Big Data. Big Deal. You Bet.

5 Dec

digital trading deskThe evolution of media channels, ad targeting and the role of ad tech have significantly reshaped the media marketplace, allowing advertisers to select inventory and direct their messaging with an incredible level of precision. These developments have long been hoped for and yet, now that they are here, there is much that advertisers don’t understand about one important bi-product of the ad tech revolution… the disposition of the data gleaned from their investment at all levels of the media investment cycle.

In our contract compliance auditing practice, it is not uncommon that we find contract language gaps relating to issues such as:

  • Who owns the data?
  • Where is the data stored?
  • For how long?
  • How secure is the data?
  • Is the data kept separate from that of other advertisers?
  • Is your data being used to aid other advertisers?

These are important questions that heretofore have yet to be addressed by many advertisers within their agency agreements. “Big data” represents a potential treasure trove of information that can drive marketing strategy for advertisers by leveraging the insights gleaned from media transactional and customer behavioral data. That is, if and only if they are in receipt of the layers of data available to them and that they have the rights to use the data.

Rights to use their data? As odd as that may seem, data ownership is not automatically ceded to an advertiser. In spite of the fact that without an advertiser’s investment there would be no media buy and no corresponding data stream. Yet, many within the media chain have taken aggressive actions to claim that data as their own. Ad agencies, trading desks, publishers, demand side platforms (DSPs) and third party ad servers to name some of the entities that desire to own, or at a minimum, have unrestricted access to that data.

This jockeying for data ownership and access carries additional risks for advertisers in and around the topic of data privacy and security. Particularly as it relates to first-party data that may be utilized in the planning and placement of programmatic digital and addressable TV buys. Why? Because the unregulated, unsupervised use of an advertiser’s first-party data could be in violation of their users’ privacy rights.

Ownership and access rights to third-party data, which is often accessed on the advertiser’s behalf by its agency and or ad tech providers such as data management platform (DMP) and ad platform providers are generally clear and typically spelled out in licensing agreements between the various stakeholders. Then there is second-party data, which can best be described as information that users didn’t give you directly but was acquired through an advertiser’s relationship with another entity, such as an SEO platform or that was acquired via feedback from a behaviorally targeted digital display ad campaign. Advertisers must ensure that the use of and or sharing of second-party data is done in a privacy compliant manner to safeguard the interests of the user.

Complicated. Yes, and often little understood by those crafting client/agency agreements. It would certainly be appropriate for advertisers to revisit their agency agreements, with the goal of ensuring that their data ownership rights, privacy considerations and third-party access rights are clear and consistent in this emerging area. It is important to note that industry best practice templated language is still evolving and should not be relied on as an advertiser’s sole source for securing ownership/access rights and protections for agency agreements.

When it comes to advertiser data ownership, we share the beliefs of American businessman and politician Jim Oberweis, who stated:

“I am a strong believer that intellectual property rights need to be protected.”

Want to learn more about evolving your organization’s agency contract language? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com.

Dentsu Aegis: Poster Child for Ad Industry Transparency Concerns?

30 Nov

transparencyEarlier this month Dentsu issued a statement that it had cancelled its annual New Year party, typically celebrated in each of its five offices in Japan, citing a need for “deep reflection.”

When one considers the issues being faced by the agency, albeit of their own doing, it is easy to understand their desire for a more contemplative holiday.

Two short months ago the agency rocked the ad world with the acknowledgement that it had overbilled one of its oldest and largest advertisers, Toyota Motor Corp. for digital media placements. Ultimately, the agency confirmed that the overbilling and falsification of invoices impacted 111 clients, totaling JPY ¥230 million ($2.28 million USD).

This is on the heels of a Japanese Labor Agency ruling that the suicide of a young employee in December, 2015 was due to karoshi, or death by overwork. Prior to her death, the employee had logged 130 hours of overtime in November and 90 hours in October. In the wake of this ruling, the third such case of karoshi at Dentsu, the Minister of Health, Labor and Welfare Yasuhisa Shiozaki threatened harsh action against the company. Regrettably, according to Mediapost, reports have surfaced in Japan suggesting that the agency “may have encouraged workers to underreport overtime hours” to deceive authorities that it had been complying with regulatory limits (70 hours per month).

