Tag Archives: Stephen Covey

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.”

Advertisers Can Shield Themselves From Digital Ad Fraud… Somewhat

19 Jan

Fraud PuzzleLet’s set the stage, so that we are all clear on the risks faced by advertisers when it comes to digital media in general and programmatic digital media buying in particular. Consider the following quote from Bob Liodice, President and CEO of the Association of National Advertisers (ANA):

The level of criminal, non-human traffic literally robbing marketers’ brand-building investments is a travesty. The staggering financial losses and the lack of real, tangible progress at mitigating fraud highlights the importance of the industry’s Trustworthy Accountability Group in fighting this war. It also underscores the need for the entire marketing ecosystem to manage their media investments with far greater discipline and control against a backdrop of increasingly sophisticated fraudsters.”

What prompted Mr. Liodice’s comments? Quite simply, the ANA and White Ops updated their 2015 “BOT Baseline: Fraud in Digital Advertising” study, which suggested that the ad industry would see $6.3 billion in digital ad fraud in 2015. In light of the fact that the Interactive Advertising Bureau (IAB) reported that digital ad revenue surged almost twenty-percent through the first half of last year, can we be surprised by the fact that the level of fraud escalated as well. To what, you ask. According to the ANA report, it is estimated that the level of digital ad fraud will grow to $7.2 billion in 2016.

The challenge for individual advertisers is to determine how best to insulate their organizations from digital ad fraud, while continuing to support industry initiatives focused on the same end.

For many advertisers the question is quite simply; “But where do we begin?” The answer as the late Stephen Covey once intoned is to; “Begin with the end in mind.” So what is the end goal? For most advertisers the aim is to focus digital media investment on media sources that can reliably drive the highest level of effectiveness using the best quality inventory at the lowest possible price.

One important component of this challenge is obviously the continued growth of programmatic digital media buying. It should be noted that of the estimated $60 billion in digital media spend, programmatic will account for $15 billion or 25% of the total spend. However, one must consider that programmatic buying represents a very high percentage of digital ad fraud, up to 90% according to some industry experts.

The range of tactics employed by entities and individuals seeking to profit from the growth of digital spending are many and varied, they include; click-fraud, the use of BOTs, hidden ads and impression laundering. However, the primary source of digital media fraud is in the form of URL masking, which makes it impossible for advertisers or their agencies to know where their digital ads are running. Studies have shown that nearly 45% of transactional digital URLs do not match the URL where the impressions were actually served… a sobering statistic to be sure.

In our experience there are three things that advertisers can do to mitigate the level of risk posed by fraudsters.

First and foremost, advertisers must improve the level of transparency between their programmatic buying partner and their own organization. This can be done by employing contractual language and controls which narrow the transparency gap that more than likely exists today. Too often, agencies simply introduce their trading desk operation to their clients, without amending their current agreement or allowing the advertiser to contract directly with the trading desk entity.

Contract language should provide limitations on the percentage of total digital media spending that can be allocated to programmatic and impart clear “signing authority” guidelines in the event those levels are to be altered. Additionally, the agency should be required to provide a staffing plan, which includes data scientists and data analysts, along with the team’s estimated utilization rates and hours by individual. Complement this by incorporating copies of the media verification and performance tracking reports that will be utilized to monitor impression delivery, ad viewability and fraud detection. Finally, we suggest requiring the agency to separate the costs for media, data and technology licensing from agency fees, each of which should be reconciled to actual.

The second line of defense for advertisers comes in the form of requiring their programmatic media buying partners to utilize a Media Rating Council (MRC) accredited digital technology/ platform provider. Firms such as Integral Ad Science and Double Verify, for example, have a range of tools that can integrate with pre-bid platforms to provide real-time impression authentication to improve the odds that an advertisers impressions will be delivered in a contextually relevant, brand safe and fraud free environment. When nefarious behavior is identified, these tools can block impressions from being delivered there and dynamically blacklist those sites. In addition, there are tech solutions now available, which can assess inventory hygiene within ad networks and exchanges, allowing advertisers to target higher quality impressions.

