As year-end draws near, many organizations are hard at work on 2022 planning.
Significant effort will be invested in preparing next year’s internal audit plans, financial plans, operational plans, and marketing plans / budgets. The question is “Will any of these initiatives address the biggest risk to an organization’s advertising spend?”
When annual planning commences, representatives from internal audit, finance, procurement, and marketing are all proactively evaluating different mechanisms for driving performance and profitability, while mitigating risks to the organization.
Yet we know from experience that one of the best tools for doing just that, on behalf of a significant P&L line item, is likely not being considered.
Which P&L line item are we referring to? Advertising Expense. And the tool that simply is highly effective at mitigating risks and returning significant financial value is advertising/ media agency financial contract compliance audits.
The “Right to Audit” clause is a cornerstone control & financial protection in all client/ agency agreements. Further, organizations such as the Association of National Advertisers, World Federation of Advertisers and the ISBA strongly recommend that advertisers routinely perform compliance reviews to maintain transparency and safeguard their marketing investment.
When a company’s control environment does not include detailed testing of advertising agency billings and costs – there are real risks that come into play for a few reasons. For one, client marketing teams are forward looking, focused on building brands and driving demand. Testing past financial activity is not necessarily on their radar. Secondly, agency finance teams are hyper-focused on their own profitability. And finally, the estimated billing process employed by ad agencies, takes client money upfront based upon projected expenses. In turn, these expenses are to be reconciled to actual costs once a job is closed. The long lag times for when this final accounting takes place and the lack of detailed billing support that is typically shared with the client creates risks for the advertiser.
The good news is that advertisers can proactively address these concerns and establish a compliance testing audit program that is cost effective, respectful of the agency’s time, and yields material near and long-term benefits, including:
- Identification of past overbillings and financial non-compliance for remedy.
- New contract language including industry best practice & agency reporting guidelines.
- Financial efficiencies and cost savings tied to process improvements.
- Comfort in knowing that the organization has a full understanding and strong controls in place to manage one of its largest expenses.
Most importantly, the work helps to build an organization’s level of trust in each of its agency partners and an appreciation for the role that the agency plays.