Let’s face it the advertising industry is a complex, fast-moving and ever evolving marketing eco-system which at times can mystify even its most experienced participants. The expansion in both the number and types of media channels combined with the technology revolution that has ushered in tools such as digital asset management systems and programmatic buying platforms have only served to fuel advertiser concerns about their advertising investment.
The Association of National Advertisers (ANA) has twice this year issued statements regarding their membership’s concerns about the “transparency crisis” enveloping certain industry practices. In May they announced that they were stepping up their “scrutiny of media practices” with the goal of shedding some light on the “dealings” between agencies and publishers. Based upon a study which the organization had completed in February, 2014 forty-six percent of the ANA members’ surveyed expressed concern over the “transparency of media buys.” This was followed by a blog post in October in which the ANA acknowledged concern over a position paper issued by the trade group AICE dealing with agency in-house production practices entitled; “A Push for Greater Transparency, Ethics, and Fairness.”
The good news is that advertisers need not wait for the various industry associations and their members to form task forces or appoint committees to assess the risk and propose potential solutions to the “transparency crisis.” While these are important steps to be taken, they are time consuming, the potential outcomes are uncertain and the proposed solutions will not be tailored to a specific advertiser’s needs. So what can an advertiser do today to thoroughly vet these issues and reassure their stakeholders that any attendant risks have been mitigated and to validate that they are receiving fair value for the advertising investment being made?
The answer is as close as a copy of the executed contract which is in place between the advertiser and the agency. Specifically, the solution can be found in the “Right to Audit” clause, which is a staple in an overwhelming majority of client-agency agreements. In short, this important clause affords advertisers the opportunity to examine the agency’s records of expenditures pertaining to the agency’s billing to the client for the purpose of validating media bills, production bills, studio costs and reconciling agency fees.
Audit clauses are inserted into contracts because they are an important financial control. Yet, too often advertisers treat their right to audit as a fall back option, which all too frequently is never acted upon. When this clause is not acted upon, the advertiser forgoes the opportunity to implement standard compliance testing, which in turn limits their opportunity to validate agency billings and gain a certain level of comfort that comes with transparency into the agency’s financial stewardship of their advertising budget.
Once audit rights have been established, industry “Best Practice” would suggest that implementing periodic and routine testing is a must for introducing and maintaining ongoing preventative control measures. The resulting testing which occurs as part of the audit process can help to deter wasteful practices, identify errant billing transactions and to monitor key financial metrics. All told, a well defined contract compliance audit program can help an individual advertiser address the “transparency crisis” while providing the organization the necessary legal and financial safeguards.
Of note, the agency community has come to accept independent audits as a normal part of an advertiser’s broader corporate or marketing accountability initiative. Any pushback on this front should be viewed as a “red flag.” For those agencies which have implemented sound financial stewardship practices there is nothing to fear from an advertiser’s review of their performance in this important area. Quite the contrary, a well conceived, balanced independent audit process can yield insights and recommendations which also benefit the agency. Lailah Gifty, a Ghaniaian and founder of the Smart Youth Volunteers Foundation, rightfully said:
“Never believe all that you hear. Always verify the original source of information.”
Those advertisers conducting business without a comprehensive “Right to Audit” clause are simply at risk, forgoing the most important control mechanism available to them to protect their interests. For those advertisers, which have secured audit rights, but have failed to act upon this right, you are unnecessarily exposing your organization to legal and financial risks.
The “transparency crisis” cited by the ANA is a legitimate issue, which the industry will successfully address in due course. The question to be asked of advertisers is; “Are you prepared to wait for a broad-based industry solution? Or do you leverage the contractual rights which you have already secured to address these concerns now?”
If you’re interested in learning more about how you might improve your agency contracts or the benefits of advertising agency contract compliance audits contact Cliff Campeau, Principal with Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation.