Hide and seek: The game of audit clauses in agency contracts

When you’ve audited as many commercial marketing contracts as we have, it would be fair to say that we’ve seen a very wide range of audit clauses — from nothing through to documents which are separate to the main commercial contract, and are even longer and more detailed!

A good audit clause should allow a brand to have access to anything and everything in relation to the financial side of its account with the agency, so that it can know with confidence that the agency’s stewardship of its money is beyond reproach.
In reality that means making the audit clause as specific as possible to explicitly provide access to parts of the accounts where the agency might post transactions it would rather the brand did not know about, such as rebates, commissions, mark-ups and “management fees”.

If, when negotiating with an agency, you start to get push-back on specific wording in the audit clause or hear the words ‘client confidentiality’, know that you should stick to your guns and hold out for the wording you want to appear in the contract. Brands who agree to a less than detailed clause at this point may not have the financial transparency they later think they should have. This can mean that brands lose out financially in the long run. We’ve experienced a number of times that, when it comes to the compliance audit, agencies will find ways to claim that certain areas of the accounts are not within the scope of the audit clause. Invariably these are the areas where they are most likely to post the transactions they do not want you to see! Brands can get access to these areas, but it is significantly harder than if the negotiation had been done up front.

A good audit clause should allow a brand to have access to anything and everything in relation to the financial side of its account with the agency, so that it can know with confidence that the agency’s stewardship of its money is beyond reproach.

If this does happen to you, we advise taking a step back to reflect on the agency’s less than enthusiastic response to your desire for transparency. It may lead you to question its motives for seeking to restrict the scope of the audit clause. That, in turn, may lead you to question whether this is the sort of business you want to associate your brand with.

We advise brands to get on the front foot so that this scenario never arises in the first place. Develop a standard agency contract with a detailed audit clause which has been reviewed by your legal team and a contract compliance auditor. Make acceptance of this contract by the agency mandatory before you start to negotiate with it on service scope and pricing and certainly before it does any work for you.

Do the hard work up front and later you’ll be rewarded!