How to Guard Against Rebates

Recommendations From Auditing Firm CEO Manuel Reyes

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The ANA recommends that agency contracts require any discounts be passed to the client. (Only 35% of the respondents to the association's survey said they now do.) Manuel Reyes, CEO of media auditing and consulting firm Cortex Media, recommends additional requirements. Specify that the agency represent the client as a "disclosed principal," so that deals with media companies -- and rebates -- are explicitly for a named client. This can help prevent one client's volume from being counted for a rebate that would be given to the agency based on buys for multiple clients but not passed through to any.

Specify that the client will receive a pro-rated portion of any rebates or discounts or other benefits generated across multiple client accounts through the agency's aggregate buying power.

Require invoice backup for all transactions, which will facilitate audits. This can prevent an agency from collecting money from a client for media inventory that was given for free as part of a rebate. It also can help auditors find unreported discounts or other provisions that might be hidden rebates.

Make provisions for periodic audits of the agency's books, not only for one client but across the agency's entire business. An audit of all the books is necessary, Mr. Reyes said, to detect rebates paid for volume generated across multiple client accounts.

Restrict, control or allow for monitoring and audits of agencies buying from related entities, such as their holding companies' barter operations or digital agency trading desks. "Buying through a related entity is fair as long as there's a bidding process and a related entity can beat a nonrelated entity," Mr. Reyes said.

Rebates become particularly tricky, and strict controls under contract terms and audits may have trouble detecting them, when they're paid to a holding company entity for business across multiple clients and agency brands, Mr. Reyes said. Yet auditing an entire holding company to look for rebates may be impractical.

In some cases overseas, rebates are paid to a related entity in another country, making them harder still to track, he said. "If someone goes to the trouble of hiding this correctly," he said, "it's virtually untraceable."

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