Tag Archives: Media Audits

Accenture Exiting the Media Auditing Space Creates an Accountability Gap

17 Feb

Acc_Logo_Black_Purple_RGBIt was a move many industry pundits saw coming. With a focus on expanding its interactive marketing services business, which accounted for $10 billion in revenue in 2019, Accenture made the announcement that it was going to “ramp down” its media auditing, price benchmarking and pitch management business by the end of August.

Advertising agencies and competitors within the media audit space were quick to celebrate the news, for differing reasons.

Agencies for their part have long felt that as Accenture grew its interactive marketing services practice, their audit services represented a conflict of interest. Afterall, how could a marketer trust the objectivity of the advice of an audit firm reviewing an incumbent digital agency, when the parent company offered services that were competitive to the incumbent? One fear among agencies was that Accenture could leverage the information taken in on the audit side and generate competitive insights that would yield an unfair advantage when pitching their digital capabilities to advertisers.

Media audit firms, which stand to gain business as Accenture winds down media audit activity, point out that Accenture’s approach to auditing, pitch management and media rate analysis, which relies on its proprietary rate benchmarking pool was dated and less relevant than in the past.

While there may be merit to both group’s perspectives, Accenture’s decision creates a major resource gap when it comes to global media accountability and transparency.

Make no mistake, there are a number of experienced, highly reputable independent media audit firms that will help to fill the void left by Accenture. That said, most lack the scale and or depth of resources to truly backfill this resource gap. This perspective was echoed by Rob Rakowitz of the World Federation of Advertisers’ (WFA) Global Alliance for Responsible Media, who stated that at a time when the “media supply chain needs more clarity” Accenture’s decision to exit the audit space “creates a hole” when it comes to independent oversight.

Interestingly, the holding companies have focused their commentary in the wake of Accenture’s announcement on the “competitive conflict” aspect of the discussion. However, some holding company financial executives, who know full well the impact of independent oversight on their media agency bottom lines, are likely breathing a sigh of relief. Since the Association of National Advertisers (ANA) 2016 report on media transparency, scrutiny of media agency practices and the resulting downward pressure on margins tied to curtailing some of the non-transparent agency revenue practices cited in the ANA’s report have been costly to agencies.

The good news is that there has been progress since the issuance of the ANA report four short years ago. Client/ Agency agreement language has improved, more advertisers have conducted contract compliance and performance audits and media supply chain transparency initiatives have gained traction. The global fraternity of contract compliance and media performance auditors, along with advertiser trade associations such as the ANA, WFA and ISBA have all played an important role in ushering in reforms tied to improved accountability and transparency practices.

Now is not the time for less oversight and one can only hope that the loss of Accenture Media Management and the $40 billion of annual global media spend coverage it represented will not impede industry media accountability efforts. Advertisers can ill afford further reductions in their working media.

 

Auditor Compensation Should be Aligned With Client Objectives

15 May

audit compensationAt the recent ANA “Agency Financial Management” conference in Boca Raton, FL there was much conversation around the topic of “contingency” auditors and the relevancy of recovery based compensation models for media and contract compliance audit firms.  This perspective was largely fueled by presenters representing fee-based firms and associations.   Whether their perspective was driven by a desire to pander to their association members, the agency representatives at the conference or somehow believing that being a fee-based auditor was somehow the lesser of two evils is unclear.

In our opinion, this is a largely irrelevant, self-serving position that masks the true benefits of third-party independent marketing audits and reviews.  Our position is that audit compensation models should be treated no differently than those of other professional services firms… including advertising agencies.  Compensation should be tied directly to a scope of services.  These deliverables drive the value of the audit including; contract compliance, process improvement, agency performance assessments, improved reporting/ transparency and or financial reconciliation.  The notion that compensation methodologies somehow skew audit results is a direct affront to the integrity of the advertiser.  The fact is that it is the historical agency billings/ advertiser payments and their basis that determines whether or not the advertiser is entitled to a financial true-up, not the manner in which an auditor is compensated.

If an audit determines that an agency owes their client money due to billing errors, earned but unprocessed credits, rebates and discounts or time-of-staff under-delivery, the findings have nothing to do with how the advertiser has funded an audit.  Like performance based compensation systems espoused by agencies, a combination fee plus performance incentive compensation approach is equally valid and viable for auditors.  The key is to align auditor compensation with the advertiser’s business objectives and culture.  Encouraging their professional services partners to have “skin in the game” as it relates to the financial efficacy of the audit, whether based upon recoveries or future savings is a standard, professional approach for advertisers to employ.

Importantly, performance based compensation systems provide the requisite incentive for audit firms to look beyond the time-capped limitations of fee-based approaches to ensure a thorough assessment based on a comprehensive data review rather than sampling.  Further, the need to audit, whether part of an enterprise accountability initiative, tied to marketing agency turnover or simply following best practices related to enterprise-wide financial risk management protocol, often requires financial flexibility when it comes to funding the initiative.  Thus, a blended compensation system which includes a base fee and performance incentive can enable the advertiser to advance their audit program within the current budget year, without jeopardizing Procurement’s, Internal Audit’s or Marketing’s other initiatives.

During the aforementioned ANA conference, it was suggested by one client-side marketer that “those types of audits,” referring to contingency audits, are frequently initiated by procurement, not by marketing.  Let’s be honest, virtually all third-party audit activity emanates from finance, internal audit or procurement.  Unfortunately, in spite of the fact that an organization’s marketing spend represents one of the largest components of an advertiser’s selling and general administrative expense, U.S. marketing executives have yet to fully embrace their organization’s accountability initiatives.  Focusing on auditor compensation is simply a misguided attempt to further delay any third-party scrutiny.  And if this is not the case, ask those marketing executives to underwrite the cost of a fee-based audit and gauge their reaction to the request.  In the words of noted American author, Katherine Brush:

“Most passport pictures are good likenesses, it is time we faced it.”

At AARM we conduct contract compliance and agency performance audits for a broad-range of multi-national advertisers, many that are represented on AdAge’s “Top 100” advertisers list.  For the record, we are compensation agnostic.  Our goal is simple – to structure a compensation approach that aligns our efforts with the client’s business objectives, culture and audit deliverables.  Of note, in AARM’s process all audit observations are vetted with the agency prior to being shared with the client.  Therefore, if there exists any erroneous findings or the agency feels as though they can share additional information to clarify the findings represented in the audit, the opportunity exists for the agency to address those items before the audit report is published.  In the end, the facts are the facts, regardless of the manner in which an audit firm is compensated.  If an advertiser doesn’t feel as though they can trust the results of the audit, then we would suggest the real issue was the screening process employed on the front-end to select the audit partner, not the compensation program.

%d bloggers like this: