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.
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.
CAclubindia