Thus, many in the industry were intrigued when it was reported earlier this month by MediaTel that Dentsu-Aegis was looking to launch a programmatic trading desk in the U.S. called “agyle.” The irony, for an agency dealing publicly with fraud and transparency issues, is that the model apparently being pursued for agyle is that of a principal-buy (media arbitrage) operation, where advertisers will have zero line of sight into the price paid for media inventory purchased by the trading desk.

Really? This move certainly seems to be counter intuitive for an organization trying to mend its brand image within the advertising community, while it deals with the fall-out from the overbilling and labor investigations. Particularly in light of Aegis’ own track record related to media transparency over the last ten plus years (prior to Dentsu’s 2012 acquisition of Aegis).

Some will remember that Aegis and its Posterscope division had their own problems of accounting fraud, involving the use of volume rebates it earned on its clients’ out-of-home media investments that were improperly retained by the agency to record higher revenues, rather than returning them to their respective clients. In the end, its President and Finance Director pled guilty to accounting fraud. This fraud occurred on the heels of a highly publicized scandal in which Aegis’ client, Danone successfully sued the agency, requiring it to disclose the disposition of all volume based discounts it had received for a two year period, estimated to be  $22.0 million. Notably, during the lawsuit it was alleged that Aegis’ president and five other executives had been “siphoning credits for free media airtime to a private company” and then selling that same airtime for their own profit.

With all due respect to Dentsu’s CEO, Tadashi Ishii, for his efforts to aggressively and forthrightly address the agency’s recent issues, one has to wonder how deeply seeded these issues are in the organization’s culture.

For advertisers who have followed the lawsuits, regulatory investigations, allegations and company acknowledged issues into overbilling, fraudulent reporting, timekeeping system manipulation, volume rebate programs and the like… this is why the industry must inwardly reflect and take the Association of National Advertisers (ANA) study on media transparency seriously.

Clearly opacity issues related to misleading practices employed by some within the agency community related to the pursuit of non-transparent revenue sources using client funds, for their self-gain negatively impact advertiser trust in their agency partners and ultimately erode the client/ agency relationship.

For Mr. Ishii and his team at Dentsu, we wish them luck in righting the proverbial ship and hope that their decision to use the holiday season as a time for deep reflection bears fruit.

 

 

Compliance Auditing: The Path to Building Client Trust

26 Oct

Accountability Final“Trust is the one thing that changes everything” ~ Stephen Covey

In the context of client / agency relationships, transparency simply means removing any element of doubt. Whether in the context of an agency’s earned revenue, billing accuracy, net payments to third-party vendors or the agency’s resource investment on behalf of a client.

The best means of achieving transparency is through an agency contract compliance and financial management audit and or the implementation of a continuous performance monitoring program focused on these aspects of the relationship.

After all, the marketing investment made by most advertisers is material and often ranks as one of, if not the largest SG&A expenditures. Which is precisely why marketing budgets are currently drawing more C-Suite attention from finance, procurement and internal audit personnel, working in conjunction with their peers in marketing.

This type of cross-functional oversight is a good thing. Particularly when striving to build a unified team by earning each other’s trust across the organization. Additionally, experience has shown that sound enterprise accountability and assurance programs can create value for all parties:

  1. Client financial team members benefit from the specific knowledge as to how their marketing dollars are being managed at each phase of the marketing investment cycle.
  2. Procurement gains insights related to the organization’s return on agency fee investment, optimization of contract language and opportunities for potential future cost avoidance initiatives (not related to agency fees).
  3. The internal audit group gains confidence in knowing that contract terms and organizational controls are being adhered to and if not, that actions are being recommended to shore up potential gaps and risks.
  4. Marketing gains feedback on the agency’s financial management performance, while identifying opportunities for process improvements that can boost the efficiency and effectiveness of their marketing investment.
  5. The agency benefits from direct feedback on their performance in this important area, the opportunity for interaction with and exposure to a broad cross-section of senior client management and the trust and associated confidence that comes with receiving a solid “report card.”

