Rui ManoManager/Principal Consultant, KEMA Brazil

Denis Maciel MaiaCEO, Choice Technologies S.A.

Renato Cespedes, PhDDirector, KEMA Latin America

 An ISO 9000 certifiable Revenue Assurance &Audit

process (RA&AP)

                                                               

Introduction

Why RAAP (Revenue Assurance & Audit Process)? Non-technical losses (NTLs) may exceed

20% in some countries Lack of efficient NTLs processes Loss numbers are not precise

Introduction

Lack of human and financial resources to perform all necessary actions Field investigation, service orders Debt negociation, consumer disconnection Internal process auditing

Non-technical Losses - NTL

Commercial Administrative Receivables

Energy theft (illegal connections) Meter frauds, meter by-passes Meter errors & metering errors Frauds may be done by employees or third-party

service providers

NTL

Commercial

Internal process flaws and database inconsistencies Errors Incorrect tariff May not avoid internal fraud

Administrative Receivables

NTL :

Commercial

Delayed Payment Defaulter consumer

High volume & aging of receivable accounts HIGH CO$T

Administrative Receivables

NTL consequences – a vicious circle

Reduce Investment Capacity and Operational Efficiency

Reduce CAPEX

Reduce EBITDA

NTL reduce EVA NTL may increase tariffs NTL prevention is demanded by Stockholders and

Regulators

Current NTL prevention methods

New billing systems

New meters

New seals

What else ?

Why NTL keep rising? Frauds are dynamic Fraud is now a criminal activity done by professionals How far can we ever avoid fraud?

More investigation teams

Revenue assurance process requirements

Operational Resources are

Limited

Efficient process, integratedto other company’s departments

Historical data, Team knowledge Field / administrative actions

Market Requires:R, C - Reduce tariffs

SH - Increase revenue

Revenue Assurance

Process

RAAP

Process is based on ISO 9001 (PDCA )

Detect, Analyze, Correct and

Feedback/Review

RAAP

Why automate processes ?

Make better decisions based in high volume of data available in different databases

Provide reliable information to field / administrative teams and to management

Log / document / control all events Workflow

Constant improvement by tuning / optimization Feedback

Macro-function : DETECTION

Function : to develop investigation rules Transform non-structured knowledge in logical rules, formed by

logical clauses Compare several independent information sources simultaneously Rule = a combination of logical clauses and filters Examples :

Rule for reduction of consumption Rule for investigating non-regularities in installations Rule for verification of field measurements (against historial

data) Ex.: Rule A = (Clause 1) AND ((Clause 2) OR (Clause 3)) Manipulate high volumes of historical information

Macro-function : DETECTION

Macro-function : DETECTION

Functions : to develop alarms, execute investigation rules and check the alarm rules Define weight for each rule Define alarms for each rule Define priority levels Define responsible persons Send alarm via e-mail Guarantee analysis events are generated

Macro-function : ANALYSIS

Function : to identify behavior patterns for consumer contracts Find out indications of possible loss/fraud through

multiple dimensions (consumption patterns, field data, type of service order, etc)

Filter information by any dimension (geographical area, type of consumer, etc.)

Multidimensional analysis Filter hierarchical dimensions Uncover behavior patterns

Macro-function : ANALYSIS

Function : to develop and execute investigation profiles

Profile = a combination of investigation rules and filters Examples :

Profile of consumers that are susceptible of paying their debt in 90 days or a profile of defaulter above 360 days

Profile of a geographical area or a specific type of business (for example, a shopping center, a bakery, an industry)

Ex.: Profile A = (Rule 1) AND ((Rule 2) OR (Rule 3))

Macro-function : ANALYSIS

Function : to filter, sort and select Consumer Contracts Select consumer contract sorted by :

Risk level = sum of the weights for all intercepted rules

Financial relevance = financial impact calculated for the offense

Prioritize offenses / actions by fraud probability and expected value to be recovered

