“Truth for us is simply a collective name for verification processes” ~ William James
Advertisers that are not requiring their ad agencies to close and reconcile jobs on a timely basis and issue comprehensive job cost detail reporting are incurring unnecessary financial risks.
In an industry where advertisers are invoiced based upon estimated project costs, the failure to assess actual costs relative to the estimate levels represents a significant control gap. Consider the following:
- Without job specific accounting detail, advertisers have no way of knowing whether they were invoiced correctly. Not knowing whether a job or campaign’s costs came in over or under budget makes it impossible to assess the financial accuracy of agency billings to the advertiser.
- The lack of job specific budget tracking and reporting hampers the job cost estimating process on a go forward basis, limiting the accuracy of those projections.
- When agency jobs are completed but not closed and reconciled unused balances on those jobs remain at the agency, outside of the advertisers control and often knowledge.
Beyond the financial implications, this practice limits an advertiser’s ability to optimize its investment. Formalizing a job reconciliation and reporting process makes sound business sense and requires minimal effort from both the advertiser and its agency partners. Whether an advertiser is provided job cost reconciliations or not, the agency is undoubtedly completing this task. Why? Job cost reconciliations are the only way for an agency to ensure all billable costs have been accounted for and invoiced.
It is important to remember that there are multiple cost categories that must be captured, tracked, and reconciled on a job or campaign, agency fees, third-party pass-through costs, mark-ups or commissions, travel and entertainment expenses, and agency affiliate billing. Often those responsible for reviewing agency invoices at the advertiser make the mistake of assuming that progress billing or partial reconciliations for one cost category (e.g., travel and entertainment expense) indicates that the agency has reconciled a job or campaign in its entirety. This is not necessarily the case.
To accurately assess agency billing for a given job or campaign, a reviewer must analyze all invoices for that job and all job cost categories/ items to determine estimated vs. actual costs. Separately, advertisers should incorporate client/ agency contract language:
- Requiring the agency to formally reconcile job costs within 30 days of the end of the job / campaign, and
- Disallowing the transfer of credits / costs from one job to another without specific written client authorization, and
- Mandating that once a job is closed and reconciled any unused balance is immediately returned to the advertiser.
It is essential that periodic contract compliance and financial management audits are conducted as part of a formal job cost reconciliation process. These audits can be conducted by the advertiser’s internal audit team or by an independent agency contract compliance auditor. The primary objective of an audit is to conduct a comprehensive review of agency billing support for all financial transactions to assess the accuracy, completeness, and compliance with both contract terms and client expectations regarding to the agency’s financial stewardship performance.
Establishing a structured job reconciliation and reporting process is crucial for advertisers seeking financial transparency and control. By mandating agencies to provide detailed job cost reports and conducting periodic audits, advertisers can safeguard their investments, enhance budget accuracy, make informed future cost estimates, and ensure compliance with contractual obligations. Moreover, taking proactive steps to validate agency billings not only mitigate financial risks but also strengthens the overall advertiser-agency relationship through enhance trust and accountability.