Posted on September 22, 2016 by Janis Prescott

The 105th thing on your ‘to do’ list may be the most important…

So imagine the scenario: you’ve got a set marketing budget that seems to be squeezed year-on-year; new opportunities arise that need to be tested; old, well-trodden routes to market need to be sustained; constant evaluations need to be done to ensure you’re nimble and maximizing the opportunities; and your parent company has just issued the (annual) email to say that it’s putting a stop on spending any uncommitted budget at the end of the month. Sound familiar?

Why add more stress to your day?

Then there are the usual pressures of hitting lead targets, forecasting and fighting for budget for the following year. Throw in the long, onerous process of agency pitches every three or so years, why on earth would you want to burden yourself with a self-elected, marketing agency audit on top? Are you mad?

No. You’re anything but.

A leaking budget

With budgets being stretched as much as they are, can you really afford to let any of it ‘leak away’ needlessly? And it’s not necessarily anything sinister or underhand that’s being done. More often than not, it’s just an oversight that the reconciliation for a project hasn’t been carried out yet, that something has been charged to you which shouldn’t have because it sits outside the agreement, that the wrong hourly rate or commission rate may have been selected by accident etc etc. Whatever the reason, it’s worth spending a bit of time and a little bit of hard-earned budget to ensure you’re only paying for what’s been agreed and no more.

It’s hard enough reconciling invoices against estimates at the best of times, but do you ever have the time to dig any deeper to check the time sheets, the expenses or even the third-party production, media and even old-fashioned print costs? I suspect not. An estimate is received, a PO is raised, an invoice is paid, the three match and voila, job done.

Catch the drips

In today’s world of fast-paced technological advancements, it’s a very different place to what it used to be. Media buying has become a very different beast. With the advent of programmatic, your budget is now simply a ‘ceiling’ or a target, rather than a pre-negotiated set figure.  Who only knows what you’re going to get and for how much? Months down the line, when you’re doing the post-campaign analysis, do you go back to check the actual costs incurred by the agency and whether any unused budget is available to be returned? Possibly not. And you’re not the only one.

Which Audit?

So for peace of mind and effective budget management, it’s safe to say a compliance audit of your creative, media, PR, events etc. spend is a good process to go through. But which type? And how often?

By simply googling* the term ‘marketing agency audit’, it throws up a multitude of different variations on a theme. Are they the same thing just  referred to differently by different providers, or are they fundamentally different? Here is our ‘glossary of terms’:

Marketing contract compliance audit/ Financial audit: is an evidence-based review of the agreement between two parties (client and agency) to understand to what degree both of them have complied with the terms of the contract. There should be a specific paragraph in the agency contract that covers audit rights and scope.

This type of audit should only be carried out by an independent, qualified auditor (usually a Chartered Accountant or Certified Public Accountant) every one to three years depending on the size of the spend and strategic importance of the agency to your business.

There are also specific types of contract compliance audits that you may want to undertake at the end or beginning of your agency relationship:

    • Exit audit: carried out after notice has been served to terminate the agreement. This type of audit helps to ensure the account winds down in a structured and orderly manner, ensuring that all reconciliations have been carried out and any monies owing (to either party) are paid in full.
    • Implementation audit: ensures both parties are interpreting the contract in the same way – a bit of a sanity check. Carried out within the first 6 months  of the contract’s start date, it helps iron out any of the initial teething problems that may occur.

Media audit: is the benchmarking process that records actual bought media price points and measures their relative position for both cost and quality  against a benchmark, traditionally a representative pool of prices paid by other advertisers. These tend to be done at least annually and can be carried out by anyone with a thorough knowledge of the market.

Statutory audit: is an audit of the financial statements of a company and is provided to shareholders to give them an opinion on whether they provide a true and fair view of the performance of the company. These can only be carried out by an independent registered auditor.

Don’t spill a drop

So, if you’re reading this with your ‘to do’ list flashing at you as a reminder that you should be doing something else, take a look at where ‘audit’ sits on it.  Should it really be below marketing budget planning, reconciliation and forecasting? Or do all of these rely on exactly how the terms of the contract have been defined, interpreted and carried out in the first place? If you have the peace of mind up front that your house is in order, then the rest should be child’s play.

 

If you’d like to speak to someone about a contract compliance audit or would like to receive these blogs in your inbox, please get in touch.

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