Keeping a Close Eye on the Utilities

by | Nov 28, 2011 | In the News

Article Source: Executive Outlook Magazine

How a Professional Audit Can Yield Significant Savings, Even Refunds, in Tough Economy

Mobile phone bills are famous for their length, complexity and incomprehensibility. This makes it hard for individuals to verify correct billing or query what may be incorrect charges.

It is a similar story in the corporate world. Utility, telecom and IT service rates can be difficult to decipher. Much of the time, they are filed for payment after a cursory glance. Many organizations are paying too much yet never realize it.

“It is extremely common for companies to overpay,” said Emmett Lien, president of Edge Insights Inc. (formerly UtiliTech) “This may be due to billing errors, incorrect taxation not negotiating competitive rates or because they are receiving services they do not need.”


Doing It Yourself

Like consumers, most organizations begin by thinking they can do it themselves. All it takes is assigning someone in accounts payable and hey presto! Everything is taken care of. Unfortunately, that rarely works out to be the case.

Plastics manufacturer Brentwood Industries, for example, has facilities worldwide and is the world’s largest manufacturer of plastic media, supplying over 100 million cubic feet of material for cooling tower and wastewater applications. Its plant managers had demonstrated competence in the management of operational expenses. When it came to utility bills, however, they faced a labyrinth of rates, taxes and contractual factors.

“We lacked the know-how internally to take a detailed look at our utility bills to either verify they were correct, or isolate billing errors, rate inaccuracies and incorrect taxation issues,” said Jeannine O’Neill-Rohrbach, corporate controller for Brentwood Industries. “UtiliTech brought us that level of expertise via a professional audit at no cost or risk to us because of its contingency-based fee structure.”

The audit exposed several areas of savings across four of its manufacturing plants: two in Pennsylvania, one in West Virginia and one in Arkansas.

“We uncovered some overbilling, as well as a tax overpayment in one location,” said O’Neill. “The auditors detected many pockets of small savings that added up to almost ten thousand dollars, with anticipated annual savings of about $7,000 per year going forward.”


More Than Just Billing Mistakes

While billing errors certainly play a part, they are far from the whole story. An in-depth review and analysis of an organization’s utilities (natural gas, electricity, telecommunications, IT services and wireless) is just one way to generate returns.

“The sources of savings come from billing errors, overcharges, lack of compliance with contractual commitments, services that are no longer required, comparison to current market rates, and more,” said Lien.

Energy and telecommunications procurement, for instance, is an important zone to inspect. For energy procurement, deregulated states in particular offer an opportunity to arrive at the best possible price and terms. Few organizations, however, possess the contacts and insider savvy to know what is available.

Take the case of Phoebe Ministries, a $100 million a year faith-based senior services organization with over 1,100 employees. It runs a total of 16 locations including a 65-acre campus composed of hundreds of housing units.

“We were facing the looming threat of skyrocketing utility rates as the caps on our electric rates began to be eliminated,” said Scott Stevenson, president & CEO of Phoebe Ministries.

He noted that the anticipated increase was somewhere in the 30 percent to 50 percent range, with uncertainty as to further increases in the future.

“UtiliTech assisted us in locking in attractive and stable gas and electric rates,” said Stevenson. “They knew how to bid it out correctly and negotiate effectively without us having to be involved. In the end, our increase was held below 15 percent. We have certainty we are paying the lowest rates available and can now develop our budgets more easily as we have long-term contracts in place.”

Further audit recommendations included a shift in the natural gas provider in order to reduce expenditures.

Stevenson explained that it would have taken one or two full-time and highly trained staff a period of weeks to perform a similar task. The experience he brought in from outside ended up costing him nothing as vendor fees were paid via commissions from the new energy provider.

“They have the knowledge of the vendors, rates, and markets which we just didn’t have internally,” said Stevenson. “We easily saved thousands of dollars on an annual basis as a result of our audit.”

Other savings included the isolation of certain taxes that the non-profit should not have been paying as well as overpayments. This resulted in thousands of dollars in refunds.


Maintaining Control

A common complaint about run-of-the-mill auditing services is their intrusive nature.

O’Neill tells of a previous experience with a utility audit firm.

“Their approach was invasive and they charged fees whether they found savings or not,” she said. “They picked a time for the visit which was inconvenient and demanded we pull all our files and provide them with photocopies of everything they needed. This tied up myself and many of my staff for many hours during a busy period.”

In contrast, she found UtiliTech more understanding of the needs of a busy corporation. They conducted their homework in advance so they knew the intricacies of the business. They agreed upon an appointment time convenient to the controller. Instead of taking over the office for a day, they asked to be shown the location of the files. With the permission of the staff, their representatives located the needed bills, made their own copies and left.

“The process was everything they promised in terms of being non-invasive and efficient,” said O’Neill-Rohrbach. “I was in complete control and could supervise their actions without having to donate several of my staff to find everything for them and make copies.”

Another benefit was peace of mind. The controller needed to know that due diligence had been fully applied. An investigation of phone and IT service billings uncovered no significant savings. Despite the many man-hours the vendor spent on this part of the audit, no fee was demanded.

“In many areas, UtiliTech verified that we were doing the right thing and not paying too much,” she said.