Inventory & Audit

four business people sit at desk with different electronic devices

In this video about the telecom Inventory & Audit process, Sharon Watkins, CEO of RadiusPoint comments on a TEM mission focused on cost savings carried out by RadiusPoint for a client positioned in the healthcare industry, specifically in the assisted living facility business. This case study is particularly interesting on two main accounts: (a) the size of the annual cost savings obtained through the Inventory & Audit process; (b) the fact that a very large portion of the cost cutting is generated over POTS lines.

A long-forgotten legacy product of telecom technology, POTS lines seem inconsequential in the grand scheme of a large telecom architecture. But the fact is that any organization with a large number of locations open to the public are mandated to keep POTS lines live and maintained, and may be incurring very substantial costs unbeknownst to their Accounts Payable function.         

1. TEM: a brief definition

Telecom expense management is a service where an organization partner with a 3rd party specialist to manage their telecom expenses. Telecom can be anything from landlines, wireline services, all the way to wireless services.

Telecom expense management is a monthly service that consisting in receiving invoices (from telecom vendors), processing them for payment, possibly paying them (when applicable). The TEM specialist also keeps up with the client’s inventory and audits, flagging errors in monthly invoices.

Telecom vendors may send very ambiguous invoices that just have a line item that says “Monthly service”. One-page invoices. Underneath that monthly service that can amount to $2,000, what are you paying for?

The telecom expense management specialist (or TEM as they’re called sometimes) will be able to break down what’s under that $2,000 monthly charge.

2. What is an Inventory & Audit in the framework of TEM?

The inventory and audit ― some people will call this a historical audit ― comes into play when you’ve not had one done in the past. Your organization really doesn’t know what telecom services it is paying for.

By the services, I mean landlines such as your regular business lines or your POTS lines. POTS stand for “plain old telephone service”. Inside that $2,000 monthly service charge, there could be a mix of POTS lines or regular business lines along with circuits or PRI lines from a local service provider (the local telephone company). There may even be long distance or DSL or internet services in the mix. The Inventory & Audit is the starting point for being able to really manage those services well and know what your organization is paying for on a monthly basis.

3. More about the Inventory & Audit procedure

The real key to being able to fully manage and really know what you’re paying for is to have the Inventory & Audit ― or the historical audit — going back into the history of that account to identify when the services were set up, what services you’re actually paying for. If it is all of your landline services, your POTS lines, so what are the phone numbers and when were those numbers installed, what is the PIC and the L-PIC on those? And what are all the features on those various lines?

With an Inventory & Audit your TEM specialist finds all of that information ― we call it scrubbing the information — and is then able to identify what services you want keep. What do we need to keep going forward, to make our business run smoothly? What do you need to get rid of and eliminate?

From there, building a database of information… your baseline of information, so that when you’re having that when your Telecom Expense Management partner manages those invoices on a monthly basis, that information is clean.

If you don’t have that historical audit or that Inventory & Audit clean up all the old information, the organization won’t have the capability to make sure this information will stay clean going forward.

4. Inventory & Audit case study

Today I wanted to tell you about a company we’ve been working with on a project. It’s a healthcare organization. They are nationwide, in the assisted living and long-term care business, with some nursing homes. They have 240 locations, from California to East coast in Florida. They are probably represented in every state.

A lot of these locations have been around since the 70s. As we were doing this audit, we were able to identify telecom lines that had been in place since 1975.

It is important to know that this type of company has to have POTS lines (also called copper lines). It’s basically a physical connection coming into their building for their elevator or their alarm lines.

Why do they have to have physical copper lines? Simply because if you ran this over VoIP or some sort of internet line and the ISP service goes down, the CALL lines in the elevators would not work, and people stuck in the elevator would have no way to call to the police station or get someone to assist them. Or if there was a fire, the first thing in this case is the power goes out. You have to have that copper line to get the call to the fire station.

Actually the government stipulates that any business has to have those alarm lines in. It’s typically one alarm line and a backup line. And if you have an elevator in the building, it’s going to be equipped with a copper line as well.

5. The problem of POTS lines

This is an unavoidable expense. Given this, let’s make sure that this expense is going to be as documented as possible, and as low-cost as possible.

However, with the advent of the VoIP technology ― basically your internet calling, your teams’ conference calls, your desk phones, etc. — phone companies have invested in that technology and they really have left POTS lines behind.

They don’t really want to service them or take care of them anymore. They want to go with this newer technology.

Unfortunately however, businesses can’t go with the new technology for these specific types of lines. So vendors have basically raised their service rates.

The cost your organization used to pay ($27 or $35 per POTS line) has now become $200+ per line with some vendors. And when these lines go down, having the technicians come out to work on the lines is not immediate. There’s a time lag on getting that done as well.

So businesses have been caught between a rock and a hard place… looking for a better technology but still being hamstrung with those copper lines, those physical lines coming into the building for these specific service types.

6. Inventory & Audit of POTS lines

So with this particular client company, we started out with multiple alarm lines. Well, what they thought were alarm lines and fax lines at their 240 physical locations, about 10 lines per location.

They hired RadiusPoint to do this Inventory & Audit project because they did not have the internal personnel to do it. Number two, they didn’t have the personnel with the expertise to work with the telecom vendors to get the information.

