Experience from his early days in accounts payable brought home an important lesson…
I was recently talking with a friend, who retired as a senior financial executive for one of the large global airline companies. During our conversation he began to probe on AARM and our agency contract compliance and financial management audit service. While most finance professionals today came into the business long after electronic data processing (EDP) and payment systems came into vogue, this finance executive did not.
After we talked for a while about the nuances of agency compliance and financial auditing, he shared a remembrance from his starting position in the accounts payable department in the early ‘70s… prior to EDP. He recounted processing invoices from the company’s ad agency and the “stacks of paper” that accompanied their invoices. One of the nagging concerns that the finance team always had was whether the agency was reviewing the third-party vendor invoicing for both accuracy and to validate performance or simply passing along the documents. As a result, they implemented a policy that no invoice would be processed until the marketing team had reviewed and signed off on the billing detail. The goal was to encourage both the marketing team and the agency to examine the billing support for accuracy, rather than simply processing for payment.
The estimated billing approach employed by most ad agencies used to be a paper-intensive process. Billing records not only had to be reviewed but stored and retained for at least 3 years. Thus, most advertisers waived the requirement for agencies to provide third-party vendor billing support with their bill-to-client invoices. Even with the advent of EDP and the digitization of records, advertisers were content to require their agency partners to retain the billing support and to make those records available for review if an advertiser chose to audit those documents. Today, if an agency invoice has been reviewed by a marketing representative and the dollar amount falls within the approved purchase order amount/balance the agency invoices are processed for payment.
Despite the size and material nature of marketing and advertising budgets, most organizations do not invoke their contractual audit rights to validate their agency billing support.
This reality evoked an interesting observation from my friend: “Processing payment, without a review of the supporting third-party vendor documentation is one thing, but to forgo periodically auditing those records is a classic example of blind faith.” His words, in turn, reminded me of a quote from rock legend Bruce Springsteen: “Blind faith in your leaders, or in anything, will get you killed.”