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Audit - Telecom Use and Expense

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The City of Albuquerque can realize annual cost savings of $273,000, annual cost recoveries of $240,000 and continue the proactive approach to reduce the costs of telecom operations through the implementation of innovative technologies. The City lacks internal controls to ensure the accuracy, efficiency and optimization of telecom services. The overall lack of internal controls is a major factor for the accumulated balance of $1.3 million in the City’s Communication Fund as of June 30, 2013 (unaudited). The fund balance represents the amount departments have been overcharged for communication services.

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Background

Telecommunication (Telecom) services support the communication needs of the City. Internal controls to ensure the accuracy, efficiency, and optimization for telecom services were the focus of the audit. The audit evaluated the City’s landline, cell phone and pager services. The City’s 911 Emergency System is a standalone system and was not included in the audit.

The City spent an annual average of $5.1 million on telecom services from FY11 to FY13, excluding specific network charges for internet service. Telecom services support the City’s 24 departments and 5,839 full-time budgeted positions. The City maintained approximately 7,900 landlines, 1,380 cell phones and 380 pagers in FY13. The City’s telecom services are inherently complex and require comprehensive internal controls to be performed on a routine basis.

Findings

City internal controls do not ensure the accuracy, efficiency or optimization of telecom charges and services. Conservative estimates indicate the City could save $273,000 in annual recurring costs and recover $240,000 in annual costs. The City could have avoided paying previous costs of $428,500 if internal controls had been established and operated as intended. For example, 95 percent of pager services should have been disconnected several years ago, saving the City $52,000 per year.

Albuquerque’s telecom budget is more than three times greater than cities with similar telecom operations. The annual average telecom budget for regionally comparable cities is $1.5 million, with the exception of Austin, TX. Albuquerque’s annual average telecom budget from FY11 to FY13 was $4.9 million. However, ITSD stated that the City could realize approximately $2 million in annual cost savings by converting landline services to Voice over Internet Protocol.

Internal controls have not been established to ensure landline services are obtained at an optimal price or in compliance with publicly regulated rates. As a result, the City is unaware of potential cost savings offered by other services providers and cannot confirm the accuracy or determine if erroneous service costs are included in annual vendor billings of $1.9 million.

The lack of annual analyses and reconciliations to ensure the accuracy of telecom overhead and service allocations are the primary reasons for the unpredictable cost recovery fluctuations for communication services. As a result, the City’s Communication Fund has accumulated a $1.3 million fund balance as of June 30, 2013 (unaudited), which represents the cumulative amount departments have been overcharged for communication services.

Internal controls are not effective for processing complete and timely telecom chargebacks to departments. The chargeback entries do not appear to be accurate because of the internal control issues mentioned above. The average processing time for telecom overhead allocations and other telecom costs (chargebacks) for FY12 through the third quarter of FY13 was 100.5 days (over 3 months). However, ITSD decreased the processing time to an average of 36 days between April 2013 and June 2013.

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