There are a couple of pieces of documentation that we had to get from the vendor to perform our Inventory & Audit mission. This was an extensive POTS audit project: 240 locations, 10 lines per location. This project took about six months, and much of this was not related to our own time to do the work. No, what took so long was working with the telecom vendors to get the information. Remember, they don’t wanna deal with POTS lines. It’s kind of a a secondary service now, they don’t really want to mess with it.

Just ordering some of the information that we needed, or getting them to answer questions related to this information… I’ll give you some examples. First of all, the piece of information that we have to get from the vendor is a Customer Service Record or a CSR. The CSR t tells us when that line was installed. Some of these CSRs went back to 1975 and 1972. The CSR also gives us all of the phone numbers.

Do you remember we first talked about that invoice showing a cost of $2,000 a line, or $2,000 for the monthly service? That invoice doesn’t tell us what phone lines are listed under that $2,000.

The CSR gives us every phone number on that particular invoice, making up that $2,000. So with that CSR, we have all of the phone numbers, we have the PIC and the L-PIC (the PIC is basically the code that tells it what long distance carrier it goes to, the date it was installed, and all of the different features that are on that line).

Now let me give you some examples of things that should not have been charged on the lines. If it was an elevator line, we would see a “Caller ID charge”: some of them were $5, some were up to $12 per line. Why would you need a Caller ID on an elevator line? You wouldn’t.

With that, we also found lines that had additional charges.

Other features like Call Forwarding were charged on these lines… These services can never ever be used, but somehow, either during the ordering process or at some point when those lines were established, or over a period of time, those fees were added on.

The client probably never noticed because when they were getting that bill, all it stated was that the service was $2,000 a month.

A lot of times the Accounts Payable people will just say: “Okay, if it’s within an increase of 10%, I’m not gonna worry about it. We’re just going to go ahead and pay this bill”.

And so with that, the telecom operators would basically increase, increase, increase [their charges] over the years and more services would be added. Now, $5 on four lines is not that big of a deal… But if you add that $5 over 240 lines, we’re talking some larger amounts of money for services you don’t need, services that should have never been placed on those particular phone numbers.

We identified anomalies like those during the Inventory & Audit process.

The biggest savings for this particular client, for their inventory, was the component of our service called “line verification”. We list every phone number out. And we call each one of those phone lines to see who’s sitting, who answers that line.

If it is an elevator line, no one is going to answer that line. If it is a legitimate fax line, then the fax is going to pick up the call, you’re going to hear that fax tone. So for this client, we found an enormous number of lines that were not being used out of those 10 lines per location.

Technically, we should only have a couple of elevator lines among the alarm lines. The elevator lines and possibly even the alarm lines wouldn’t answer when we called. To verify these, we actually had a 3rd party company go onsite, and basically do a “tag and tone” exercise. This is where they’ll just go through and they’ll run down the lines.

We provide a list and say, “this is what the phone company says exists at that location; we need you to find each one of these lines”. With that, they would basically “tag and tone” all the lines, run them down and verify that “yes, this does go to the elevator and here’s the elevator line”, or “here’s the alarm company line”. And the alarm company should also have a list of lines that they’re monitoring: they’re monitoring those lines so you can also get that information from them.

7. Savings generated by the Inventory & Audit process

Basically, pulling all of these pieces of information together, we were able to cancel $600,000 per year in lines that were not needed.

Now just the lines, it was over 30% of the client’s telecom expenses. These were just the lines that were not needed and that we identified.

This does not take into account the services we identified that were double-billing. For instance, when we looked at the CSR, we found lines the telecom operators were billing two monthly services for the same phone number. We found that they were charging taxes, surcharges and fees multiple times based on the number of lines.

We were able to find where a service had been canceled, but circuits continued to be billed on those monthly service accounts. That’s a whole other set of savings.

When all of those features come into place, we’re factoring about another 20% savings on total telecom expense just on the services that should not be billed on elevator lines, such as Call Waiting and Caller ID. “Wire maintenance” is another one that we will be canceling that will save another 20%.

For this particular organization, we started out with an expense of about $1.9 million. At this point of the Inventory & Audit process, we are saving our client some $600,000/year. We are about five months into this project and we’re coming down to the end because we’re making all the final recommendations.

One thing to note in this regard: telecom vendors do take time to get services canceled. Just keep this in mind when you’re placing orders for cancellation: the vendors will, at times, drag their feet a bit to get services canceled. You really have to be diligent to follow up with them.

And basically we do just that: we’re following up with them, and when we get the monthly invoices, we verify where yes, the services were canceled or that feature was removed. And yes, the savings has actually occurred.

So as we go through this particular project, the savings that have been obtained just on the lines, amount to about $600,000 or 30% of the total telecom expense. By the time we do the further recommendations, such as moving fax lines that can go to a different technology, and removing all of the unnecessary service features, and correcting multiple errors of overbilling for which we’ve gotten refunds on, the additional savings will probably run around 20%. So our client will save about 50% of their telecom spend, or $900,000 a year just on services that they did not need.

And one last note on this: they are not doing any type of reduction in services or, or functionality. In many instances, they’re actually going up in service types; being able to get a better technology on those services. It’s literally getting rid of services and costs that they didn’t need, and it’ll be around 50% of their telecom expenses or around $900,000 a year.