Over time, agency contract compliance and financial management performance audits have evolved in a manner which has yielded in-depth institutional knowledge and feedback that greatly assists advertisers in stewarding their marketing organizations and agency network partners. This is occurring during a period of time where the complexities of the advertising and media marketplace have expanded significantly, increasing an advertiser’s risk / reward considerations. 

Of late, there has been significant industry concerns relating to the questionable transparency relative to the disposition of an advertiser’s investment. How much money flows through to third-party vendors versus what is retained by the agency? What percentage of activity is directed to the agency’s affiliates or holding company, without client insight or approval rights? Is the agency earning excessive float income on the client’s marketing spend?

Rightly or wrongly, in the wake of these concerns, advertising agencies have found themselves all painted with the same broad brush of operating under an opaque modus operandi. This in turn has raised the specter of mistrust among many on the client-side, which has had negative implications on the strength (and length) of client-agency relationships. Needless to say, this is not a healthy dynamic for generating above average in-market results, solid returns on marketing investment, fair and fully disclosed agency remuneration levels or in building strong relationships.

Time and time again, we have seen clients and agencies alike benefit from the investment in compliance audits and the sustained comfort levels that come with ongoing performance monitoring programs. The chief benefit to both parties is the assurance of knowing that the advertiser’s investment is being well managed by their agency partners and the insight to fuel future process improvements.

In the end, these programs represent the quickest and most economical path to restoring trust between clients and their agencies, allowing both to focus on building strong brands and increasing demand generation. In the words of author Joel Peterson:

“Trust doesn’t just happen. It takes initiation, nurture, evaluation and repair.”

Is the Agency Holding Company Model Viable Going Forward?

19 Oct

dreamstime_m_35343815The pursuit of excellence is less profitable than the pursuit of bigness, but it can be more satisfying.” 

 ~ David Ogilvy

It is not our intent to suggest that scale does not have its advantages. There are multiple instances, within the professional services sector in general and specifically within the ad agency community, where size translates into meaningful benefits for clients.

That said, since Papert, Koenig, Lois went public in 1962 and other advertising agencies soon followed suit, the ad industry has undergone dramatic change. Ad agency IPO’s begot an uptick in agencies acquiring other agencies, which Marion Harper, CEO of McCann Erickson pioneered with the formation of The Interpublic Group of Companies in the early ‘60’s. This was then followed by the “unbundling” phenomenon of the late ‘70’s and ‘80’s.

Fast forward to 2016, where the top five agency holding companies; WPP, Omnicom, Publicis Groupe, Interpublic Group and Dentsu account for over 70% of the world’s estimated 2016 ad spend of $542 Billion (source: eMarketer, April, 2016). Further, each of these holding companies have broadened their acquisition strategies to further penetrate the larger $1.0 Trillion global media and marketing services category.

As a result, the portfolios for the top five agency holding companies contain between dozens and several hundred firms covering a myriad of marketing disciplines including, but not limited to:

  • Creative agencies
  • Media agencies
  • Digital agencies
  • Social Media agencies
  • Brand activation firms
  • PR firms
  • Relationship management firms
  • Programmatic trading desk operations
  • Research and audience measurement firms
  • Media properties

It is clear that the agency holding companies have successfully pursued and achieved “bigness.” The question is; “Has the holding company model achieved “excellence?” The answer may well depend on which stakeholder group one belongs to. Shareowners will likely have one viewpoint, suppliers and employees another and clients perhaps yet another perspective.

In the early days, the primary role of the holding company was to pursue efficiencies across their agency portfolios, while leveraging cross-agency synergies and driving strategy across their portfolio firms. Four decades later, this has evolved into holding company “agency” solutions consisting of cross-firm, multi-disciplinary client service teams served up to the holding companies top global clients.

Yet, the holding companies are struggling to define and evolve cultures, eliminate inefficiencies and break down silos across the numerous agency brands and marketing services firms that they have acquired. All while wrestling with issues and opportunities tied to the rate and rapidity of technological change and its impact on the business of creating and placing ads and not least of all… technology’s impact on consumer media consumption and purchasing behavior.

Today, the agency community is facing challenges related to attracting and retaining talent, evolving remuneration systems and regaining advertiser trust, all while being mired in a very public dispute with advertisers, publishers and ad tech providers regarding the issue of transparency.

