“There’s a hole in the bucket, dear Eliza, dear Eliza, There’s a hole in the bucket, dear Eliza, my love. Then fix it, dear Henry …”
Many telecommunications carriers face Eliza and Henry’s dilemma. There’s a hole in their money bucket-their revenue stream-and they lack the controls or mechanisms to keep their revenues from going down the drain.
Telecom organizations, especially those in the cellular business, face numerous challenges to their revenues. These challenges include falling profits per subscriber, rising marketing promotion costs, cut-throat competition and high network acquisition costs. Falling returns in the face of increasing call volume also have taken their toll on revenues. And cellular companies that expand through joint ventures and other forms of partnering find further challenges to their revenue stream. For many, because they’re unprepared to address foreign source/joint venture income issues, their fair share of revenue is not assured.
By not facing these issues, cellular carriers may experience revenue leaks that can lead to further problems-problems that are particularly serious in a boom industry.
The mobile telephone industry has been growing at 30 percent almost every year for the past few years. In the scramble for market share, many cellular companies have outgrown their business processes without incorporating effective control structures. As competition has intensified, their exposure to risk has been magnified. For many, shrinking margins is the result. And for some, inability to control leaking revenues has threatened to bring their businesses down.
Many revenue problems are common to a large number of carriers. One of the most common problems occurs among carriers that don’t have an efficient and consistent process for identifying subscribers who have been activated on the switch, but not on the billing system. Other carriers are unable to classify and rate the unbillable/suspense minutes called on their systems.
In both situations, the magnitude of potential revenue loss may go unnoticed and, therefore, not be rectified. This is one reason revenue loss is a common problem among many cellular companies.
Other revenue problems are unique to specific organizations. Some cellular carriers, for example, outsource billing to service providers. When collecting customer usage information in the form of call detail records or automatic messaging accounting, some companies ship the information to the service provider without first ensuring the service provider’s controls and procedures have been independently audited. Many service companies in Canada may have not undergone such auditing, even though this assurance function has been in existence for a long time.
A similar problem can occur in the switching world. A long-distance cellular call placed through a cellular switch, for example, may travel over other carriers’ landline networks before it reaches the called party. The intervening carriers charge the cellular company for the service through inter-carrier settlements. In many cases, a warehouse handles these settlements. Again, many cellular carriers do not have adequate mechanisms in place to ascertain whether they are being charged a fair and accurate rate for their usage.
Fraud is another source of revenue leakage. Not only customer fraud-someone misrepresenting his or her usage-but also internal fraud, such as an employee giving discounts to friends or family. External fraud, such as cloning, also is an issue, from both revenue and legal standpoints. In addition to the money lost from cloning, a carrier’s network may be being used for illegitimate tasks such as money laundering or drug trafficking.
With what shall I fix it, dear Eliza?
Many of these problems are recognized by cellular companies, but don’t necessarily command the attention of senior management. Further, few companies have a designated person/team in the company that has the responsibility, authority or resources to address these issues.
Consequently, many companies are turning to outside specialists to address the issue of revenue loss.
Revenue assurance is a new methodology developed specifically to help telecommunications carriers effectively plug leaks in their revenue streams. It identifies weaknesses in the billing cycle that may lead to potential loss of revenue, as well as areas where significant improvements could optimize the entire revenue process. In some cases, these specialists may recommend a “patch” to stop the leaks, or they may suggest how Henry can build a better bucket or perhaps even a water wheel.
Revenue assurance methodology includes risk assessment procedures; analysis and evaluation of system design; benchmarking techniques; and documentation and reporting standards. The methodology is structured to ensure no significant risks escape analysis and that adequate controls are identified or recommended to mitigate each risk.
Revenue assurance quickly is gathering momentum in North America and Europe.
Bell Mobility Cellular, the largest cellular provider in Canada, has undergone an analysis of its revenue stream and now has formed committees within its organization to focus on revenue assurance.
