Managing Telecommunications Usage and Expenditure

Background

Telecommunications services, in particular fixed voice and mobile phones, are essential to support the delivery of government services.

In 2004, the state executed contracts for the Telecommunications Purchasing and Management Strategy (TPAMS), comprising Telecommunications Carriage Services (TCS) agreements with approved providers. The agreements aim to deliver best value to agencies for fixed voice, mobile and data carriage services.

In 2011–12, total expenditure on fixed voice and mobile services through TCS arrangements was approximately $53 million. The agencies spending the most on these services in 2011–12 were:

• Victoria Police (VicPol)—approximately $6 million
• Department of Human Services (DHS)—approximately $3.5 million
• Department of Justice (DOJ)—approximately $3.5 million.

Recent statewide initiatives to improve the efficiency of the public sector heighten the need for agencies to establish effective arrangements to minimise administrative costs—including unnecessary expenditure on fixed voice and mobile services.

The audit examined the telecommunications management and expenditure control practices of VicPol, DHS and DOJ as they relate to fixed line and mobile phones. Specifically, it examined whether they are:

• effectively minimising waste and reducing the risk of overcharging
• effectively monitoring, detecting and managing inappropriate usage by employees
• actively managing contracts to assure value for money.

Conclusions

The agencies examined cannot be confident that they are effectively managing all aspects of their telecommunications usage and expenditure.

None of these agencies had sufficient organisation-wide controls to effectively manage the major drivers of both fixed voice and mobile expenditure—particularly call costs, mobile data use and line rental.

Weak central oversight, coupled with highly variable and devolved management arrangements within each agency means that, while there were isolated examples of good practice that produced material savings, it was not evident that these were being consistently applied throughout the organisation.

None of the agencies examined demonstrated regular whole-of-organisation oversight and monitoring of telecommunications usage and expenditure. Nor was it evident that executive management was systematically apprised of the effectiveness of related management controls and initiatives.

These weaknesses impede the capacity of each agency to identify and minimise waste and to fully leverage savings opportunities across the whole organisation.

Growing pressure on agency operating budgets to reduce administrative costs indicates that agencies need to take more focused and coordinated action to address these issues.

Findings

Expenditure trends and key cost drivers

The telecommunications expenditure trends of the three agencies examined provide important insights into the actions required to minimise waste and optimise value for money. Our analysis reveals that agencies stand to achieve ongoing savings and efficiencies by:

• making sure that they are being billed correctly by suppliers
• monitoring and minimising redundant fixed voice landlines so that they do not continue to incur unnecessary monthly fees
• accessing the best call and data rates on offer via the whole‑of‑government arrangements
• systematically identifying and recovering costs incurred for excessive personal use of mobile phones.

Of the three agencies examined, DHS had the most effective and consistent controls for mitigating expenditure risks with mobile services. This is reflected in part by the downward trend in expenditure for mobile services over the three years to 2011–12, and highlights the benefits of having consistent, agency-wide controls.

Establishing sound governance

None of the agencies examined monitor and report to executive management on whole-of-organisation fixed voice and mobile usage and expenditure. This impedes agency-wide oversight and reduces assurance that agencies are effectively minimising waste and optimising savings across the entire organisation. Additionally, none of the agencies had clarified the required minimum procedures and processes for effectively verifying invoices and minimising waste. This further reduces assurance of effective management across the entire organisation.

Agencies can increase savings by strengthening processes for reviewing and adopting negotiated improvements to rates and services within whole‑of‑government contracts. The average time taken by the agencies examined to adopt a nine-month variation was between two and three months, reducing the potential savings by up to a third. This represents potential lost savings to the state of up to $660 000 for mobile services alone across all the public sector agencies to which the contract applies.

Effectively controlling usage and expenditure

Inconsistent expenditure controls, coupled with inadequate attention to enforcing personal usage policies, reducing waste from redundant services and leveraging best value from whole‑of‑government agreements suggests that there is untapped savings potential across these agencies.

