Review Contracts | Audit Steps

Obtain copies of all telecom-related contracts, including those for voice long-distance, data communications (such as Frame Relay and dedicated circuits), local, cell phone, pager, wireless services, and others, such as VSAT links. In a spreadsheet, summarize key information that directly affects pricing. For example:

  • Implementation and termination dates.

  • Any ramp-up period (i.e., a point between the effective date of a contract and the point at which required minimums must be in place). Ramp-up time is often provided when a large organization is converting from one provider to another; the favorable rates are provided during the interim of the cutover.

  • Per-minute rates. This is not as easy as it would appear. Interstate rates for switched-to-switched, switched-to-dedicated, and dedicated-to-dedicated may be straightforward. In contrast, intrastate rates vary considerably and may not be documented in the contract. While obtaining this information in total (for all states) may not be worth the trouble, intrastate per-minute charges for the most common calling patterns should be documented. Ideally, the contract will list a flat intrastate rate for the state(s) where most business is conducted.

  • Special price schedules. Rates are sometimes tiered. For example, at a volume of up to one million minutes per month, the discount off standard tariff might be 44 percent; beyond that volume, the discount may go up to 47 percent. Watch for discounts that drop to zero.

  • Minimums for all services. Some carriers make minimum commitments more complex than necessary, with a bevy of sub-minimums that require constant oversight. Document the minimum required minutes by service.

  • Traffic percentages. Contracts may require that a certain percentage of the traffic be dedicated-to-dedicated or penalties will apply.

  • Installation and other waivers.

  • Up-front and scheduled sign-on credits.

  • Any special equipment or service provisions. For example, are audio conferencing services provided at a discount?

  • Any locations specifically listed for discounts, lower rates, etc. This will be useful later when examining billing by location on the invoice.

The following clauses, adapted from a carrier contract with a large firm in the Southwest, illustrate terms that might typically need to be monitored and included in the pricing summary spreadsheet.

  • At least 55 percent of the customer's long-distance services usage must be rated under schedules B and/or C (meaning dedicated-to-dedicated and/or dedicated-to-switched traffic).

  • The customer must bill at least $95,000 per month in the Xtra-service Volume Pricing Plan and $23,000 per month in local channel services.

  • In the first year, the customer must satisfy 66 percent of the minimum commitment with usage previously provided by another carrier.

  • XYZ carrier will provide an annual credit of $78,000 to the customer's bill in the 13th, 25th, and 42nd months.

  • International calling for direct-dialed services will have the following discount schedules off tariff:

    • $0 to $50,000 (19 percent)

    • Over $50,000 and up to $99,000 (21 percent)

  • Usage rates are based on initial 18 seconds or fraction; additional rates apply for each additional 6 seconds or fraction.

Contracts are typically 50 to 100 pages long, so this documentation step will be time-consuming for many organizations. Carriers typically provide summary sheets to the customer when bidding for the business; they are a good starting point because they are often more straightforward than the jargon-infested legal documents.

Components of a Telephone Bill

Every local telephone company has a unique billing format and style, but they all share similar characteristics. The first page typically provides the following information:

  • Bill payment or remittance address

  • The customer billing address

  • The account number, including the main telephone number

  • A summary of charges that includes:

    • Local monthly service (recurring monthly service charge for telephone lines and circuits billed to the account)

    • Local calls (local toll charges billed directly by the local telephone company

    • Information charges (directory assistance charges)

    • Taxes (federal, state, and local taxes)

    • Long-distance carrier billing (usage charges for long-distance services billed by a long-distance carrier on the local bill; Exhibit 1 shows AT&T billing on this local bill)

      Exhibit 1: Example Local Telephone Company Bill

A closer look at the telephone bill in Exhibit 1 shows one problem common to all local telephone bills. Although Exhibit 1 directs the customer to Page 2 for details on the monthly service charge, the details behind the monthly service charge remain unclear (Exhibit 2). The "Monthly Service" charge of $240.84 is not clearly explained.

Exhibit 2: Page 2 of a Local Telephone Company Bill

In fact, it is not until you turn to Page 3 that lines included in the "Monthly Service" charge can be identified. Exhibit 3 shows Page 3 of this bill. In this case, two of the telephone lines, (517) 555-2225 and (517) 555-2445, which are included in the "Monthly Service" charge, had usage charges.

Exhibit 3: Page 3 of a Local Telephone Company Bill

If these lines did not have usage charges, they would not have appeared on the bill. The local telephone bill does not present the complete picture of what lines and services are billed to the company. It also does not tell you the service address where the lines terminate and services are delivered. The address on the front of the bill is the billing contact name and address where the service provider mails the bills. For example, if the billing contact is the Accounts Payable manager, the address on the front of the bill will be the A/P department address.

Because of these issues, companies should always request a Customer Service Record (CSR) for their local telephone accounts. A CSR describes in detail the following information:

  • Billing address

  • Service address

  • List of individuals who are authorized to make changes to the account

  • List of all telephone numbers and, under each number, a detailed list of services billed to that number

By comparing information on the CSRs to the company's line and circuit inventory, a company will be able to validate the services for which it is paying.

Sometimes long-distance carrier charges show up on a local telephone company bill in addition to the expected charges from the long-distance carrier. This occurs when the long-distance charges were not rated under the company's corporate discount plan. Sometimes, this situation occurs when a field office manager, unaware of a corporate plan, calls the local telephone company and signs a contract for services. Although the contract is with the same carrier, the rates will likely be at the "mom-and-pop" rates that are typical for smaller firms. The long-distance carrier has no easy way of identifying such "rogue" plans.

Companies contract with a long-distance carrier for long-distance services under a discount plan. The Telecom department provides working telephone numbers (WTNs) to the long-distance carrier when new lines are ordered and the local telephone company has assigned the line number. The WTNs are placed into a long-distance carrier's database, and calls are billed per the contract plan. If the phone numbers are not in the database, the correct discounts will not be applied to the call.