Elsewhere, companies such as Ameritech Cellular Corp. in the United States and as well as Vodafone Group plc in the United Kingdom are exploring this methodology.
The revenue assurance fix
In a typical revenue assurance review, a core group of computer assurance/information systems and telecom professionals team up with the company’s management to understand its business environment. Its tasks include identifying those lines of service that have the highest potential impact on revenue, as well as the risks and the regulatory environment associated with each line of service.
Next, the group’s members interview management and key individuals performing each of the significant functions to develop a clear understanding of the current revenue and billing stream and obtain an inventory of existing controls and management reports.
Finally, the computer services assurance (CSA) professional revenue assurance team conducts procedures that analyze the environment to identify control points-key sub-processes in the system that constitute a high risk for revenue loss.
Further quantification of the revenue lost usually is conducted at a subsequent phase.
Through their experience in providing service with other carriers, CSA professionals/the revenue assurance team are able to benchmark controls at each control point against the issues and concerns experienced by the other carriers. The goal is to help the companies set up their own self-sufficient revenue assurance processes.
How is this different from an audit?
While a statutory audit addresses revenue as part of a comprehensive financial statement audit, the emphasis on revenue is shared with many other financial-statement line items: fixed assets, accounts receivable, accounts payable, etc.
In addition, the focus of a financial statement audit is to comment on the reasonableness of the financial statement presentation in all material respects. That is, from a revenue perspective, an audit would be able to identify large or “material” misstatements. A revenue assurance exercise, in contrast, focuses exclusively on the revenue and billing stream from end to end. In this way, it ensures all the revenue is being captured and identifies revenue that is slipping through the system.
Prevention, detection, correction
To prevent revenue leakage, the revenue assurance experts look at two aspects of each control: the nature of the control and the effect of the control. The nature of the control can be classified as:
preventative-the user tries to log into the system, is prompted for a password; if the user doesn’t know it, he or she doesn’t get in;
detective-the user guesses the password and obtains access; the control detects and monitors the activity; or
corrective-the necessary controls are developed to ensure the problem is rectified automatically. The organization develops the ability to capture errors when they occur and anticipates potential problems in other areas-building controls for these up front.
The effect of the control could be described as assessing three elements: the existence of the control, the effectiveness or adequacy of the control, and whether the control is operational.
Most organizations’ control models are based on detective controls-meaning they have to rely heavily on monitoring activities. These activities, however, may be inadequate, especially if no one takes appropriate action or there is no specific ownership of the revenue assurance process. Preventative controls, which stop errors at the gate, are preferable, but the proper balance between controls should be established.
The revenue structure is similar within all telecommunications companies. Accordingly, so are the inherent problems. To effectively stabilize its revenue stream, a carrier needs to control all possible factors.
Just get the right tool, Henry.
Computerized reporting tools can help telecom carriers stem their revenue losses, highlighting at a glance where weaknesses and high-risk areas lie in a company’s revenue and billing system.
Some even summarize a carrier’s revenue stream processes and controls using matrices, flow charts and a series of multi-layered diagrams. These tools distinctly and concisely communicate the key findings of the assessment and/or analysis through a combination of lined process flow diagrams, control objectives, control weaknesses and recommendations for implementation. The charts also can be displayed in a format that links them to insights and results.
Typically, a revenue assurance diagnostic of a telecommunication company’s revenue streams stresses upon the carriers’ need to strengthen each of the following six key areas:
end-to-end process perspective;
proper balance between detective and preventative stabilization processes;
proper timing of stabilization processes;
effective reports, communications and documentation;
predictable, reliable and efficient process flows, forecasts and information; and
training, procedures and knowledge.
Using the know-how, skills and resources of revenue assurance, a telecommunications organization can implement improvements in any of its revenue processes. Further, the process can be generalized to be of use to any company.
Adel Melek is a partner in the Enterprise Risk Services Group in the Toronto office of Deloitte & Touche.