Shortcomings identified in the way that agencies manage their fixed voice and mobile services indicate that there is insufficient assurance that all are:

• effectively verifying invoices and reducing the risk of overcharging
• minimising their recurrent costs by rationalising redundant and/or inefficient landlines, extensions or devices
• setting consistent and reasonable limits for personal usage and have effective processes for recovering costs that exceed acceptable thresholds
• optimising value for money from contractual arrangements with suppliers by promptly taking advantage of reduced call rates and appropriate data plans.

Good practice was evident at VicPol in the way it verifies its fixed voice invoices. Specifically, the Eastern Region proactively monitors expenditure trends, which enables it to cost-effectively identify, investigate and resolve potential anomalies.

Additionally, DOJ was in the early stages of implementing a new electronic system for monitoring mobile spend across the department that has the potential to improve its oversight of mobile usage and expenditure.

The audit also found that VicPol and DHS had identified and/or achieved considerable ongoing savings as a result of actively managing their usage and services.

For example, VicPol has begun implementing an agency-wide initiative to remove redundant landlines and replace inefficient analogue lines with ISDN lines through which it is expected to achieve substantial recurrent savings in the order of $235 000 per year. Encouragingly, both DHS and DOJ had already migrated a high proportion of their fixed voice services to use more efficient ISDN lines.

Similarly, both VicPol and DHS have taken agency-wide action to better manage mobile data plans that has yielded considerable savings to date. By actively monitoring expenditure, aggregating accounts and switching to more cost-effective plans, DHS and VicPol have achieved annual savings of approximately $245 000 and $640 000 respectively since 2010.

These initiatives offer valuable insights into the potential savings to be gained from a more coordinated and effective whole-of-agency approach.

Recommendations

Public sector agencies should:

1. establish agency-wide oversight of fixed voice and mobile usage and expenditure
2. develop clear guidance on the allocation and use of mobile phones
3. establish consistent, agency-wide controls for effectively managing expenditure
4. review thresholds for allowable personal usage, and implement time frames for recovering associated costs
5. promptly adopt variations to the whole-of-government agreements to optimise savings
6. systematically verify the accuracy of fixed voice and mobile invoices
7. regularly monitor fixed voice and mobile usage and cancel unused services
8. regularly monitor data usage and actively manage data plans to optimise value
9. actively enforce compliance with policies on personal usage.

Submissions and comments received

In addition to progressive engagement during the course of the audit, in accordance with section 16(3) of the Audit Act 1994 a copy of this report was provided to the Department of Human Services, the Department of Justice and Victoria Police with a request for submissions or comments.

Agency views have been considered in reaching our audit conclusions and are represented to the extent relevant and warranted in preparing this report. Their full section 16(3) submissions and comments are included in Appendix A.

1.1 Introduction

1.1.1 Statewide telecommunications arrangements

Telecommunications services, particularly fixed voice and mobile phones, are essential to support the delivery of government services.

In 2004, the state executed contracts for the Telecommunications Purchasing and Management Strategy (TPAMS), comprising:

• Telecommunications Carriage Services (TCS) agreements for fixed voice and mobile call rates and services that aim to deliver best value
• the Victorian Office Telephony Services (VOTS) agreement for the provision of internal fixed voice telephony products and related services to the public sector.

The TCS arrangements were established in two tranches. Tranche 1 mainly involved the establishment of services for departments and statutory authorities and Tranche 2 focused on services for outer budget agencies such as local government. While these arrangements are optional, they are currently accessed by all agencies.

A separate tender process was administered specifically for Victoria Police (VicPol) due to its specialised operational requirements that could not be addressed under Tranche 1.

Figure 1A outlines the scope and service options currently available within these arrangements. It also indicates which of the audited agencies access them.

Figure 1A

Overview of TCS and VOTS agreements

Source: Victorian Auditor-General's Office.

The central offices of the Department of Human Services (DHS) and the Department of Justice (DOJ) are party to the VOTS contract, but some of the DOJ and DHS regions use other providers to manage and maintain their fixed voice infrastructure, reflecting the differing needs and complex management arrangements that can exist within some agencies. VicPol owns its internal fixed voice telephone network infrastructure and does not use VOTS.

