has delivered everything it promised. With many phone services, there's a monthly fee and a usage fee, both of which can be complicated to decode and variable from month to month. Most companies use multiple network services, receiving equally indecipherable invoices from landline voice services, cellular services, Internet services and access-line services. And, to top it all off, many of these services are tariffed, which means there are FCC guidelines for how much a provider can charge.

As a result of this complexity, the monthly "phone bill" at many large enterprises can be hundreds of pages long. Even in smaller companies, network services bills including telephone services, Internet services, and network access and transport services can be a morass of call-by-call charges, feature fees, maintenance costs and added surcharges. Faced with all of this data and no easy way to decrypt it, most network professionals do the human thing: They sign it and send it back to accounting.

This approach might be the easy way out, but it's also the most expensive, according to auditors. "You would not believe the things we've found on clients' bills," says Auditel's Clements. "In some cases, we've seen companies paying for years for lines that don't even belong to them--they were getting somebody else's bill by mistake. We've seen companies paying for lines that they disconnected five years ago. We've seen companies paying high monthly fees for services that they've never used. It's crazy."

Auditel, like some other auditing firms, offers training to help accounts payable and network professionals decipher their companies' phone bills and identify charges that might be questionable. "Most of the errors we find are for charges that are between $15 and $50," Clements says. "But if you have five of those errors on every line bill, and you're supporting hundreds of lines, it adds up pretty fast."

Some of the most common errors are charges for lines, services or features that the company never uses. "Once or twice a year, you should take the time to call the lines that you're being billed for," Clements says. "You'd be surprised how many of them are no longer in service, or have been given over to somebody else." That sounds like an exaggeration but the auditor noted that it had happened on more than one occasion. Enterprises should also be wary of charges for features they don't need, such as voicemail services that are redundant with their phone systems or maintenance fees in enterprises that service their own networks.By the same token, enterprises should also be slower to change carriers just because their bills are too high, Clements advises. "A lot of times, you can lower your bill significantly just by reviewing it with your carrier and identifying the unnecessary charges. When companies switch providers, we often see a period of time where they get redundant charges for the same service from both the old provider and the new one."

There are a number of vendors, such as RFD Systems, that offer software and services for auditing network services bills and identifying redundant or incorrect charges. However, as with ERP and procurement systems, the price tag for telecom analysis tools can be high: around $20,000 or more for the software alone. For smaller enterprises, a once-a-year phone bill audit, which typically costs about $3,000, might prove a less expensive alternative.

"Whatever you do, just don't take that bill at face value," Clements says. "You may do a lot of research and cost analysis before you choose a provider, but if you don't examine the bill at the end, then you haven't saved your company any money--in fact, you may be costing it money."

Tim Wilson is Network Computing's editor, business technology. His background includes four years as an IT industry analyst and more than 14 years as a journalist specializing in networking technology. Write to him at [email protected].

It doesn't matter how much you plan to save, your budget shows how much money you have to spend. Tiny mistakes on bills and invoices add up to a significant and unbudgeted expense. It's your department's cash: It's up to you to make sure it's spent wisely. Cost-conscious IT departments often overlook one thing that can cost their departments extra money: the vendor's final invoice.In this article, we explore how companies throw away money and offer tips on catching vendor billing errors before they cost your organization. We detail strategies for streamlining your invoice procedures and give you ways to replicate the efficiency of an enterprise resource planning system without spending millions of dollars. With a few procedural adjustments, you can see surprising savings.

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