Author:
Chris McPhee, Director of Data Services (Email)

If you’re like me, you can hear it now. Mom’s voice hollering out into the street where my sister, brother and I played with the other neighborhood kids—“Dinner’s ready! Wash your hands and come eat!”

Always good advice made more important today in the time of COVID-19. For water utilities across the country, the severity and uncertainty of the virus, along with advice from public health experts provided an opportunity to act—and many did—by placing a moratorium on water shutoffs.

Later, as the unemployment rolls grew by the millions, many water customers found it impossible to pay their water bills. In Raftelis’ home state of North Carolina alone, by the end of April, more than 770,000 people lived in households that had fallen behind on their water bills. According to the Natural Resources Defense Council, about half that number are far enough behind to become eligible for shutoff but were given reprieve by the moratorium. Extrapolated nationally, this could mean nearly 12 million people.

We’ll never know the number of lives this display of humanity and mercy may have saved, but these policies have real financial impacts on utilities. Most utilities—especially those in a difficult financial position—can benefit from a revenue audit to find dollars that are not being billed or collected accurately.

What is a Revenue Audit?

Revenue audits performed by Raftelis analyze customer, financial, and regulatory systems using Forensic Data Analysis tools to identify opportunities for data cleansing, process improvements, and system upgrades that restore confidence in the organization’s information. Audits often:

• Examine billing data to identify process disconnects, data quality concerns, incorrect application of rates or billing policy, fraudulent activity, or other drivers negatively impacting revenue
• Identify additional revenue sources—accounts not being billed when they should be or being charged the incorrect amount
• Identify meters experiencing issues reading or communicating reads to the billing system
• Examine customer balances and payment plans to locate instances where revenue may be recovered

Revenue Audit Two-step

With complicated data sets frequently dating back decades, revenue audits can be a delicate dance. In broad terms, we follow a proven two-step process that includes Data Acquisition and Review

Step 1: Data Acquisition

Written in this context, data acquisition often brings to mind large troves of data from the billing databases, which is true, but we find there is much more to it than that.

Each system has its own personality and quirks that only those who use it on a day-to-day basis really understand. That’s why a key element of the process is interviews performed by our team with internal experts at the utility from IT, utility managers, and customer service staff.

Through these interviews, we often gain valuable insights into known problems with data and processes that guide our work. Some of these might include hung accounts, issues with AMI meters, accounts that are exempt from enforcement actions, etc.

Step 2: Data Review

Once data are collected, work begins gaining a high-level understanding of the utility’s finances and piecing together long-term trends on consumption, billings, collections, customers, and accounts. Bulk data analysis helps reveal specific data quality concerns that could be leading to unbilled accounts or accounts requiring adjustments. Our analysis also helps identify categories of accounts where the customer charges are not as expected, where bills may be going out (or not going out) unexpectedly, or where poorly maintained customer information could result in unenforceable circumstances.

What We Find

While we know we will find some things, others come as a surprise. Here are common (and less-than-common) items our audits have found:

Weak Reporting Mechanisms
In many cases, doubts relating to information originating from key utility systems are not caused by the source data, but rather by the reporting mechanisms employed to extract the information. It is critical to review the reporting logic of the utility’s critical systems to ensure that the results of reports reflect the needs of decision makers. Doing so helps restore staff confidence by providing objective analysis of key reports and information systems.

Billing Data “Accuracies”
Yes, you read that right—accuracies. It’s always reassuring to know what is going right. Through our analysis, we are able to replicate water charges to accounts and give clients confidence in their data and systems. Most utilities have billing data accuracies approaching 100%, but there can be millions of dollars of lost revenue in the few percent of inaccuracies.

Billing Data Inaccuracies
Billing data inaccuracies come in many forms from many sources. It’s not uncommon for utilities to charge different rates for customers in- and outside city limits. We’ve uncovered occasions where individual customer records show them simultaneously in- and outside the city, which made the bill calculation inaccurate.

Another example of entries that make billing policy difficult to accurately implement are codes in the data that attempt to differentiate between single-family residential, residential properties with multiple units, and apartments. When multiple fields are required to drill down to describe accurately, the chances for improper coding increase substantially.

Adjustments
Our analysis includes reviewing adjustments based on a variety of characteristics and pulling them out for further review. Clients are often interested in a study of accounts that have frequent adjustments or large adjustments, and a root-cause analysis of both. Usually, adjustments made are legitimate—such as human errors by meter readers or leaks. In other cases, a lack of accountability can enable fraudulent activity on the part of temporary or part-time call center personnel.

AMI Meters
While typically more accurate than other methods, there are times when our revenue audits reveal AMI meters that are stuck, causing no consumption to be billed. In other cases, our audit revealed AMI meters that were miscalibrated, resulting in customers being billed unfairly for water not consumed.

Misapplication of Billing Policy
Careful review of billing data can reveal a persistent challenge for water utilities—the misapplication of billing policies. Some common errors we uncover include:

• Minimum Charges: We’ve experienced cases where minimum charges were not being applied to customers due to a simple coding error. In one case, customers were being charged only half what was authorized because the system was applying a single monthly charge to bills issued bimonthly. Over the course of one year, one client of ours had failed to collect minimum charges approaching one million dollars.
• Hung Accounts: Hung accounts are those that are listed as active but have multiple instances of consumption greater than zero, and no charge for water and sewer. For one client, this was the result of a billing system that allowed accounts to be set to non-bill status even though water service was still being provided.
• Vacant Properties with Registered Consumption: Similar to hung accounts, our analysis identifies accounts where the customer is unknown, frequently listed as “No Present Occupant,” but consumption registering regularly.
• Non-billed Accounts: A common feature in billing systems is accounts with a non-bill status—whether by customer request, customer reported they were moving, bad check, returned mail or customers on a special payment plan. This feature of the system gives opportunity for customers to exploit it and receive free service for extended periods of time until a field action shuts off service.
• Exempt Accounts: From a policy perspective, it makes sense to exempt certain customers—such as governments, emergency facilities, nursing home facilities—from water shut offs. Frequently, however, our review of data often shows legitimate accounts miscategorized as these non-billable facilities.

Potential Fraudulent Activity
It’s unpleasant to consider, but not everyone can resist temptation when the opportunity presents itself. Our understanding of billing systems and mastery of data gives us the tools we need to identify where fraud may be taking place. Some examples include unwarranted adjustments performed for family or friends, exploitation of processes that stop bills (such as active work orders), miscategorization as government or similar facilities, etc.

What We Recommend

While each utility is unique, what sets Raftelis’ revenue audit apart is the detailed recommendations that come at the end of our work that, if implemented, will fix the underlying issues. Our approach fixes processes, not just the data. Most of all, while other providers may take their fee in the form of a percentage of found revenues, our approach is fairer to all parties, including customers, as it also uncovers instances of errors favoring customers.

In Closing

In the time of the coronavirus, when utility revenues are down for a host of reasons, ensuring your billing system is sending out accurate bills is more important than ever. The revenue that would otherwise be lost can be a meaningful part of staying strong so vital water service can continue to those who need it most.

To learn more, see how we helped a major water utility in Mississipi with their revenue leaks or explore how Raftelis can help you with a revenue audit.