”You get what you pay for” and “There’s no such thing as a free lunch” remind us every day that while a deal may look good on the surface that it could be something completely different once you peel back the layers.

So goes the debate on Contingency fee versus flat fee telecom and utility service and invoice audits. Many vendors include these types of audits in their Communications Lifecycle Management (CLM) or Utility Expense Management (UEM) services. Some vendors allow you to keep the savings from the audit and cost reductions and some vendors charge a percentage of those savings.

So what is the best service model for your organization? The argument can be made for both sides of the fence but each type of service model should be investigated so that you don’t wind up with the “grass is always greener on the other side of the fence” headache.

Contingency based audits identify errors and allow for refunds or credits to be recovered before fees are paid to the client. Most often this is a one time or one off audit that will identify errors however new errors will occur on subsequent billing that will not be caught until another one time audit is performed. While this payment model sounds good on the surface, peeling back the layers will identify some areas that need to be considered.

Contingency Based Audits

1. Bill audit results are not sustainable. While they make an immediate financial impact it is a matter of months before the services are billing incorrectly again.

2. The drive is for immediate results in refunds and credits and the long term cost savings benefits may be overlooked. This is often called, “going after the low hanging fruit.” Many Contingency based auditors scratch the surface for the quick finds and fast refunds that can be obtained while ignoring long term solutions that will save a client money year over year.

3. Vendor relationships can be strained once the Contingency bill audit starts as the “one and done” mentality does not foster the ongoing relationship between the client and the Vendor. Strengthening your relationship with your Vendor should be a key component in the partnership however many times the Contingency based audit company alienates the vendors in hopes of a large payday.

4. Audit information is typically sketchy in this type of partnership because the work is not focused on identifying all services. Most often, only the services that will produce a large savings are audited while other services that could produce a smaller savings are overlooked and not reported.

Flat fee Audits

1. Because of the nature of the service, most of the Flat fee audit companies will specifically identify what will be included in the audit so that there will be no surprises at the end. This will allow you to ensure that they are not just “looking for the low hanging fruit” and will ensure that you walk away from the relationship with detailed information about your services, contracts and vendors.

2. This type of audit allows your company to keep all of its savings and refunds. This ensures that you don’t have to share payments already made to the vendor. This is a sound business model when consideration is given to the fact that a savings or refund could equal thousands of dollars and payment must be made that is not in the budget.

3. Flat fee audits typically identify areas that you can continue to audit. Because of the nature of the reports that are provided, the ongoing internal audit aspect is easier to handle with your current staff.

The one time audit allows you to have a snapshot, in that moment of your billing however an ongoing audit with a Communication Lifecycle Management (CLM) firm or Utility Expense Management (UEM) firm will ensure that your billing once corrected, maintains its accuracy. Even in the ongoing management there are some management companies that want a piece of the pie once an error is identified. Even in this ongoing scenario a Contingency based fee for findings is not ideal.

Not having the refund or savings in the budget to pay a vendor for savings or refunds identified is always the cornerstone for not choosing this type of partnership. To illustrate that point, RadiusPoint has a client that had an overbilling on their wireless invoice in the amount of $350,000.00 for data plans that were set up incorrectly. The first month billed, RadiusPoint identified the error and notified the vendor of the overcharge. The overcharge continued for 4 months and the total credit back to the client exceeded $1.4MM. Had this been a contingency based situation, this client would have most likely paid 30 – 50% of that error or at least $420K. There’s no way that these types of situations can be planned for in any organizations budget.

RadiusPoint provides the ongoing audit services with our Communications Lifecycle Management or Utility Expense Management services on a flat fee basis using proprietary software that provides a line item detail audit. With this flat fee partnership, your organization can be assured that the communication and utility invoices are receiving the most thorough audit possible on a monthly basis.

Tune in next week to learn what information your organization should receive when having a Flat fee audit performed.

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