Once ad budgets have been approved and purchased orders issued, your ad agency generates an invoice based upon estimated costs. Theoretically, this estimated billing is reconciled to actual costs once a job is closed or a campaign has run its course.
Do you know if the process is occurring in an accurate manner, on a timely basis?
Why the question? Firstly, ad agency invoices are not accompanied by third-party vendor invoices that support the billed amount. Secondly, those invoices are often submitted directly to an advertiser’s accounts payable department that is simply checking to make sure the “billed” amount does not exceed the approved purchase order amount.
Thus, the only way a marketer can vouch for the accuracy of the agency’s billing is to periodically request and review agency financial support. This can be done through internal audit or by an independent contract compliance and financial management auditor.
If your organization is not testing the accuracy of its agency billings, corrective action should be taken.
The good news is that client/ agency agreements require an ad agency to retain documentation to support its billings and entitles the advertiser to review that support to assess the accuracy and completeness of the financial detail.
Thus, if you haven’t already taken such actions the path forward is clear… inform your agency partner of your desire to enact your contractual audit rights and issued a request for the requisite files to conduct an historical review of agency billings. This would include third-party vendor costs and payments to those vendors along with agency time-of-staff detail to support its fee billings.
Such reviews are designed to identify potential billing errors, overbillings, aged media credits, earned credits, rebates and discounts that have been earned, but not yet returned, the status of approved but unused funds and the time that it takes the agency to close jobs and process payments to third-party vendors. Given the material nature of advertising spend, fact-based reviews of agency billings are a sound practice that is consistent with an organization’s governance and accountability standards and controls.
Unfortunately, when it comes to auditing this important area protestations from client-side marketing personnel regarding the need for or timing of such reviews or the potential impact on a preferred relationship can scuttle an organization’s efforts in this area. While we appreciate this perspective, we have found such views to be unfounded. In the words of Indian Prime Minister Jawaharlal Nehru: “Facts are facts and will not disappear on account of your likes.” After all, outside of marketing/ advertising spend, how many other suppliers invoices are paid without supporting documentation or a review of such detail?
Experience dictates that periodic financial reviews help to improve processes and tighten agency reporting, providing advertisers with a clear line of sight into the disposition of its funds at each stage of the advertising investment cycle.
Advertising agencies for their part are accustomed to these reviews and have the personnel and processes in place to comply with their clients’ contract compliance and financial management audit requests. In the end, all stakeholders benefit from such reviews. The learnings, financial recoveries and future savings related to identified process improvements identified as part of the audit are important, but no less so than the peace-of-mind that advertisers acquire, knowing that their advertising funds are being properly managed.