Simultaneously, serious competitors have emerged, threatening the ad agencies stranglehold on advertising, media and marketing services. Consulting organizations such as Accenture, IBM Interactive, Deloitte Digital and PwC Digital now offer comprehensive, end-to-end consumer solutions, which include branding, graphic design, creative and media services to complement their analytical, strategy consulting, enterprise digital solutions and customer experience design skills.

This new breed of competition has monolithic brands, established cultures and highly trained, intelligent, flexible global workforces. Also looming on the competitive horizon are firms such as Adobe, Oracle, SalesForce, Facebook and Google that continue to focus on serving up marketing services and support to advertisers on a direct basis.  

Perhaps most importantly, the ad agency holding companies may not control their own destiny. At least not to the extent that they once did, when serving as valued, trusted advisors to their clients providing high-level strategic support and maintaining solid C-suite level relationships. Further, advertisers today have shown an openness to evaluating alternatives to the traditional client/ agency model, which has favored the aforementioned consultancies, technology and media firms along with in-house solutions.

It is certainly too soon to count the holding companies out, as they remain a formidable force in the industry. The question is can holding company leadership successfully chart a new course for leveraging their scale and talents to boost their relevancy in the years to come. What advice might one of the industry’s most iconic leaders offer to his holding company contemporaries?

“Leaders grasp nettles.” ~ David Ogilvy

 

3 Thoughts on Facebook’s Video “Watch Time” Issue

3 Oct

facebookFrom an advertiser’s perspective, there were three things that stood out in the wake of Facebook’s recent disclosure that it had mistakenly overstated average video ad watch times.

First and foremost, the miscalculation was not uncovered by the advertising agency community. Given the dollar volume being committed to Facebook, whose digital ad revenues will eclipse $6.0 billion, it would be fair to assume that ad agencies had a fiduciary duty to verify/investigate Facebook’s performance monitoring methodologies prior to investing their clients’ media dollars. The fact that Facebook had not embraced industry standards and asked the Media Rating Council (MRC) to accredit its performance metrics should have been the hot topic of conversation prior to Facebook’s disclosure, rather than after the fact. Ironically, in the wake of this disclosure, WPP stated that the mistake “further emphasizes the importance and need for third-party verification of all media — not only to verify trading terms but also to verify performance.” So if agencies truly felt this way, why wasn’t this standard not being applied here-to-for?

Secondly, it would appear as though the agency community is somewhat fearful of Facebook. Too many agency executives spoke to the trade media on the basis of anonymity rather than overtly stating their personal and or their company’s perspective on both the inflation of the viewing time metric and the need for accreditation. This seems an odd dynamic given the percentage of digital media spend represented by the “Big 4” agency holding companies. Advertisers might rightly expect that the scale of these entities would offer them some level of leverage and protection when interacting with media sellers. This is apparently not the case.

Thirdly, advertisers need to put a stake in the ground when it comes to media transparency and performance authentication. Self-reported performance indicators, such as Facebook’s average video watch time, cannot be the basis upon which they invest their media dollars. If a media seller has not had its delivery and performance metrics audited and accredited by an industry accepted resource such as the MRC, IAS, Nielsen or comScore for example, then they should be excluded from the media investment consideration equation.

The Association of National Advertisers (ANA) CEO, Bob Liodice appropriately addressed this issue when the ANA issued the following statement: “ANA does not believe there are any pragmatic reasons that a media company should not abide by the standards of accreditation and auditing” calling this important step “table stakes” for digital advertising.

The issue with the misstatement of the video ad watch times is not whether or to what extent the :03 second watch time threshold was utilized by ad agencies to assess Facebook’s performance. Quite simply, the issue is that self-reported performance metrics are unequivocally no substitute for independently audited outputs.

For anyone to suggest that the miscalculation is really no big deal, because it is a metric that is not utilized when considering the purchase of video advertising on Facebook, is misguided. The lack of transparency, further compounded by the media seller’s lack of adherence to industry standards when coupled with the self-reported inflated viewing times can and did wrongly influence agency and advertiser decisions. Thus, raising the all-important question: “Absent an independent audit, what portion of Facebook’s self-reported performance metrics can an advertiser trust?”

