Common contract compliance audit objectives

Why do brands typically carry out contract compliance audits of their marketing agencies? Over the years Financial Progression has found that our audit clients’ objectives broadly fit into two main areas…

1. Some focus on the day-to-day working relationship, commercial and financial management, seeking to find out what is working well, what is not and then take appropriate action
2. Some focus on finding cost savings for reinvestment behind the brand (often essential in the current economic environment).

Over a number of years, we’ve observed brands moving from one to the other and then back again. Brands start out seeking to optimise the working practices, relationship and financial management of the agency. If it’s the first time the brand has carried out a contract compliance audit, after reading the findings of that first audit report and realising just how much of the marketing budget is not going directly behind the brand, the focus shifts to finding and repatriating funds from all its agencies back into the marketing pot (or, in some organisations, to bolster the bottom line).

Once the brand has realised that its agency’s financial management practices are often the industry norm and that there are other brands out there with similar experiences, the focus shifts back to ensuring that the commercial relationship is actively managed: contracts are re-drafted (or put in place) using the findings from the audit; scopes of work are defined (and by the start of the year) and service level agreements are put in place (sometimes with a proportion of the fee becoming performance-based on those measures).

… most brands realise that a regular programme of contract compliance audits of marketing agencies/marketing compliance audits is best practice.

By this stage most brands realise that a regular programme of contract compliance audits of marketing agencies/marketing compliance audits is best practice and dovetails nicely with the organisation’s financial, risk management and corporate governance objectives, engaging the Board in discussions about Marketing and Procurement in a whole new way. This then drives more frequent discussions between the Procurement, Marketing and Finance Directors, resulting in the brand becoming much more in control of its marketing budget and agency relationships. Both the brand and its agencies are then better placed to focus on what really matters: driving consumer/customer awareness and purchase.