Tag Archives: Record Retention

Can Your Agency Support Its Billings to You?

25 Aug

estimated billing processOnce 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.

One Good Reason to Audit Your Advertising Spending

31 Oct

contract compliance auditingExperience from his early days in accounts payable brought home an important lesson…

I was recently talking with a friend, who retired as a senior financial executive for one of the large global airline companies. During our conversation he began to probe on AARM and our agency contract compliance and financial management audit service. While most finance professionals today came into the business long after electronic data processing (EDP) and payment systems came into vogue, this finance executive did not.

After we talked for a while about the nuances of agency compliance and financial auditing, he shared a remembrance from his starting position in the accounts payable department in the early ‘70s… prior to EDP. He recounted processing invoices from the company’s ad agency and the “stacks of paper” that accompanied their invoices. One of the nagging concerns that the finance team always had was whether the agency was reviewing the third-party vendor invoicing for both accuracy and to validate performance or simply passing along the documents. As a result, they implemented a policy that no invoice would be processed until the marketing team had reviewed and signed off on the billing detail. The goal was to encourage both the marketing team and the agency to examine the billing support for accuracy, rather than simply processing for payment. 

The estimated billing approach employed by most ad agencies used to be a paper-intensive process. Billing records not only had to be reviewed but stored and retained for at least 3 years. Thus, most advertisers waived the requirement for agencies to provide third-party vendor billing support with their bill-to-client invoices. Even with the advent of EDP and the digitization of records, advertisers were content to require their agency partners to retain the billing support and to make those records available for review if an advertiser chose to audit those documents. Today, if an agency invoice has been reviewed by a marketing representative and the dollar amount falls within the approved purchase order amount/balance the agency invoices are processed for payment.

Despite the size and material nature of marketing and advertising budgets, most organizations do not invoke their contractual audit rights to validate their agency billing support.

This reality evoked an interesting observation from my friend: “Processing payment, without a review of the supporting third-party vendor documentation is one thing, but to forgo periodically auditing those records is a classic example of blind faith.” His words, in turn, reminded me of a quote from rock legend Bruce Springsteen: “Blind faith in your leaders, or in anything, will get you killed.”

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