Agencies may come under tougher scrutiny soon as a result of an Association of National Advertisers (ANA) report due out this month.
The report on agency rebate practices is the result of a monthslong investigation by K2 Intelligence and Ebiquity and is likely to bring into focus how advertisers conduct audits of their agency partners.
Audits, of course, have been standard practice for decades, designed to give clients deeper insight into how effectively their agencies and other partners are spending their media budgets.
But with controversial practices like media arbitrage, rebates and so-called “double dipping” increasingly making headlines in the past few years, marketers are eager to gain back control of their media spend. And they’re looking to audits as not just a way to benchmark their agencies, but to uncover what they may be hiding.
“Transparency is certainly a big topic for clients right now,” said Bhavana Smith, senior manager at Accenture Media Management, the firm’s media consulting and auditing arm. “More are coming to us because they want to make sure their dollars are working to their best potential.”
Audit FAQ
Traditionally, advertisers bring in third-party auditors from Ebiquity, Accenture and other firms to review their media spend quarterly, semi-annually or annually. The process lasts six to eight weeks.
Audits come in two forms. A pitch audit looks at a representative sample of media spend to predict future agency rates. A live media audit processes agency data and invoices to compare rates with historical and market benchmarks. If an agency isn’t meeting KPIs, clients can put their account up for review.
At Accenture, the scope of work – defined by the auditors, advertiser and sometimes the agency – depends on client needs, Smith said.
“[We rate] the quality of the media buys, which changes based on the client, and how they spend, go to market and define quality,” Smith said. “We determine that during the audit.”
Auditors can only access data that falls within scope.
“Agencies send us their units of actualized data. We process it and do a unit-by-unit level match with a third party like Nielsen,” Smith said. “Then we have a system of comparing cost on a like-for-like basis to make sure the price comparisons are the same year over year.”
In digital media, which often lacks a third-party verification source, auditors are left to rely only on agency data, Smith said.
“Digital audits are more difficult because of the tech involved,” said David Harvey, director at UK media agency and consulting firm Altair Media. “It’s not just the price you pay, but what you’re getting for that price.”
In a programmatic buy, it’s impossible to see what’s stuffed into the billions of bid-level transactions occurring in real time every day by looking at an invoice.
“There is a mechanism for checks and balances in TV,” said Tyler Liebowitz, VP of partnerships and business development at programmatic trading intelligence platform AD/FIN. “You’ll get an invoice and a receipt from CBS, but you won’t get a receipt from the 12,000 long-tail websites you just ran an ad on.”
The Contracts
To uncover what’s actually baked into media fees, advertisers must dive into agency financials.
“Where a media audit is looking at how well the dollars were spent, a finance audit will get into the cash flow between client, vendor and agency,” Smith said.
But agencies may weave “audit rights” into their contracts to limit access to their books. And at large agency networks that hold their trading desks as subsidiaries, the client, which has a contract with the agency, may not have the right or the means to audit the arm that’s actually buying media.
“You’re now buying from a separate legal entity,” Harvey said. “The agency can be audited, but [vendors like] Xaxis and Audience On Demand can’t.”
Despite this, financial audits have not increased dramatically in the past few years, Smith said, and it’s probably because advertisers don’t know what to look for.
“We work with so many clients. They all have different degrees of knowledge about the marketplace and trends, what to ask for and what not to ask for,” she said.
The Auditors
When auditors don’t have media-buying expertise, it’s difficult for them to determine what’s really stuffed into a buy – and how much agencies may be skimming off the top. They rely on agencies to interpret data, creating a conflict of interest.
Smith said her auditors have worked at media agencies, but not all have been buyers.
“There are always anomalies,” Smith said. “We want to make sure that’s incorporated into the interpretation so our insights and recommendations are valid. Since our background isn’t media planning or buying we need to figure out if our actions are correct or not.”
Programmatic gets even more complicated.
“The actual cost of the media is only captured in the closing cost of the auction,” said Adam Heimlich, SVP of programmatic and managing director of HX at Horizon Media. “None of the traditional auditing firms have [ever] asked for that.”
Horizon uses AD/FIN as its programmatic auditor, allowing it to process hundreds of billions of bid-level transactions each day to provide granular insight into every buy.
“A lot of our clients see these as receipts for transactions,” said Andrew Altersohn, CEO of AD/FIN. “It’s a way to tie the impression with a direct price and associated fees. That opens the door to be able to do next-generation audits.”
But most clients don’t know they can access this data unless their agency tells them. Some don’t even know it exists, Altersohn said. And despite having it, advertisers still need to be careful about their contracts and make sure they own the relationship with their vendors.
“Advertisers need to be smarter about what rights they want to give up,” he said. “Our system is only as smart as the data it can access.”
The Advertisers
As the issue balloons, agencies are taking baby steps toward greater transparency.
Some advertisers, feeling angry and cheated, have considered moving their ad operations in-house. Others realize that, as owners of the budget, they are in control.
“Advertisers [in general] are not requiring more transparency,” said Steve Guenther, VP of digital auditing services at the Alliance for Audited Media. “They say, ‘This is what we’ve always done.’ But they’re on the hook for $7.2 billion in ad fraud, so they’re waking up.”
Many hope the ANA’s report will cause advertisers to get smarter about their contracts and demand greater insight into media spend.
Ultimately, regardless of contract language, clients have a right and obligation to follow their own money trail, said Adam Cahill, founder and CEO of programmatic agency Anagram.
“They will get answers, or they will stop working with people who won’t give them,” he said. “What that means for the agencies, I don’t know.”