Finally, advertisers must apply their buy-side leverage and demand that their agency partners and third-party vendors work collaboratively to optimize their digital media investment. Those parties that cannot demonstrate that they are continuously improving their tools, methodologies and compliance monitoring processes should be dropped from consideration set. Voting with one’s dollar has always been and remains one of the best ways to incent the behavior and secure the types of results that diligent advertisers deserve.  

In the words of Samuel Johnson, the celebrated eighteenth century English writer:

What we hope ever to do with ease, we must learn first to do with diligence.”

 

 

 

Accountability Doesn’t Obviate the Need for Governance

12 Jun

It has been ten years since Sarbanes-Oxley was enacted by the United States legislature.  The SOX Act, as it is commonly known, covers a number of issues ranging from corporate governance to internal controls and reporting accuracy.  The law came into being as a result of high profile corporate and financial scandals at Enron, WorldCom, Adelphia and Tyco International.  The monetary impact of these events on investors around the globe was both profound and devastating.

As firms began to grapple with SOX compliance requirements, they implemented processes and procedures designed to enhance transparency and improve governance at all levels of the organization.  In the context of a business, Wikipedia offers this definition of governance: “Governance relates to consistent management, cohesive policies, guidance, processes and decision-rights for a given area of responsibility.”

While it took awhile and in some organizations, a longer period of time than in others, marketing’s turn to go under the microscope has come to pass.  In light of the investment level being made by companies, this is certainly no surprise.  Given the complexity of the marketing-advertising supply chain, the use of agents, independent contractors and 3rd party vendors, and the lack of transparency often afforded advertisers, the only surprise is that it has taken this long for organizations to begin to “peel back the skin of the onion.”

For progressive companies that have created a culture of accountability, increased governance and its impact on marketing spend, and all that it entails, represented few challenges.  However, in many organizations the notion of “governance” was interpreted by client-side marketing and advertising agency representatives to be a full-frontal attack on their integrity.  Further compounding the process was the fact that marketing was, and to some extent remains a bit of a “black box” to corporate finance, audit and procurement departments.  In many instances, these departments simply don’t have the subject matter expertise on-staff to help guide their efforts to understand the nuances and complexities of the marketing area.

What do we mean by “complex?”  From the size of an organization’s marketing agency network which could include dozens of firms (earlier this year PepsiCo pared their agency network from 150+ shops to 50) to the hundreds of statements-of-work and purchase orders issued in a given year to the thousands upon thousands of bill-to-client invoices and 3rd party vendor invoices which are processed.  Remember, these include a staggering number of revisions to the ad industry’s typical modus operandi, an “estimated billing” approach in which the advertiser is billed upfront for all or a portion of the creative and or media activity for a given period.   In an estimated billing scenario, it is the advertiser who fronts the money, not the agencies and not the media sellers that bear the risks for their investment.

The good news is that there are a number of competent, highly-regarded, independent agency contract compliance audit firms that can provide capable assistance to an advertiser.  The subject matter expertise which they bring includes insights into most all facets of the marketing supply chain as well as industry “Best Practice” in the area of accountability.  Further, they provide an excellent bridge to enhance communication and further understanding between marketing and their agency network and the governance process championed by finance, audit and procurement.

The time has come that there should be few corporate marketers and fewer marketing agencies that resist an organization’s governance initiatives.  There is no reason, and frankly, no excuse in any quarter for not “stepping up” to enhance transparency and improve the reporting and controls a company has in place to safeguard its marketing investment.  In the words of Stephen Covey:

“Accountability breeds response-ability.” 

Interested in learning more about the role of contract compliance auditing in supporting your company’s governance efforts?  Contact Don Parsons, Partner at Advertising Audit & Risk Management at dparsons@aarmusa.com for a complimentary consultation.

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