The Department of Treasury and Finance (DTF) was responsible for managing TPAMS and associated whole‑of‑government agreements with suppliers prior to the recent machinery of government changes announced in April 2013. On 1 July 2013, this responsibility was transferred to the Department of State Development, Business and Innovation (DSDBI).

1.2 Expenditure on fixed voice and mobile services

In 2011–12, total expenditure on fixed voice and mobile services through TCS arrangements was approximately $53 million. The agencies spending the most on these services in 2011–12 were:

• VicPol—approximately $6 million
• DHS—approximately $3.5 million
• DOJ—approximately $3.5 million.

Figure 1B shows that total expenditure on these services through TCS arrangements has grown significantly across the Victorian public sector over the five years to 2012. While expenditure on fixed voice has remained relatively steady, at around $30 million a year, the most significant expenditure growth has occurred in the mobile sector, which has increased almost 70 per cent—from nearly $14 million in 2008 to $23.5 million in 2012.

Figure 1B

Whole-of-government expenditure on fixed voice and mobile carriage services, 2007–08 to 2011–12

Source: Victorian Auditor-General's Office from data supplied by DTF.

1.2.1 The importance of effective management

Recent statewide initiatives to improve the efficiency of the public sector heighten the need for agencies to establish effective arrangements to minimise administrative costs—including unnecessary expenditure on fixed voice and mobile services.

The government's 2010 Better Financial Management Plan sets a savings target of $1.6 billion over five years from 2010–11 to 2014–15. It aims to achieve 45 per cent of these savings by reducing departmental running costs by $722 million. These savings targets illustrate the importance of effectively managing this spend by controlling costs, reducing waste and driving better value from whole‑of‑government arrangements.

The Better Services Implementation Taskforce and the Sustainable Government Initiative also create strong imperatives for agencies to minimise waste by effectively managing these services. Additionally, recent machinery of government changes—including periodic changes to staffing profiles, organisational structures and service delivery models—provide further ongoing imperatives to agencies to continuously review their telecommunications expenditure and associated management arrangements.

1.2.2 Agency roles and opportunities to leverage savings

Each agency is responsible for managing its use of and expenditure on fixed voice and mobile telecommunications services in a way that:

• effectively controls the risk of inappropriate expenditure
• is efficient—minimising waste and reducing the risk of being overcharged
• is economic—making best use of aggregated purchase agreements.

Opportunities exist for agencies to optimise value for money by making best use of the whole‑of‑government arrangements. Options include:

• monitoring and managing mobile data usage to assure the organisation is leveraging the most economic plan
• acting quickly to sign on to improved rates and services negotiated by DTF—now administered by DSDBI—to take full advantage of new savings opportunities.

1.3 Overview of the audited agencies

The mix of telecommunication services at each examined agency varies according to its business needs and organisational structure. For example, agencies with a strong regional presence, or where staff often carry out their duties outside the office or outside of normal business hours will have a greater need for mobile phones. In contrast, agencies where activities are centralised in one or a few locations, and where staff work mainly during normal business hours are more likely to be able to rely mainly on fixed voice services.

Each of the audited agencies has a strong regional presence:

• DHS has 11 000 staff who deliver services through 17 local areas, for which the administration support comes from four divisions created in late 2012.
• DOJ employs 7 000 people working across 141 sites to provide services to the community 24 hours a day, 365 days a year, including the management and operation of the state's correctional services system.
• VicPol employs more than 16 000 people working from over 500 locations across the state, divided into four regions to provide support to the community 24 hours a day, 365 days of the year. Its operations also extend to interstate and offshore sites.

Figure 1C shows a summary of the total number of fixed voice landlines and mobile devices currently managed by the examined agencies.

Figure 1C

Number of landlines and mobile devices as at 30 June 2013

(a) DHS could not provide data for the whole organisation.

(b) 'Mobile voice' includes voice-only mobile phones.

(c) 'Mobile data' includes services with a data plan, including Next G wireless modems, smartphones and iPads.

Source: Victorian Auditor-General's Office from data supplied by the audited agencies.

1.4 Framework for effective management

In most agencies, the day-to-day management of telecommunication services is devolved to individual business units, divisions and/or regional offices that must pay for these services out of their own budget.