Macro-function : ANALYSIS

Macro-function : CORRECTION

Functions : Generate corrective actions with defined responsibles, and

calculated financial relevance Follow-up execution until finalized Follow-up schedules per actions, per responsible, per sector, per

type of action Update Consumer Contract status though corrective actions Provide information to other systems (billing, inspection..) Statistics – effectiveness of rules and corrective actions Feedback – tuning / optimization of rules / weights

Benefits of ISO 9000 certification

Guarantee the conformity with international standards

Guarantee the adequacy with other corporate processes

Guarantee to Stockholders that best practices for revenue assurance are being applied and return of investment is being maximized

RAAP is based on ISO 9000 principles – certifiable process.

Case Study

Case Study

The Cataguazes-Leopoldina System (SCL) 5 distribution companies (Energipe, Saelpa, CELB,

CENF, Cataguazes) Founded in 1905 1.8 million consumers ABRADEE Award 2002 NorthEast and SouthEast

ABRADEE – the Brazilian Association for Electric Energy Distribution Companies

Information used by RAAP in SCL

Information sources (databases) for commercial loss investigation : Substations Feeders Consumer Contracts Billing Service orders

Example of a simple rule

(Consumption:Average of last 03 months is 25% lower than at least 02 consumptions in the 12 months period before the 03-months considered period.

BIL

LIN

G

datab

ase

Example of a more sophisticated rule

(Non-regularity: Glass of meter is broken or instalation is suspect of fraud or meter with wrong connection AND NOT AND NOT Service Order : reconnection with instalation of meter, or supply suspended with meter removed, or instalation of meter, or removal of meter, or meter test, or meter verification, or field inspection, or urgent reconnection with meter instalation or meter replacement when SO date is after date of metering.)

Group: B andStatus: Connected andClass: Urban andConnection: One-phase or 2-phase or 3-phase AND

AN

D

CO

MS

UM

ER

d

atabase

SE

RV

ICE

OR

DE

RS

d

atabase

G 1

(G 3 A

ND

G4)

Example of an actual rule created by RAAP

(Consumption:Average of last 03 months is 25% lower than at least 02 consumptions in the 12 months period before the 03-months considered period OR

(Non-regularity: Glass of meter is broken or instalation is suspect of fraud or meter with wrong connection AND NOT AND NOT Service Order : reconnection with instalation of meter, or supply suspended with meter removed, or instalation of meter, or removal of meter, or meter test, or meter verification, or field inspection, or urgent reconnection with meter instalation or meter replacement when SO date is after date of metering.))

Group: B andStatus: Connected andClass: Urban andConnection: Monophase or 2-phase or 3-phase AND

AN

DO

R

CO

MS

UM

ER

d

atabase

BIL

LIN

G

datab

aseS

ER

VIC

E O

RD

ER

S

datab

ase

G 1

(G 2

(G 3 A

ND

G4))

Rule implemented by RAAP

Results in SCL

Results of RAAP in SCL : Find NTL, uncover unknown NTL Increase recovered revenue, EBITDA and EVA Reduce cost of recovery actions Creation of a Loss Fight Intelligence Dept. to

reduce NTL and keep it low Auditable result statistics to demonstrate

benefits to Management and Stockholders.

Conclusion

Benefits from incorporating RAAP with Revenue Assurance software

Compare data from several independent sources (consumer records, billing, service orders, fraud records, energy balance, GIS, real-time data, call center data, receivable accounts, social-economic information, etc)

Manipulate large volume of data (hundreds of millions records)

Transform human non-structured knowledge in structured knowledge – build a knowledge database

NTL analysts build / edit rules - human-friendly interface, no programming necessary.

Benefits from incorporating RAAP with Revenue Assurance

software Uncover fraud patterns Optimization of the investigation process Follow-up corrective actions Workflow guarantees analysis and correction events Feedback process for tuning and optimization Integration with other departments Based on ISO 9000 – subject to be certified. SOUND RESULTS – VERIFIABLE AND AUDITABLE