Letter of Agreement Best Practices

Agency Agreements Lacking Adequate Audit Rights

By Contract Compliance Auditing, Letter of Agreement Best Practices, Right to Audit Clauses No Comments

For those organizations operating without a Right to Audit clause or a weak clause in their agency agreements, marketing suppliers can outright refuse to cooperate or significantly limit the scope of a proposed audit.  In some cases, the missing clause could turn what would have been a relatively quick and cost-saving process into a long and difficult effort.

More often than not, however, even without a written contract right, most marketing suppliers will allow an audit, especially if the advertiser is or was a major client.  An agency that refuses an audit request knows that it could be portrayed as having something to hide.  Sometimes circumventing your current agency contact and appealing to a superior may result in a positive outcome, since senior management may be unaware of all the reasons for the initial contact’s refusal.  Moreover, certain marketing suppliers may embrace the audit as an opportunity to voice concerns if it thinks it is being unfairly treated, wants to discuss process change, or is seeking additional business from the advertiser.

To obtain a right to audit, options include, in order of preference: (1) amending the current Client-Agency Agreement to add a right to audit clause; (2) adding a right to audit clause within an ancillary document such as a Statement of Work (SOW) and or an annual amendment to the master Client-Agency Agreement; (3) creating a new document signed by both parties creating a right audit and adding it to the vendor master file; or (4) the least desirable option, filing a civil lawsuit and subpoenaing the documents needed to conduct an audit.  When adding a new contract right, it is also important to ensure the audit clause is well-written, clear, and comprehensive.

Most importantly, once the right to audit clause is in place, the advertiser must exercise its right to detect and deter abusive or wasteful practices and potentially recover appropriate funds.  This can include performing regularly scheduled limited audits for some accounts, conducting comprehensive examinations on an annual or bi-annual basis, or performing exit audits after an agency relationship has been terminated.  Often overlooked, as well as extremely effective, are post-audit monitoring programs with metrics specifically tailored to each relationship that can be objectively measured.  Results can be shared and act as a self-policing mechanism to maintain improved performance.  These performance metrics can also be integrated into client-agency evaluations.

Right to audit clauses are a necessity in today’s business environment.  Determining a schedule, methodology, and defined approach that encompasses all members of an organization’s marketing vendor network provides assurance to management that it has adequate rights to oversee its advertising dollars and can identify and take advantage of opportunities for efficiencies through improved oversight.

Interested in a complimentary second opinion on your agency agreement right to audit clause?  Contact Jim Bean, Principal, AARM at