 

 

 

 

Is It Too Late for the 4A’s on the Topic of Transparency?

26 Sep

toolateEarlier this month, the 4A’s announced that it was pulling out of the Association of National Advertisers (ANA) “Transparency” panel scheduled during Advertising Week in New York City.

In light of the organization’s decision to break from ANA / 4A’s joint media transparency initiative earlier this spring, ostensibly to chart its own course, this move comes as no surprise. However, it is nonetheless disappointing. After all, why wouldn’t the 4A’s and it member agencies want to share the stage with the ANA to address the advertiser community on the topic of transparency?

The quest for improved standards and performance related to transparency would benefit mightily from the involvement of the 4A’s. The ANA, advertisers and many within the agency community have sought the 4A’s cooperation on this issue and would welcome a united effort to address this topic.

Clearly a full-court press is necessary if the industry is going to improve both transparency and ultimately the level of trust between advertisers, agencies and publishers. Aside from the eye opening findings from ANA / K2 study on media transparency, there have been two recent announcements that certainly seem to bolster the results of this study. First, just this past week Facebook indicated that it had misrepresented average viewing times for video ads played on its site. Secondly, the global agency holding company Dentsu came forward and cited multiple instances where there were “failures of placement,” “false reporting” and “inappropriate operations” which impacted over 100 of their clients. Dentsu’s CEO, Tadashi Ishii issued a statement saying that there were “instances where our invoices did not reflect actual results, resulting in unjust, overcharged billings.”

In fact, the impact of the 4A’s decision has resulted in two agencies, Empower and Mediasmith, pulling out of the 4A’s citing the associations failure to take a more progressive stance when it comes to working more closely with the ANA to resolve the issue of media transparency.

From the perspective of advertisers, they are rightly concerned about the issue of transparency and are taking matters into their own hands. Consider the September 23rd article in the Wall Street Journal; “Major Marketers Audit Agencies“ in which firms such as J.P. Morgan, General Electric Nationwide Mutual Insurance and Sears Holdings Corp. indicated that they “had hired outside counsel” to conduct audits, due in part to the ANA study. Additionally, the article identified more than a half-dozen other firms that are “trying to get more liberal auditing rights” to improve the protections afforded them under their Client/ Agency agreements.

Given the importance of transparency and full-disclosure in establishing productive, long-term relationships between advertisers and agencies it is unclear what the 4A’S hopes to gain with its current approach. While the 4A’s has issued transparency guidelines of their own, advertisers and many industry observers have indicated unequivocally that these guidelines are inherently biased in favor of the agency holding companies and that they simply don’t go far enough to address advertiser transparency concerns.

The very fact that many agencies are deriving non-transparent revenue from the budgetary dollars entrusted to them by advertisers is an affront to a principal-agent relationship. And even if, as some agency leaders have suggested, not all client / agency contracts espouse a principal-agent relationship, it is simply not a good practice (and promotes distrust) for an agency to leverage an advertiser’s funds for its financial benefit without its knowledge. This is particularly true when such gains undermine the notion of “objectivity” when it comes to the media investment counsel being provided by these agencies to their clients.

Noted novelist, Thomas Hardy once said that, “The resolution to avoid an evil is seldom framed till the evil is so far advanced as to make avoidance impossible.” One might argue that as an industry, when it comes to transparency, trust and their impact on client / agency relationships the point in time to frame a resolution is long past due. Sadly, for the 4A’s, change is afoot and the organization’s actions may render it as an observer rather than a co-author of a doctrine for positive change.

 

 

 

 

 

 

Funding Accountability Initiatives

26 Aug

Accountability FinalThe desire on the part of many advertisers to extend their organization’s accountability initiative to marketing is high. This is due to the fact that marketing is both one of the largest indirect expense categories within an organization and, for those that believe in its ability to drive strategic outcomes, critical in driving brand value and demand generation.

One of the key challenges for Internal Audit and Procurement professionals in implementing accountability programs is that they typically do not have a budget to fund the projects. Rather, they are reliant on their peers in Marketing to “buy in” to the concept and to underwrite the investment associated with analyzing contract compliance, financial management and in-market performance across their agency networks. This dynamic can create a loggerhead that delays or prevents corporate scrutiny into marketing and advertising spending and its resulting business impact.

