Media agency compliance audits: Follow the money

Chances are a huge proportion of your brand’s annual marketing spend is channelled through your media agency. Its buying power, your money — it’s an unbeatable combination, right? But do you actually know whether you’re getting what you’re paying for? Are you fully benefiting from all the media-buying muscle being flexed on your behalf? Enter our media compliance audits.

Today’s media landscape is notoriously complex. There’s a staggering diversity of global and regional media channels, aggregation, mediation and distribution platforms, ad exchanges, affiliate relationships and networks, all connected via a head-spinning variety of programmatic advertising mechanisms, performance metrics and transactions.

Which is one reason we’re seeing the big media agencies grow and thrive. They get a complex and important job done. Over the years, more and more buying power has become concentrated in a handful of global and very profitable media agency holding companies. Through the media-buying businesses they own, they wield power and influence over an entire industry… a web of trading agreements, rebates, volume deals, discounts, free space, services and inventory. All of this is fed and nourished entirely by the media budgets of major advertisers like you.

It’s important to trust, but it’s vital to verify

Faced with a complex ecosystem, lots of moving parts and just a few major players shepherding a veritable Amazon of fast-flowing cash, your business antennae should instantly trigger an alert. Lots of components rubbing together equals a high likelihood of accidental and systemic frictional losses. Operational inefficiencies, outdated business practices, slipshod accounting, oversights, mistakes… it absolutely demands due diligence because, while it’s important to trust, it’s downright vital to verify.

And that’s precisely where our media contract compliance audits come in.

Contract compliance audits of media agencies are nowadays seen as a vital governance tool to give brands and budget-holders a clear picture of how efficiently and effectively their investment in media is being put to work.

Why media agencies need regular financial audits

Let’s scan some of the potential red flags inherent in the current media-buying environment:

• Profit, more than passion: While your creative agencies are typically driven by people passionate about making a difference to your brand (and which pose their own challenges), your media agencies are probably part of a large, dispassionate holding company with their own shareholders and stock prices to worry about.
• Closed-shop vs open market: Agencies which are part of large groups may be more likely to use other group or associated companies to provide relevant services. This may not be obvious, disclosed, or helpful to the way your media budget should be planned for maximum impact.
• Inconsistent and more complex accounting: Clients are increasingly looking for a ‘one P&L’ approach from several agencies grouped together by a holding company to provide a ‘one stop shop’. While clients may now receive their invoices from a single agency (typically the media agency), there aren’t economies of scale for the agencies involved as the financial systems required to support the different disciplines (e.g. media, creative, PR, CRM etc.) are siloed in the different agencies. In fact, it’s more complex from an accounting perspective as all bar one of the agencies now have to bill via the lead agency, meaning there’s a new financial process needing to be controlled both individually and collectively. Moreover, time recording at agencies is not generally as robust as, say, at a law or accountancy firm. Stir all that around and it can take a complex situation and make it downright impenetrable without regular checks.
• Big bucks: Large sums of money flow across a very high number of transactions. There are both valid and not-quite-valid reasons for variations in actual spend vs plan: financial reconciliations are required at a campaign level, especially for digital media. Actuals absolutely need to be reconciled against estimated performance and cost. Are you paying and managing the agency appropriately so that it is incentivised to make the time, expertise and resources available for this?
• Cashflow is king: Cash management is a high priority for both clients and agencies, owing to the high volume of transactions and some necessarily back-of-envelope campaign budgets. If you have a cash neutrality clause in your media agency contract, while you can use your accounting system to see if you are paying on time, what it won’t tell you is if it took you 4 weeks to raise a purchase order, the agency invoiced on receipt, but it was still too late to take advantage of any early payment discounts on offer and enable the agency to meet its commitments to media owners. For that you need a qualified accountant to visit the agency.
• Custom and practice varies: Believe it or not, media owners / sales houses are not always adept at billing, leaving media placements uninvoiced (yes, really!). Clients call it ‘unbilled media’ and agencies call it ‘unpaid media’. Depending on the country you are spending in, these are typically five or six figure amounts over the course of a year. You’ll want to keep a close watch on the balance and reclaim it as soon as the contract allows; the agency will be more relaxed about getting the paperwork ready.
• Your money, my rebate: Discounts and rebates, including annual volume bonuses (‘AVBs’), on media placements are part of the industry’s standard commercial practice. Should the benefits go to the agency’s bottom line or to the advertisers whose cash made them possible? How do you handle non-cash arrangements, like barter transactions, or services provided by the agency to a media owner at a premium to their true market or economic value?
• Multiple remuneration models: Further uncertainty creeps into the equation thanks to the variety of different (and often overlapping) remuneration models that prevail. These can include retainers, media planning and buying commissions with different commission levels for different media and performance-related fees.
• Sorry, I’m new here: Staff turnover at agencies is notoriously high — 30% per annum is fairly standard. So one in three members of staff will have been doing their job at the agency for less than a year. Not ideal for people-focused businesses: processes, controls, continuity and accountability typically suffer.
• Your budget, our rules: We find that the travel and expense policy agency-side is often far more liberal than client-side. So you can get charged for expenses that would simply not go down too well if you were to put them in front of your line manager!
• We’re not numbers people: Despite the large sums of money channelled through media shops, we often see weaknesses in their financial processes and controls because the people administering them on a daily basis (account and investment managers) are not financially focused (understandably). Furthermore, the finance department at a typical agency lacks the human resources, level of influence and respect it enjoys within client organisations: you may well find that the Finance Director is still the most junior member of the Board.

Hardly surprising, then, that contract compliance audits of media agencies are nowadays seen as a vital governance tool to give brands and budget-holders a clear picture of how efficiently and effectively their investment in media is being put to work. Typically, Financial Progression’s clients see us as members of their extended team: we ‘have your back’. You can rely on us follow the money trail and enable you to be firmly in control of the financial side of the relationship you have with your media agency.