Therefore, an effectively implemented, organisation-wide management framework is essential for assuring executive management that:

• telecommunication services are being used appropriately by staff throughout the organisation in accordance with established policies
• rigorous expenditure control practices that effectively minimise overcharging and inappropriate usage are developed and consistently applied by all business units
• the organisation as a whole is actively managing its usage and expenditure to minimise waste and optimise value from existing contractual arrangements.

Consistent and rigorous application of this framework across the entire organisation requires establishing clear responsibilities at the divisional and or regional level. It also requires mechanisms for coordinated reporting by divisions or regions to executive management that enable effective organisational oversight and management of these services.

Figure 1D further outlines the framework and the various management responsibilities and activities at different levels of the organisation.

Figure 1D

Framework for effective management of telecommunications services

Source: Victorian Auditor-General's Office.

1.5 Audit objectives and scope

The audit examined whether agencies effectively manage their use of and expenditure on fixed voice and mobile telecommunications. Specifically, it examined whether agencies are effectively:

• minimising waste and reducing the risk of overcharging
• monitoring, detecting and managing inappropriate usage by employees
• managing contracts to assure value for money.

The audit examined the telecommunications management and expenditure control practices of VicPol, DOJ and DHS. These agencies were selected on the basis of the materiality of their annual expenditure.

1.6 Audit method and cost

The audit was conducted under section 15 of the Audit Act 1994 and in accordance with the Australian Auditing and Assurance Standards.

Pursuant to section 20(3) of the Audit Act 1994, unless otherwise indicated, any persons named in this report are not the subject of adverse comment or opinion.

The total cost was $350 000.

1.7 Structure of the report

Part 2 analyses past expenditure on fixed voice and mobile services for the audited agencies.

Part 3 assesses the adequacy of agencies' governance arrangements for effectively managing telecommunications usage and expenditure.

Part 4 examines whether agencies have effectively mitigated the risks of overcharging by suppliers and minimised waste.

2.1 Introduction

Analysis of agency telecommunications use and expenditure highlights the importance of effectively managing call, data use and line rental costs for minimising both fixed voice and mobile expenditure.

DHS has the most effective agency-wide controls for mobiles and this is reflected in its declining expenditure for this service over the three years to 2011–12.

However, identified deficiencies in fixed voice and mobile cost controls at DOJ mean that it cannot be confident that the consistent upward trend in expenditure evident for both services is justified, and that the risks of supplier overcharging and waste from unnecessary lines have been effectively mitigated.

2.3 Analysis of expenditure trends

2.3.1 Introduction

The following sections provide an overview of the expenditure trends and related drivers for each of the three audited agencies. Specifically, this analysis:

• shows how much agencies have spent in the past five years, including how their expenditure is trending for fixed voice and mobiles
• gives an insight into expenditure on different cost components for fixed voice and mobiles, identifying the key risk areas agencies should focus on to best manage expenditure
• provides an indicator of how well agencies are managing their expenditure and reducing waste.

Factors influencing expenditure

It is important to note that total expenditure on fixed voice and mobile services can be influenced by several factors, including:

• usage—which should be comprised of mainly business use and minor personal use
• changing unit costs—negotiated improvements to call rates and service levels in recent years have progressively reduced the unit cost of calls, data and related services
• potential waste—weak management and payment controls can lead to unnecessary expenditure due to undetected overcharging and excessive personal use, ongoing payment for redundant services, or failure to leverage best value plans within Telecommunications Carriage Services (TCS) agreements.

These factors indicate that agencies can benefit from focusing attention on:

• monitoring whether suppliers are overcharging and that the agency is not paying for services it does not need
• leveraging improved unit costs by promptly adopting renegotiated agreements
• reducing excessive personal use and enforcing rules around reimbursement.

2.3.2 Expenditure on fixed voice

Figure 2A demonstrates the indexed expenditure per agency on fixed voice.

Figure 2A

Indexed expenditure on fixed voice services by DHS, DOJ and VicPol^(a)

(a) Expenditure for DOJ and VicPol has been indexed relative to the spend each incurred in Q1 2007–08. For DHS it has been indexed relative to Q1 2009–10 reflecting the timing of its establishment following the 2009 machinery of government changes.