The irony is that relative to the millions of dollars invested in marketing, the cost of implementing an accountability program for this corporate function is much less than one-percent of total spend. As we know, applying the skills and capabilities of audit and procurement teams and outside consultants typically results in improved controls that mitigate financial and legal risks to the organization. Further, these efforts often uncover historical errors and overbillings, and always generate future savings and improved marketing return-on-investment opportunities that more than offset the cost of the program.

It has always been a mystery as to why more advertisers simply don’t formalize and legislate the marketing accountability program and establish the requisite budget to be administered by the CFO / Finance organization. A minority of our clients operate in this manner, but clearly a “win, win” situation is created where internal audit and procurement provide their support and apply their resources pro-actively and marketing doesn’t feel as though funding is coming at the expense of critical business building programs within their budgets.

From our perspective, the source of funding for extending a corporate accountability initiative to marketing is the last hurdle. The reason is that we have seen marketing’s appreciation for accountability support grow along with their respect for the audit and procurement functions and a recognition that such programs can improve the efficiency and efficacy of the organization’s marketing spend.

The advertising industry is a complex; rapidly changing, technology-driven sector fraught with opacity challenges and risks such as digital media fraud and non-transparent revenue practices employed by agencies, ad tech providers, ad exchanges and media sellers. In light of these dynamics, organizations truly understand the benefit of monitoring the disposition of their marketing investment and the performance of their advertising agencies and third-party vendors.

It has been over 140 years since Philadelphia merchant John Wanamaker offered the following perspective on his ad spend:

Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

Yet, with the passage of time it would be difficult for the industry to suggest that much has changed with regard to a marketers ability to accurately assess the efficacy of their advertising spend.

There is no time like the present to proactively develop; implement and fund transformative accountability programs that can optimize planned business outcomes, while safeguarding marketing spend at every level of the advertising investment cycle.

Interested in learning more about marketing accountability programs? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management| AARM at ccampeau@aarmusa.com for a complimentary consultation on the topic.

Video: “The Truth Crisis: Marketing’s Biggest Challenge”

16 Aug

Interesting video from Campaign magazine … Click Here to watch.

transparency

Key to Media ROI: Chief Media Officer or Compliance Auditing Support?

14 Aug

AccountabilityIn the wake of this spring’s Association of National Advertisers (ANA) “Media Transparency” study, conducted by K2, many in the industry have suggested that advertisers add a Chief Media Officer to staff to assist them in navigating what is clearly a complex, rapidly changing industry. For those advertisers that have the financial wherewithal to support such a position, the benefits could be significant when it comes to strategy development, planning and stewardship of their media agencies and extended supplier base.

That said, the dynamics which impact media return-on-investment require resources that go well beyond the reach, and sometimes knowledge, of a Chief Media Officer and create an entirely different set of challenges even for those organization’s that do have the luxury of adding a seasoned, media executive to their staff.

The findings of the ANA/K2 study dealt with non-transparent media agency practices effecting advertisers such as: rebates taken at the agency holding company level and not passed through to advertisers, media arbitrage, value banks, related party transactions and inappropriate mark-up on both media and non-media expenses. The economic and relationship impact of these practices, and the continued adverse effects of digital ad fraud and viewability challenges besetting the industry, all serve to greatly reduce the efficacy of an advertiser’s media investment.

Experience suggests that the key to resolving these issues is more likely rooted in the development of a sound, broad reaching media accountability program. One which focuses on improving client/agency contract language, client/ agency focused communications, financial and legal controls and enhancing advertiser transparency rights that allow clarity into the disposition of their funds at each stage of the media investment cycle.

This is not an easy task in an industry still largely reliant on an estimated billing model, with inordinately long campaign closing/reconciliation processes and multiple third-party vendors and middlemen, which all serve to negatively impact working media ratios.

Add to this the fact that the C-Suite within many advertiser organizations simply doesn’t pay much attention to media, in spite of the materiality of spend in this important area. Consider the results from a July ANA study, conducted by Advertiser Perceptions, following the release of the ANA/ K2 study:

Only one-quarter (25%) of advertisers surveyed were aware of the ANA’s media transparency study.

