NO ACCOUNTING FOR AGENCIES' FISCAL MESS;ADVERTISING NEEDS ITS OWN FINANCIAL SYSTEM

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I love the advertising business. It's dynamic. Creative. But when it comes to fiscal matters, this $150 billion industry is still counting on its fingers.

I've never met a product manager who couldn't find some useful way to deploy an unexpected addition to his or her marketing budget. Nor have I encountered a financial executive who could resist breaking into a Cheshire grin when an unexpected financial bonanza is found to fatten the bottom line. Yet chances are windfalls large and small, waiting to be harvested, are being blithely ignored by advertising agency executives.

Since the client and the agency are often jointly responsible for practices that squander precious advertising funds, so they must work together to adopt solutions-solutions that require dumping antiquated financial methods that don't fit the unique requirements of this business.

Advertising is not like buying a bolt of cloth or a supertanker filled with oil. It's different, with values that fluctuate according to all manner of shifting circumstances. Yet most advertisers and agencies favor systems that fail to accommodate this uniqueness.

Walk through any ad agency and you'll hear discussions of media strategies, copy platforms and breakthrough creative executions. But chances are you won't hear any talk concerning financial tactics-unless and until a serious financial blunder reveals how backward this industry is in keeping track of the client's money.

Major financial discrepancies, only some well publicized, occur all too often. One recent example: A leading national advertiser unexpectedly received a $2 million credit from its agency in its media billing. The client was thrilled, happy that its ever-vigilant agency heroes are on a constant search for value. Or are they?

What really happened is that an audit by another client unearthed millions of dollars of credits the agency had neglected to secure from the media over a five-year period. Although able to recover only a portion of these aging credits, in the process the agency also uncovered a tangle of monies due other clients.

There is a cure to the problem of agency mismanagement of ad funds. It's laid out in full in the May issue of the Journal of Accountancy. My article, "Decoding advertising costs," explains the method by which advertisers and agencies can cooperate in building a cogent financial system that captures value and automates accuracy. But here are some highlights to get you started:

For advertisers

Audit: Establish a periodic audit as the primary control over agency billing. Secure the billing transactions, subject them to audit verification and then confirm key characteristics of the value of the media.

Automate: Once the audit verification process is in place, automate as much of the control process as possible, eliminating paper-dependent procedures. Maximize information resources with direct linkage to your agency's computer system.

Streamline the transaction process: Centralize the recording, approval and payment of agency billing. It is more efficient and establishes stronger control over ad expenditures.

For agencies

Keep accounts current: This is a primary control over clients' billing. Lack of this control is the single biggest cause of billing mishaps. Make sure the accounting department reconciles and clears old outstanding items regularly.

Add to financial managers' responsibilities: Position the accounting department as each client's eyes and ears over the agency's media and production operations. While perhaps controversial, it will pay important dividends in better control over these operations and in building the client's confidence in the agency's handling of its finances.

Invest in strong financial operations: Set high standards for information systems, financial objectives and supervisory staff. It is cost effective and clients will appreciate it.

Mr. Garber is principal of Entec Consulting Co., a financial consultancy in New York.

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