Making Sure the Work Fits the Bill
"Marking shift, advertisers are using outside firms to audit agency practices." David Brocklehurst is one of the few people in the ad business who welcomes financial scrutiny.
Mr. Brocklehurst is the chief executive of an international ad-agency auditing firm called Firmdecisions, which serves as a third-party intermediary between agencies and advertisers. Its growth reflects a long-term shift in the business.
Although the relationship between an advertiser and its agency once hinged on a friendly trust between the firms' top executives, these days clients are using outside firms to scrutinize every aspect of an agency's work, from its creative prowess to its billing practices. Advertisers call in Firmdecisions to make sure agencies are billing them properly and aren't overcharging.
Fuelling advertisers' concern is the fact that ad agencies' alleged financial snafus are making headlines. Last month, a grand jury' indicted two Madison Avenue executives, alleging that the pair worked with unidentified co-conspirators to defraud the U.S. government by inflating labour costs while at WPP Group's Ogilvy & Mather working on the Office of National Drug Control Policy account.
Both executives, Shona Seifert, who now works for Omnicom Group's TBWA\Chiat\Day, and Thomas Early, who has resigned from his post as chief financial officer of Ogilvy's New York office, have entered pleas of not guilty. Ogilvy has said it is cooperating with investigators and has instituted "the most rigorous accounting-compliance program in the history of our industry."
Firmdecisions has offices in the U.S., Europe and Asia and works for such clients as food marketer Nestlé, fast food chain McDonalds, cosmetics firm L'Oréal and liquor maker Allied Domecq. Mr. Brocklehurst, a 48 year-old Australian, founded the firm in Australia in 1997 after serving as finance director for agencies including WPP's Ogilvy & Mather in Australia. Firmdecisions set up a London office in 2000, and opened it's doors in New York last year.
Nestlé was one of the first companies to hire Firmdecisions in the United Kingdom. Philip Buckman, who at the time was marketing services director for Nestlé U.K. and now is an industry consultant, says Firmdecisions uncovered a number of errors that were small by themselves but added up significantly. The agency had charged it for things such as travel expenses and meals, which Nestlé hadn't authorized.
Mr. Buckman didn't identify the agency involved, but says such mistakes are common. "No one agency is doing it worse than the others - I think their control systems are lacking in certain respects," he says.
In another case, Firmdecisions discovered an agency staffer who logged 26 hours in one day and an average of 17 hours a day, including weekends, for one month. "We said even if it was true, how productive could she be?" says Mr. Brocklehurst.
Mr. Brocklehurst says mistakes often aren't the result of any sinister intentions.
Rather, errors can result from the increasing financial pressures faced by agencies. Sometimes agency owners create problems by paring back an agency's financialdepartment staff, even as clients demand more financial accountability from their ad shops. Problems also can arise when an agency network wins a client's world-wide business by agreeing to provide services at a lower rate. This revenue squeeze can be especially hurtful at the network's smaller shops, which don't have as many other big clients to cushion the shortfall.
Mr. Brocklehurst says agency staffers sometimes inflate their hours worked, not because the boss has ordered it, but simply because the worker is trying to look productive. Mr. Brocklehurst recommends that if a contract agreement calls for the use of time-sheets, then the client and agency should decide in advance how many hours a project requires. "If it's on the basis of an hourly rate, the client should still sign off on a certain number of hours," he says. "If it takes them 20 hours to do a 10 hour job, that's the agency's problem."
Published in The Wall Street Journal