FirmDecisions is the largest contract compliance consultancy in the world. We provide financial transparency in the client-agency relationship to the world’s biggest advertisers.
What are advertising audits?
Advertising audits are contract compliance audits of creative, production, and Below the Line (BTL) agencies involved in the development of advertising campaigns.
The key elements of an advertising audit would include:
- Confirming compliance to a client/agency contract or agreement
- The audit of agency remuneration
- The audit of production and other pass-through costs
- The audit of chargeable expenses
- Ensuring that a client’s procurement policy has been followed
- Identification of related party transactions
- Identifying any process issues that could impact cost and delivery
An advertising audit may identify local non-compliance with a network creative 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.
The audit of agency remuneration would determine whether the correct charging mechanism was being followed, be it a commission arrangement, mark-ups on production, fixed fees, retainers, rate card based, or a cost plus calculation. Where an agency is charging for time, an advertising audit would examine time recording records and controls to ensure that the client received the resources that it had paid for.
A creative or production agency purchases services on behalf of its clients, such as TV production, radio, press advertising, digital banners or outdoor posters. Most contracts will expect the agency to recharge such production costs at net cost to the agency. An Advertising Audit will confirm that production or other pass-through costs have been correctly reconciled and that the agency is not retaining any balances that should be refunded to client. In the same way, expenses should only be recharged in accordance with the contract and an advertising audit would vouch these recharges.
A key role of a creative agency is to source production and other creative inputs from third parties. An advertising audit follows the purchasing cycle to confirm that the controls expected by the client are being implemented by the agency’s procurement team.
It is quite common for an advertising agency to use related parties such as branded divisions, joint ventures, or other group companies to provide services. These should be contracted on an arm’s length basis and be subject to the same level of procurement scrutiny as any third party supplier.
Cost overruns and over-delivery of agency time often result from poor processes or lack of controls. An advertising audit will identify such weaknesses and offer suggestions for improved information flows.
The benefits of an advertising 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 refund of creative over-billing, the write-off by the agency of unauthorised overspends, or the disallowing of non-chargeable expenses. 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 an advertising audit?
Any client with a significant advertising budget 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.