What’s going on in the world of marketing compliance auditing?
Following a slow 2020 and 2021 — the pandemic period, as most people refer to it — the world is more open to doing business again. FirmDecisions has observed marketers increasing their marketing and media budgets back to pre-pandemic spend levels, or even higher in some cases. We have also seen the agency world grow much more complex. Marketers now work with a slew of different specialty agencies. This collaboration may be organized under a holding company umbrella or individual agencies that a group of marketer employees manage by function.
Because of these two changes, marketers want to better understand all their marketing spend, from media, creative, PR, and influencer to e-commerce and programmatic to list a few. The traditional audit areas of media and media agencies no longer satisfy their need for information. In addition, many media agencies are branching out into e-commerce, which saw a large influx of marketing funds during the pandemic. Marketing consulting — operating as a kind of advisor to the CMO or head of marketing — also burgeoned during the crisis.
With these foundational observations, we see three trends that will define marketers’ use of audits throughout the rest of 2022.
#1: Audit interest grows among smaller firms
Global clients and Fortune 100 companies have always been keen to perform contractual audits with their agencies on an annual basis. Audits serve as part of their internal controls to ensure their agency partners uphold and manage their enormous staffing, cash flow, AVBs and other contractual obligations. In this post-pandemic environment, we are seeing a substantial increase across the globe in local market clients with medium to large marketing spend who want to implement similar annual contractual audit programs to ensure their agencies deliver on transparency, staffing requirements and other areas.
Our clients tell us they want more frequent audits because of the growing complexity in the agency world, which stems from the change in marketing strategy. We also hear of a desire to improve collaboration and correct smaller issues to achieve corporate governance and healthy client-agency relationships. Clients also use audits to collect information and insights to better inform their future strategies within marketing, for an upcoming pitch, and to better understand the changed marketplace.
#2: Contractual audits go global
Another key trend that we are seeing is that marketers are taking a more global — or at least multi-market view — to contractual audits. We have seen many multinationals include their five to ten key markets in their annual audit program. This approach allows marketers to benchmark the results and better understand how different markets or agencies deliver on the contractual obligations of the client-agency relationship.
As you are all aware, the level of transparency and perception of market-specific benefits is always up for discussion with global and local teams. By auditing the key markets and higher-risk markets, the marketer gets better understanding of local market practice. This information allows them to allocate spend and resources better. It also gives insight as to how a global contract may need to be “localized” by way of Local Service Agreements, to ensure that the client can take advantage of the trading deals and local dynamics in each marketplace.
#3: Audits drive insight and trust
Many clients have been forced to change their entire company strategy due to the pandemic, and they need insights and information to feed their future corporate strategy. Since marketing is such a large part of a company’s spend — 8–15% of revenues on average — it is a great place to collect insights as to which agencies are a good fit, up to par with financial records and transparency as well as staffing and capabilities. Finally, it provides important insights into the operational processes of the agencies.
Other clients who perform contractual audits as part of their normal business cadence cite trust issues as part of the reason for their audit. Annual audits help drive the communication and collaboration between the client and the agency. This dialogue helps mitigate trust issues that, if left untouched, create conflict and often a pitch. Many agencies are in fact open to annual audits as it eliminates any doubt in the marketers’ view that the agencies are not playing fairly in the relationship.
Exit audits offer a particularly clear example of the type of insights audits can offer. As we have seen in the press, 2021 and 2022 saw an influx of agency pitches. In 2021 alone, AgencyMania listed approximately 150 clients that pitched their business. With this, we saw a significant increase in exit audits. Some clients feel that performing an exit audit is like putting salt in the wounds of the terminated agency. But all contractual relationships should end with a clean report of any financial and contractual standings between the client and the agency.
Often, agencies have unreconciled financial balances belonging to the client on their balance sheets — these often amount to significant value for the client. It is also common for agencies to transition key talent from an account upon receiving a notice of termination. This will of course impact the current client deliverables during the termination period, often three to six months. Possibly, most importantly, a contractual audit can also feed your new contract negotiations and thus improve your future contractual relationships. Therefore, it is imperative to perform an exit audit and corresponding first year audit of the winning agency.
Who’s who in an audit?
Which teams on the marketer side drive the increased interest on the client side to perform marketing audits? We have found increased interest from all areas of commercial marketing. We work closely with marketing procurement teams in the North American region, and across the globe, and in doing so see an increased interest from agency management teams. These teams work closely both with marketing and procurement. In many cases we work directly with the marketing team in formulating their global or local and annual or multi-year programs. Finally, internal audit teams are also keen to discuss how our services can help deliver corporate governance both locally and globally.
For global or regional teams, we deliver a platform to easily track projects across markets. This tool allows all teams to see the projects live through an open-source program and to instantly see project status and findings by agency on a local, regional, and global level. It also shows year-over-year results and can inform and drive annual discussions with agencies.
In short, the platform gives clients access to all the audit information all the time. With this access to audit information in a much timelier manner than in past years, the audit programs become much more future-focused, fueling insights to determine strategies, partners, and execution.
This feature incentivizes clients to audit annually. It also drives better communication with the agencies and leads to longer, stronger relationships. Annual audit programs not only uncover possible large-scale issues but allow for smaller findings to be identified and remedied quicker, thus avoiding a snowballing effect and these issues linger and creating mistrust or frustration on the client side.
