Byravee Iyer
Nov 9, 2016

Report alleges gaps in agency-advertiser media contracts

An analysis of 121 audits in the Asia-Pacific region reveals significant agency-advertiser risks.

Report alleges gaps in agency-advertiser media contracts

According to a study by FirmDecisions—the audit company that was actively involved in the ANA reports, 26 percent of advertisers in Asia-Pacific do not have signed contracts with their media agencies.

Furthermore, 25 percent of contracts do not allow sufficient audits. Some audit clauses have attempted to limit the scope of the audit, while agencies have also created separate entities whose transactions are not subject to audit.

The study was taken from the firm’s 2015 audits across the whole region: Australia, New Zealand, Singapore, Thailand, Indonesia, Malaysia, Hong Kong, China, Japan, Korea, Philippines, Vietnam and Taiwan.

“In fact, agency groups are now actively attempting to influence client’s choice of auditor—not something they have a right to influence,” the report states. “The client should have the right to appoint the auditor of its choosing to ensure independence and full transparency of the interlocking trading chain.”

FirmDecisions maintains that the choice of an auditor should belong to the client and not be influenced by an agency. “Some agencies are trying to prescribe that the audits can only be done by a Big Four accounting firm,” said David Brocklehurst, FirmDecisions’ APAC MD. “In fact, that may become the choice of the client. But, the client should not be limited to that choice.”

Often, agencies will refuse requests for data, reports or contracts, citing that the contract does not require them to provide this information to an audit. “Our quest is to get in front of the problem by alerting advertisers to ensure that their rights for audit are not being limited or defined by the agency,” Brocklehurst added.

The study also revealed that in 40 percent of the audits, rebates had not yet been returned to the client by the agency. This is due to a variety of factors including calculation errors, media omissions, late payments and so on. Some advertisers were not even aware of their right to receive rebates, allowing the agency to retain access unless or until asked.

In 43 percent of cases, access to relevant financial records was restricted by agencies. This limits the opportunity for the advertiser to ensure that the actual media cost has been passed on to the advertiser at cost without any mark ups. “Without full data access, it is possible that agencies have been charging advertisers for space that the agency group entities have received for free,” the report added.

In 60 percent of audits, FirmDecisions found insufficient or incomplete causes in contracts, enabling agencies to develop media plans that maximise rebates for the agency.

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