You’ve appointed a new agency. Tick. Done the exit audit of its predecessor. Tick. Read our audit report. Tick. Surely all that is left to do now is agree how any monies owing will be paid back? Actually, for the majority of brands, this is where the hard work starts. In this blog post I will explain why…

We would be very naive not to acknowledge that, initially, we are often hired to make sure that any money owed by the outgoing agency is identified. We’ve not done an exit audit yet where we’ve not found money to be returned. Of course not every exit audit is going to uncover a six or seven figure sum but, more often than not, we generate a 10-20x ROI on our fees.

Once the agency and brand have finished negotiating how and when the money we have identified will be paid back, you would think our work is over.

Not so. Very often there is still much ground to be covered…

There are typically three reasons why an agency will owe money to a brand at the end of their relationship. Two of them have the potential to be systemic across the whole of a business’s portfolio of brands and agency relationships.

These three reasons are:

1. Serious irregularities

We rarely come across serious irregularities. After all, the vast majority of people in this world get out of bed in the morning intent on trying their best to do a great day’s work. It’s as true for an agency as it is any business.

2. Contract loopholes

This is one of the biggest problems we find. We may have a gut feeling that an agency owes a brand money, but are not able to gather the evidence because of the way the audit clause has been drafted. Sometimes the audit clause in the agency’s contract is written in such a way that we can’t audit nearly as many of the financial transactions as our client would ideally like.

…the wording in the audit clause… was the biggest sticking point when it came to closing the deal. It even got escalated up to CEO level on both sides…

In fact when we helped one big brand construct its contract with a new agency, the wording in the audit clause, which we helped them get right, was the biggest sticking point when it came to closing the deal. It even got escalated up to CEO level on both sides, which just goes to show how important it was for both of them.

The reality is that if we review a contract where the audit clause needs to be tightened up, there is a strong possibility that there is a similar need in all the brand’s agency contracts. As you can imagine, it is not uncommon for us to be asked to advise on the wording of a standard agency contract so that it can move closer towards providing the level of financial transparency increasingly being demanded of important suppliers by corporate Boards.

3. System and process issues

If we uncover a large amount of money owed by an agency to a brand, it is normally the result of a process or system failure in one of these businesses (and often both). Once again, if a brand has this problem with one agency, you can bet your bottom dollar that it will have this problem with its other agencies. In businesses where there are multiple brands each using a different agency, it could even be a problem across all the agencies that the business uses.

Enjoying these lump sums regularly, however, can mean questions start to be asked

Of course, it is a nice bonus for a brand team to receive back a chunk of money after a contract compliance or exit audit. Enjoying these lump sums regularly, however, can mean questions start to be asked of the brand team’s financial management and governance procedures…

In summary

We don’t see the role of the contract compliance auditor as ending when we produce our final report. Our role is to help you achieve greater financial transparency of your dealings with your agencies, not just once a year, but regularly. This means that there is often work for us to do after an audit to tighten up contract loopholes and enhance your operational systems and processes so that you can manage your agencies efficiently and effectively every day.