We believe that advertisers do care about how their media funds are being managed. However, we also know that very few organizations know what happens to their money, once an agency invoice has been paid.

It is for this reason that we believe strongly in the vast benefits that a structured, agency compliance and financial management auditing program. One that can also assist advertisers by providing a context for understanding the scope of the risks they face when it comes to building mitigating controls to optimize their media investment.

At present, few advertisers undertake such testing and even fewer have the requisite industry experience and specific media-based accounting, auditing and fraud examination experience represented in-house. Additionally, we have yet to evidence a client organization that has implemented the requisite software in their media function capable of processing and catching media billing discrepancies and performing other detailed financial analysis on their media investment.

We have learned over the years that the implementation of such controls yields tangible value far in excess of the cost to support such efforts.

The combination of financial loss related to approved but unspent media funds, earned but unprocessed credits and rebates, billing errors, unreconciled pass-through expenses and related party transparency issues can range between 2.0% and 5.0% of total agency billings. Once aware of the causes, savings are realized year-over-year by implementing improved process changes and treasury management.

With this as a backdrop, imagine an organization investing tens of millions or hundreds of millions of dollars on media. The resulting financial benefits, combined with improved controls, enhanced risk mitigation and transparency most assuredly will secure the attention of the C-Suite and their support for media agency compliance auditing.

Interested in learning how to start improving your media transparency today? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation.

Advertiser Audit Rights: Define & Exercise Them

2 Aug

dreamstime_xs_7828625There is a new trend developing within the marketing agency community when it comes to negotiating client contract language – and that is a fairly aggressive attempt to limit the advertiser (client) audit rights and scope. In other words, limiting what the agency is required to have available as “proof” and support for agency billings to the client and agency use of client funds.

At a time when there is much talk about the need for transparency and its role in helping to bolster trust and strengthen client-agency relationships, this trend is highly antithetical.

The most common examples of agencies trying to dictate and limit the client’s “Audit Rights” are:

  1. Limiting the window of time in which an advertiser can conduct the audit. For example, 12 months from date of service or invoice, as opposed to a 3 year window.
  2. Limiting access to agency financial data and or records, as opposed to full access to information that support agency billings, financial management and performance. This can include denying access to data such as employee time keeping records, agency overhead or holding company allocations to client, freelance records, prices paid for certain media and agency affiliate company costs.
  3. Limiting the amount of time the agency is required to retain data and records.
  4. Limiting the type of audit firm that an advertiser can engage to perform the testing – and or including language that seeks to secure agency approval of advertiser’s auditor selection.

In order to ensure full-transparency into the financial stewardship of funds by the agency and third-party vendors, experience suggests that advertisers must secure client-centric contractual audit terms and conditions. It is our belief that this is an advertiser’s unassailable right. After all, it is the advertiser who bears the risk of non-compliance and sub-standard performance when it comes to the investment and management of their marketing funds. And it is the advertiser who is providing the funding to the agent.

Contract language dealing with Audit Rights should grant advertisers the ability to establish the scope of the audit, deploy an audit team of its choice and to have unfettered access to information necessary to validate agency compliance and or performance (i.e. contract compliance, media performance, etc.). To ensure full transparency, advertiser Audit Rights should extend to the agency holding company and affiliates in any full-disclosure relationship.

As important as securing solid Audit Rights language, within a Client-Agency agreement, is the need for advertisers to exercise those rights on a regular basis. Whether through the deployment of internal audit personnel, engaging independent contract compliance or financial auditors or the use of a media performance audit firm, it is imperative that advertisers monitor and vet agency performance in these areas.

The frequency of such oversight actions can range from annual reviews to quarterly reconciliations to the implementation of continuous monitoring programs to assess the disposition and performance of advertiser funds, while under the control of their agency partners.

Sharing audit findings with both advertiser and agency is highly recommended so that both parties, if necessary, can adjust practices going forward. After all, the goal of an accountability program is to provide improved transparency, assurance, improved process, and stronger client-agency relationships. In the words of Thomas Huxley, the noted 19th century scientist:

“Learn what is true, in order to do what is right.”

If you would like to receive a complimentary review of your organization’s “Audit Rights” contract language please contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com.

 

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