Cost (mis)Management…through your Pocket

Cost (mis)Management…through your Pocket
By: Daniel Posternock

In his book entitled Who’s in Your Pocket? Darren Oliver sounds the alarm about how the American business owner is losing billions of dollars a year in revenue due to systematic skimming of profits through erroneous billing practices and ineffective systems management. “It’s estimated that roughly eighty-five plus percent of all mandatory and service billings are inaccurate”, writes Darren. In addition, “The average industry overcharge is between eight and fifteen percent.” Let me make sure that sunk in. On average, over 85% of the time American businesses are being overcharged between 8-15% by their vendors.

According to the Chicago Tribune, “80% of all commercial tenants are overcharged by their landlord.” The Certified Commercial Investment Member Institute reveals that commercial tenants saved $100 million between the mid 80’s and mid 90’s as a result of lease auditing. This isn’t surprising since even a relatively minor error can be magnified significantly when repeated over the life of the lease. For example, a $100 per month mistake on common area maintenance fees totals $6000 if undetected for the length of a typical 5 year lease. As The Wall Street Journal observed, “Uncle Sam isn’t the only one performing audits these days. More and more office tenants are taking a closer look at their landlord’s books…[with] the goal [of making] sure they are not being overcharged.”

Mr. Oliver reports that the widest abuse in over-billing comes from mandatory industries such as workers’ compensation insurance and group health and life companies. He says over 75% of workers’ compensation insurance reviews qualify for refunds or credits. The estimated error rate on benefit plans from insurance companies is 75%.

Utility expenses such as electricity, gas, sewage and water offer another fertile ground for recovering overcharges. In 2001, Representative Robert T. Matsui, a House Ways and Means Committee Member, announced that “Utilities over billed $9 billion in energy charges on incorrect taxes alone.” That’s taxes, not actual energy charges. Mr. Oliver says the utility industry annual overcharges approach two hundred billion dollars. You might want to find out if your company is one of the “involuntary” contributors to this fund.

How about taxes? Having an experienced and knowledgeable company audit your sales, use, property and income taxes provides the potential of significant recovery. Leonard Weaver of the US News and World Report insightfully remarks “Most [income] tax planning involves the future. But you can hit pay dirt by looking back.” Industry expert Richard Taylor, Manager for Amcorp Analytics Lease Audit Division, adds “The thing to remember about taxes is that you’re supposed to be paying your equal share. Real Estate Tax audits are designed to make sure that is true. This is especially important in today’s market when so many properties are being assessed by government officials who need to maximize their employers’ returns more than ever due to budget concerns.”

These types of cost (mis)management snake through your company’s bank account to the benefit your landlord, your insurance companies, your utility providers and your tax collectors. Isn’t it time you took their collective hands out of your pocket?

Dan Posternock

The author is a partner at Barron & Posternock, LLP. He is legal counsel to Amcorp Management, Inc. and AmCorp Leasing Consultants. Please contact Dan Posternock at danp@barpostlaw.com if you or anyone you know wants to know more about AmCorp’s tax and expense analysis services.

Darren Oliver is President of Amcorp Management, Inc., the nation’s leader in tax and expense analysis services.

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