Archive by Author

Time for a Financial Review?

26 Jul

knowledge and ignorance puzzle pieces signdreamstime_xs_53502419

Really?

No triple bid.

No staffing plan.

No reconciliation.

Fixed fee

100% advanced billings.

Slow job cost reconciliation.

Poor Agreement language.

Old Agreement.

No examples / templates.

No breakout of retainer vs. out-of-scope fees.

No agency reporting of costs / hours.

Programmatic supply chain not understood.

Use of in-house agency services, no rate sheet.

Use of in-house agency services, not reconciled.

Freelance billed at full retainer rate.

Interns billed at full retainer rate.

Credits held.

Low Full Time Equivalent basis.

High Rate per hour.  No fee detail.  Non arms-length use of affiliate.

Mark-up applied.

Float.  Kick-back.  Favored expensive suppliers.

Duplicate charges.

Time reported doesn’t match time system.

Overpayments.

Luxurious Travel.

Gifts.

That’s the short list.

Don’t let this happen to your critical marketing dollars.

Update and lock down financial terms in Agreement.

Tighten up definitions.

Enhance Agency reporting required.

Perform routine spot checks.

Follow the money to the ultimate end user.

Vet Agreement with ANA template.

Ask the Experts.

Maintain consistence of control and visibility across the Marketing supplier network.

Maintain trust but validate Agency financial activity.

Strengthen the Agency relationship through understanding and alignment.

Really.

 

A Perspective on Evolving the Agency Stewardship Model

1 Jul

marketing control environmentSmart Marketing is critical for most businesses to thrive. 

Smart Marketing Investments are significant and material. 

So who, within the organization, should be responsible for keeping the marketing smart and for effectively managing the important shareholder / stakeholder financial investment in marketing?  Can the Marketing group do an effective job alone?  Should a Marketing Operations group be formed?  Should Finance be involved?  How about Procurement?  Internal Audit?  Legal?   

Believe it or not, in our view, a smart and effective Marketing Control Environment is created and maintained through well-coordinated interaction between each of the functional groups mentioned above. 

Who does what, and when, then becomes the question.  Each of the groups mentioned (jointly lets call them the Marketing Effectiveness Group) has at least four (4) necessary critical inputs and ongoing oversight roles to produce a well managed marketing control environment.  One example for each group is as follows: 

Marketing – Core:

Drives the demand generation process, but is required to follow financial control structures established to safeguard corporate assets. 

Marketing – Operations:

Should be led by a Manager with a technically strong financial accounting background.  Interact externally with agency finance to set up reporting template(s) and timelines. 

Procurement:

Owns Financial Terms, Definitions, and Understanding; Coordinates with Marketing Operations to review Quarterly Agency reporting. 

Legal:

Deals with all contracting language work in tandem with Procurement and Marketing to incorporate business knowledge and definition into agency agreements. 

Finance:

Owns the highest-level understanding in areas of proper accounting financial calculations. 

Internal Audit:

In order to gain comfort, controls IA will want to ensure are in place and operating effectively (at a minimum):

  • A well written, approved, and up to date agency agreement
  • A well structured agency financial reporting process
  • Agency oversight provided by Marketing Operations & Independent Experts
  • Agency oversight provided by Legal 

As Marketing contract compliance consultants, at review onset our teams rarely see a Marketing Control Environment that that is wholly optimized.  Too many silos and politics are built up creating a lack of coordination between the parties and or the company simply does not focus in on this important area.  Given the materiality of most Marketing Budgets, investing a fraction to ensure risk is mitigated and investments are optimized.  If you are interested in further discussion on this, or related topics, please feel free to reach out to Don Parsons at dparsons@aarmusa.com.

The Flip Side

1 Oct

compliance auditingRather than focusing on how the client / agency relationship is out of alignment as the basis for a financial compliance audit… consider this.  Proactive marketers, with highly satisfactory advertising agency / media buying relationships use “best practice” compliance auditing as a mechanism to maintain a good relationship and to support staying with their current marketing partner. 

One AARM client example.  The client’s marketing department recently (together with procurement’s support) initiated an agency media performance and billing compliance audit.  The stated audit objective was to confirm Marketing’s past experience and opinion that their agency has done an exceptional job over the last 6 years.  The audit was an agreed-to preemptive strike.  

The client’s procurement group is required, via corporate policy, to initiate a competitive RFP process every 5 years on each material vendor’s services.  Stakeholders engaged the audit process with full expectations that their agency would be found to be in compliance in all the requisite and important financial / stewardship areas.  Results were then to be used to support an ongoing relationship with the Incumbent, and as a means to avoid the potentially disruptive and costly RFP cycle. 

There was a catch.  The audit could not be a “wand-over” quick-check with sampling or haphazard testing procedures.  And could not be conducted by the company’s internal audit group, or by an external generalist firm.  Management required a specialist firm be engaged, to enable an unbiased assessment as to the health and clarity of the agency’s financial treatment.  A software enabled deep-dive data auditing capability was to be employed, industry best practices were to be compared and all agency billing areas were to be covered; including retainer-fee basis, commission application, labor charging practices, and pass-through costs. 

From a service provider’s perspective, it is refreshing to see the client / agency relationship being considered, in more than a neutral fashion but as a basis to inspect and a rationale to stay the course.  Agency change is disruptive and not guaranteed to meet expectations.  The time (market opportunity and real) it takes to bring any new agency partner up to speed and integrate them into the corporate fold is material.  We always suggest, where possible, an advertiser exhaust all reasonable effort to remedy a relationship with the existing service provider in the marketing area, rather than make a knee-jerk or non-required change. 

Our client in this case is doing it right.  They have set expectations, they are testing against those expectations as a good control practice, they plan to adjust process or control issues that come out of the review, and they will go forward with an even stronger proven relationship.  The agency is on-board, clearly has a vested interest in cooperating with the inspection, and will also benefit from any new level of financial transparency and understanding derived from the work. 

Audit should not be primarily about suspicion, gotcha, cost recovery, or selective issues.  Audit is about consistency, learning, strong financial awareness, compliance and continuous improvement. 

An additional benefit from a consistent / proactive audit program is the ability to challenge any new CMO’s suggested agency changes.  If industry statistics serve, it is likely that any given large advertiser will have a new CMO within the next 12 to 18 months, and they may want to change agency partners – what can you do? 

Go audit, stay happy!

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