Mumbai: A big league packaged goods company recently approached a multinational audit firm in Mumbai to scrutinize how its advertising budget is being spent—and possibly misused—by its media buying agencies. At a time when money is tight, this advertiser wanted assurances that its ad rupee is being optimized and the entire ad spending process made more transparent.
“The money spent on advertisements is significant, so the company wants to make sure that they are getting what they paid for. There have been no stringent audits in this sector in the past, so it is a new trend,” says the executive director of the audit firm who does not want his company named. The project, the first of its kind for the auditor, comes with a huge fee.
All for it: Shashi Sinha, chief executive of Lodestar Universal
Such audits would help companies reassure themselves that they are getting adequate returns on their ad budgets as economic growth slows, markets falter and consumer spending tightens.
For auditors, it means a new and potentially lucrative source of revenue.
This audit firm will inspect the media agency’s bills and validate if the money allocated for production of radio spots, television ads and for outdoor advertising has been spent judiciously, said the same executive, who’s buoyed by the prospect of winning clients from among other big advertisers.
“Many more companies will conduct audits on their ad spends to ensure corporate governance in a falling market,” he says.
To be sure, local and international firms such as R3, Ernst and Young India Pvt. Ltd, and Spatial Access Media Solutions Pvt. Ltd have audited advertising spends in the past.
For example, a large soft drinks company has been going to a small auditor to monitor its ad spending. The change, says another auditing company official, is that the process is evolving from monitoring documentation to a harder, more investigative role.
Ernst and Young’s audit of media spending is currently more process-driven, including advising clients on contract execution three-party deals between broadcaster, client and agency. Farokh Balsara, partner at Ernst and Young, claims to audit over 40% of total ad spending in India and foresees an increase in clients seeking scrutiny because of the economic downturn.
The main areas that Ernst and Young monitors are media delivery performance, agency contracts and compliance. “If a client is spending Rs100 crore (as media spend) yearly, then can he reduce it to Rs70 crore and get the same kind of reach and efficiency? Those are the questions we address,” Balsara says.
Geeta Tolia, partner, tax and regulatory services, Grant Thornton India, says advertisers are seeking two kinds of auditors: one that validates media processes and the other includes specialists in rate bench-marking who determine whether clients are getting the best rates.
Many advertisers are or will work with both kinds, Tolia says. She also notes that the economic downturn has increased acute awareness among clients in relation to their ad spending and made the role of audit companies more relevant.
One advertiser, who does not want to be identified, agrees and says he is looking for an audit company set-up that doesn’t just involve a clinical examination of contracts and efficiency, but also rates benchmarking.
Such eagle-eyed inspections could turn the screws tighter on media agencies that are already coping with tightening ad budgets.
Some media buyers such as Shashi Sinha, chief executive officer of Lodestar Universal Pvt. Ltd, are, however, unperturbed. “An audit in the short term may give you sweaty palms. But in the long term, it will bring transparency of processes. In financial downsides or otherwise, a client takes on an audit because it’s his prerogative to do so,” Sinha says.
Many advertisers see merit in such scrutiny while not publicly admitting to knocking at auditors’ doors.
Abdul Khan, president of marketing, Tata Teleservices Ltd, says that most companies would be looking to either save on spending or double-check that their ad budgets are used judiciously in the downturn. “There’s obviously a specialization required for this—scientific metrics are needed—which is why external audit companies will be sought out by marketers.”
The trust quotient between advertisers and their media agencies particularly comes under the microscope with such investigations, especially because some advertisers have suspected their media agencies of financial jugglery and cooking the books in the past.
Trust factor: H.K. Press, president, Godrej Consumer Products Ltd. Abhijit Bhatlekar / Mint
H.K. Press, executive director and president, Godrej Consumer Products Ltd, says that he has been approached by an audit company in the recent past, but declined because he has enough internal controls in place.
“Theoretically, it is possible that advertisers are over-billed by media agencies, or that agencies and broadcasters enter mutually beneficial deals irrespective of client interest, which is why advertisers will seek external auditors. This would be more pronounced in times of financial downturn,” Press says.
Greg Paull, founder of R3, a global consultancy, says the current downturn will increase the focus on returns on investment. R3 audits individual client ad spending and works with multinational and local marketers across 35 countries on a fee basis. “Companies are looking at all their external vendors for cost relief in these tough times—it won’t be business as usual. Indian marketers will most likely need to invest more in research and analytics to really measure which elements of the marketing mix are working best for them,” says Paull.
The winners will be the ones who “test and learn” to cut the waste out of the marketing process.
Paull says that an independent verification of performance can not only reward an agency for achievement, but also assure internal stakeholders in the finance and procurement teams that their marketing vendors are driving value and results.
He adds that in a project that R3 took on in six markets, the audit company showed just how well the media agency was performing by looking at cost reduction and value creation.
Still, there are voices of scepticism, and not just from media buyers. A leading broadcaster points out that during a downturn, brands and companies can queue up for audits all they want, but ultimately the lack of metrics in certain areas such as outdoor advertising will always leave some questions unanswered.
“In TV, we have states like Bihar without any metrics,” says this person. “In outdoors, there is no monitoring at all except what private players undertake on their own accord. If a campaign is meant to be run in a certain number of cinema halls, no one can be quite sure that the ad in fact has been run. How is an audit company supposed to advise clients on efficiency when there is no suitable metric to gauge how many people have seen the ad?”