Source: Victorian Auditor-General's Office from data supplied by DTF.

Figure 2A shows that:

• DOJ experienced the most significant increase in expenditure on fixed voice services relative to DHS and VicPol, growing by 39 per cent since 2007–08
• VicPol's expenditure also increased, but by a much lesser overall amount of 4.5per cent from 2007–08 to 2011–12. However, it also exhibited significant and greater variation in expenditure compared with the other agencies, reflecting the more dynamic nature of policing and emergency services
• DHS was the only audited agency to show a decrease in expenditure on fixed voice—by 9 per cent since 2009–10.

These trends can be attributed in part to the effectiveness of agency management practices as well as changes to fee structures within the TCS agreements.

Figures 2B, 2C and 2D further examine the cost drivers underpinning the expenditure trends for DHS, DOJ and VicPol.

Figure 2B

Expenditure on fixed voice services by DHS

Note: 'Other call costs' consists of local calls, national calls and international calls.

Source: Victorian Auditor-General's Office from data supplied by DTF.

Figure 2B shows that DHS' line rental costs have remained steady over the three-year period and that the 9 per cent reduction in total expenditure since 2009–10 is mainly due to a decline in call costs, particularly costs associated with fixed voice to mobile calls.

Weaknesses in DHS' invoice verification processes and actions to minimise waste from unnecessary line rental costs suggest that the downward trend is more likely due to improved call rates and services rather than consistent and effective organisation‑wide management practices. These issues are discussed further in Parts 3 and 4 of this report.

Figure 2C

Expenditure on fixed voice services by DOJ

Note: 'Other call costs' consists of local calls, national calls and international calls.

Source: Victorian Auditor-General's Office from data supplied by DTF.

DOJ's expenditure on fixed voice services rose by 39 per cent during the five years to 2011–12. This was the most significant increase in total expenditure for this service across the three audited agencies.

DOJ advised that, during the time period examined, a significant shift in the complexity of its operations resulted in increased fixed voice services and this is likely to have contributed, in part, to the increased cost. Figure 2C confirms that the upward trend in total expenditure can be linked to a corresponding growth in inbound calls.

However, it is not evident that this upward trend is attributable to increased business usage alone. Specifically, weak payment controls and processes for rationalising unnecessary landlines across DOJ mean that the risks of overcharging and waste have not been effectively mitigated.

Deficiencies in the way DOJ manages its fixed voice services are discussed further in Parts 3 and 4 of this report.

Figure 2D

Expenditure on fixed voice services by VicPol

Note: 'Other call costs' consists of local calls, national calls and international calls.

Source: Victorian Auditor-General's Office from data supplied by DTF.

Figure 2D shows that variations in expenditure for VicPol are largely driven by fluctuations in call costs, particularly around bushfire and flood periods, reflecting the dynamic nature of policing and emergency management.

VicPol's effective processes for invoice verification means that its greatest opportunities for future savings relate to line rationalisation. VicPol has identified significant savings potential in this regard and is implementing agency-wide action to leverage these opportunities. These activities are discussed further in Part 4 of this report.

2.3.3 Expenditure on mobile services

Figure 2E shows the trend in indexed expenditure on mobiles per agency.

Figure 2E

Indexed expenditure on mobile services by DHS, DOJ and VicPol^(a)

(a) Expenditure for DOJ and VicPol has been indexed relative to the spend each incurred in Q1 2007–08. For DHS it has been indexed relative to Q1 2009–10, reflecting the timing of its establishment following the 2009 machinery of government changes.

Source: Victorian Auditor-General's Office from data supplied by DTF.

Figure 2E highlights considerable difference in expenditure patterns across the audited agencies. Specifically, it shows that:

• expenditure by VicPol and DOJ increased significantly, by 45 per cent and 61percent respectively, over the five-year period to 2011–12
• DHS' expenditure has decreased sharply, by 29 per cent, since 2009–10.

The following sections further examine the main drivers of these trends.

Figure 2F

Expenditure on mobile services by DHS, 2009–10 to 2011–12

Source: Victorian Auditor-General's Office from data supplied by DTF.

