Tag Archives: reconciliation

Time Keeps Ticking… 3 Common Agency Time-of-Staff Reconciliation Errors

23 Apr

It has been several decades since the move away from full-service agency relationships where advertisers compensated their partners on a straight commission basis, to the use of specialized marketing agencies compensated on a direct labor or fee basis.  However, in spite of the elapsed time, advertisers may still not be optimizing their agency fee investments.

Over the course of our timekeeping system and fee reconciliation audit work we frequently come across vagaries and oversights that hinder an advertiser’s ability to leverage its investment in agency compensation.  This is frequently compounded by the fact that there is little transparency into the accuracy of an agency’s time reporting vis-à-vis its timekeeping system.

The three most common errors that our audits uncover are as follows:

  1. Lack of a proper agency staffing plan incorporated into client-agency agreements.  A proper staffing plan should identify annual full-time equivalent hours, the individual, their position, the pledged utilization level and the billing rate or departmental cost to be utilized to calculate and reconcile agency fees.
  2. While many client-agency agreements set forth processes for monthly time-of-staff reporting and quarterly or annual reconciliation reviews, few advertisers receive and or review these reports or reconcile fees to the agency’s time-of-staff investment.  Further, it is rare that the advertiser has previously conducted an independent third-party review over the accuracy or validity of an agency’s time reporting.
  3. No definitive contractual approach for how an agency will report on and or bill for freelance or independent contract talent.

A lack of clarity and controls in this area results in transparency gaps and billing oversights.  Absent independent verification of agency time reporting, discrepancies are not transparent to the advertiser.  And, absent accurate historical information, the problem is perpetuated when future fee levels are based on inaccurate historical time and cost assumptions.

Clear definition, process and control will mitigate significant economic risks for both the advertiser and agency.  This is also why a comprehensive staffing plan is essential to the fee / time-of-staff reconciliation process.  In the words of William Penn:

“Time is what we want most, but… what we use worst.”

Armed with accurate costing and utilization information, both the Advertiser and Agency will be able to build on their joint efforts in fostering a strong partnership based on a fair underlying compensation structure.

As a complimentary offer, and to talk through agency fee investment best control practices, please contact Don Parsons, Principal at Advertising Audit & Risk Management, at dparsons@aarmusa.com.

Survey Reinforces Need for Independent Auditing

18 Jul

calculator and cashIt is widely understood that a coordinated audit program, leveraging the resources of Internal Audit and the strategic use of 3rd party auditors is a smart business practice and represents good corporate governance.  The audit process results in improved transparency and solid control testing, both important elements when attempting to ensure that an organization is securing maximum value for the money spent while incurring the least amount of risk.

Adding fuel to the “pro” audit argument is a global study of 550 accounts payable departments conducted by software provider Basware. The eye-opening results certainly reinforce the need for organizations to periodically review procurement and AP processes and controls and to monitor the performance of both the organization’s own AP department and that of its vendor network.  Perhaps most alarming, the Basware study found that just 40% of invoices generated were based upon purchase orders and where a valid P.O. did exist, many financial departments had trouble reconciling against them.  Further, among the survey respondents, which processed on average 93,000 invoices per year, 7% contained errors.  These errors led delays in paying suppliers among 35% of the respondents and delays in being paid among 24% of the respondents.

In spite of the fact that many vendor agreements contain AP guidelines and even spell out accounts payable criteria related to prompt pay discounts, late fee avoidance, days payable targets, fiscal period reconciliation parameters, etc… too often performance in this area goes unchecked. A parting thought, inspired by the words of Sir Edward Coke, the noted seventeenth-century English jurist;  “Precaution is better than cure.”  Read More.

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