FirmDecisions is the largest independent global marketing compliance specialist. We provide financial transparency in the client-agency relationship to the world’s biggest advertisers.
Some questions about contract compliance reviews
What are media compliance audits?
Media compliance audits are contract compliance audits of media planning and buying agencies.
The key elements of media compliance audit would include:
- Audit of all discounts, rebates, and other agency benefits to ensure they are passed back to client in accordance with the contract
- Verification that all free space has been identified and passed back to the client
- Confirming compliance to a client/agency contract or agreement
- The audit of net media spend and other pass-through costs
- The audit of agency remuneration
- Identification of related party transactions
- The audit of chargeable expenses or other chargeable services
Media vendors offer an array of discounts and rebates to clients, in the form of cash, free space, and other benefits. A media compliance audit ensures that the client receives the discounts it is due based on any client specific contract. Furthermore, and critically, the audit will also identify such benefits that the client is owed based on its share of aggregate agency media spend – these benefits are commonly known as Annual Volume Bonuses.
A media compliance audit may identify local non-compliance with a network media agency contract. It is very common for local terms to be adopted, or prior contractual habits to remain in place, despite the introduction of a new contract.
A media agency purchases media time and space on behalf of its clients and most contracts will expect the agency to recharge such costs at net cost to the agency. A media compliance audit will confirm that media costs, be they in TV, Radio, Cinema, Outdoor, Press, or Digital media, can be supported by third party invoices, have been correctly reconciled and that the agency is not retaining any balances that should be refunded to client. In the same way, expenses and other charges such as ad serving, should be invoiced in accordance with the contractual terms.
The audit of agency remuneration would determine whether the correct charging mechanism was being followed, be it a commission arrangement, fixed fees, retainers, rate card based, or a cost plus calculation. Where an agency is charging for time, a media compliance audit would examine time recording records and controls to ensure that the client received the resources that it had paid for.
Media agencies have consolidated into major agency groups, with buying companies established to leverage the combined spending power of the group. A Media Compliance audit will, subject to audit rights, extend into ensuring the contractual requirements have been met by these related parties. It will also identify any additional group income streams that may have developed.
The benefits of media compliance audit
Apart from gaining comfort that a contract is being followed as expected, or learning of issues which should be addressed, the client is very likely to receive a financial benefit in the shape of the pass-back of unsupported media billings, the refund of AVBs due but not declared, or outdoor rebates not refunded. Other benefits could include the identification of credit notes not offset by client, the identification of under or over-servicing by the agency, or agency income earned in addition to the agreed remuneration.
Who should carry out a media compliance audit?
Any client with a significant media spend should consider such an audit. There is a compelling argument to ensure correct stewardship of client monies, test the implementation of the agreed contract, and identify opportunities for improvements in the client/agency commercial relationship.