Figure 2F shows that DHS' overall expenditure on mobile services has fallen sharply since early 2010–11. This fall can be attributed to the significant reduction in the number of mobile services issued over the same period, as well as active management of data plans to optimise value. DHS' more effective invoice verification controls and its centralised oversight and management of mobile data services have contributed to this result.

These practices are discussed further in Parts 3 and 4 of this report and provide useful insights into the benefits of effective telecommunications management arrangements.

Figure 2G

Expenditure on mobile services by DOJ, 2007–08 to 2011–12

Source: Victorian Auditor-General's Office from data supplied by DTF.

Expenditure on mobiles by DOJ has increased by 61 per cent during the five years from 2007–08 to 2011–12.

While DOJ's call costs have remained relatively steady and decreased marginally during 2011–12, the overall increase in expenditure has been driven by rising data costs. In particular, data costs increased sharply in the third quarter of 2008–09 and continued on an upward trend over the period to reach around $250 000 per quarter in 2011–12. This rise is also reflected in the increasing number of mobile services over the same period.

DOJ advised that it is using telecommunications technology for more efficient and targeted service delivery to the community. While it acknowledges this has contributed to increased telecommunications cost, it advised that there are significant efficiencies and positive outcomes to be gained.

However, shortcomings in DOJ's approach to managing its mobile services and related expenditure mean that it cannot be confident that this significant upward trend reflects the most economical use of mobile services, or that it is effectively leveraging savings opportunities.

Figure 2H

Expenditure on mobile services by VicPol, 2007–08 to 2011–12

Source: Victorian Auditor-General's Office from data supplied by DTF.

Figure 2H shows that VicPol's total expenditure on mobile services grew by 47 per cent between the beginning of 2007–08 and the fourth quarter of 2009–10, driven mainly by an almost 80 per cent increase in data costs over the same period.

VicPol has since moderated this expenditure growth despite the continuing upward trend in the number of issued mobile services. The resulting savings can be attributed largely to recent successful force-wide initiatives to minimise waste by reducing unused services and consolidating mobile accounts.

These initiatives are discussed further in Part 4 and offer valuable insights into the effective management of mobile data services.

2.4 Main cost drivers and key risk areas

2.4.1 Summary of key cost drivers

The above analysis highlights the main cost drivers and related management practices that offer the greatest potential for minimising expenditure and waste. Specifically, it shows that:

• for mobile expenditure—call charges and data use make up the key cost drivers, with data costs being the main contributor. This illustrates the importance of managing these costs effectively, as they can escalate if left uncontrolled
• for fixed voice expenditure—calls to mobiles and line rental are the most significant cost drivers.

The high number of fixed calls to mobiles reflects the proliferation and preference for mobile phones as communication devices. In this context, inefficient or redundant landlines are likely to represent the greatest source of waste for fixed voice expenditure.

2.4.2 Savings opportunities

These results indicate that agencies stand to achieve the greatest ongoing savings and efficiencies by making sure that they are:

• being billed correctly by suppliers, and accessing the best call and data rates on offer via the whole‑of‑government arrangements
• actively monitoring data usage, and leveraging the best plan options available to optimise value for money
• monitoring and minimising redundant fixed voice landlines so that they do not continue to incur unnecessary monthly fees
• systematically identifying and recovering any costs incurred for excessive personal use of mobile phones.

DHS' success in managing mobile expenditure highlights the benefits of consistent, agency-wide controls.

The following Parts further discuss the performance of each examined agency in relation to the above.

4.1 Introduction

There is substantial scope across the examined agencies to improve their management of telecommunications usage and expenditure.

Inconsistent expenditure controls, coupled with inadequate attention to enforcing personal usage policies and leveraging best value from whole‑of‑government agreements indicate significant untapped savings potential exists.

The audit identified examples of good practice that produced material savings at each agency. However, the shortcomings described above, together with weak central oversight, mean that it was not evident the good practices identified were being consistently leveraged throughout the organisations to deliver the potential savings.

Growing pressure on agency operating budgets from state imperatives to reduce administrative costs indicates that more focused and coordinated action is required by agencies to address these issues.