Organizations spend billions of dollars annually to get their brands noticed by the public. ZenithOptimedia, a London-based global advertising agency, projects that worldwide advertising spending will surpass US $525 billion by the end of 2013. While this is a huge number, it is just the spending on advertising alone; it does not include compensation and benefits, IT expenditures, market research, and internal and external public relations and communications. Regardless of the size and type of organization, each has its own brand, and its marketing efforts are focused on affecting the public’s opinion of that brand.
Despite the huge financial, reputational, and brand risk, many audit departments shy away from reviews of the organization’s marketing activities. One reason for this may be the perception that marketing is a “squishy” area — a confusing morass of vendors and media that is all about capturing “eyeballs.” There is a perception that, despite its use of hard dollars, the measurements are recorded in soft results — not a comfortable situation for some auditors.
Two important factors support internal audit’s need to complete work in the marketing arena. First, marketing can represent a significant expense for organizations, making it a difficult risk to ignore. Second, marketing is often responsible for the protection and integrity of the organization’s brand. Without a solid brand, the organization may as well not exist.
While marketing terms and concepts may be unfamiliar to auditors, the associated risks are similar to those organizations face with any other process and the same controls should be in place. For auditors who evaluate marketing functions, it is a matter of becoming familiar with those terms and concepts, and learning where the risks and related controls exist (see “What Is the Marketing Process?” below).
What is the Marketing Process?
The first thing internal auditors should understand is that the marketing process is not limited to the marketing department. Everyone in the organization has some involvement in marketing, regardless of whether they have direct contact with the customer. Accordingly, reviews of marketing processes should not be restricted to just the marketing department.
It also is important to understand what is meant by the term marketing. The U.K.-based Chartered Institute of Marketing defines it as a “management process responsible for identifying, anticipating, and satisfying customer needs profitably.” Marketing professionals also have come to general agreement on the eight “P’s of Marketing,” which provide more substance to this definition.
- Product. Aligning the value of the organization’s “product” with the consumers’ wants and needs
- Price. Balancing the value offered versus the price asked.
- Promotion. Delivering the organization’s message to the market.
- Place. Connecting the organization’s message so it reaches the right person at the right time for the right cost.
- Packaging. Determining the presentation, location, and actual package that surrounds what is being marketed.
- Positioning. Identifying the emotional connection the product should have with the consumer.
- People. Aligning customer service activities with the desired brand delivery.
- Purpose. Determining the purpose of marketing deliverables to ensure they align with the organization’s objectives.
Although these definitions reinforce the idea that everyone within an organization has some marketing responsibilities, the core skills usually lie within the marketing department. These include having in-depth knowledge of customers and competition; managing the brand; securing and directing agencies, contractors, and vendors; providing sales support; managing advertising and promotional campaigns; monitoring internal communications; demonstrating creativity; and managing fiscal and budgetary considerations.
True brand management involves understanding and trying to influence every possible touch point the business has with stakeholders. Three of the primary components of brand management are communications and marketing, the internal environment, and the external environment.
Communications and Marketing
This is the “presentation layer” of brand management, which encompasses how the message is communicated to stakeholders in all materials — including advertising, website, and signage. The main document that provides governance of these operations is the brand standards manual. A well-developed manual should include an overview of the brand; the details for any logos and taglines; the applicable fonts and color palettes; information on appropriate imagery, templates, and design standards; and details on the messaging that is to be accomplished.
In reviewing this area, internal audit will want to ensure complete standards have been established and communicated throughout the organization and staff have received appropriate training. Auditors also should ensure the organization has developed and completed brand standard quality reviews over all communications.
This refers to the brand’s positioning within the organization rather than the actual activities that occur. To support the appropriate internal environment, the organization should have identified the brand structure (i.e., is the product delivered under one or several brands?), organizational accountability (i.e., who is accountable for each brand within the organization?), necessary taxonomies (i.e., what keywords, associations, technical terms, and verbiage are used to communicate the brand?), and budget (i.e., what expenses are related to brand management?).
To ensure the organization has addressed the internal environment appropriately, internal audit should verify the brand structure has been defined, business units are aligned to support this structure, and there is appropriate use of taxonomies. The internal environment also is an excellent starting place for reviewing budgetary concerns, most notably whether all operations that impact the brand management budget have been identified and controlled appropriately. An analysis of payments made throughout the organization can help identify brand management expenses that have gone undetected.
This refers to the brand’s positioning within the external environment. The external environment includes the service level agreements used to maintain the brand standards, the organization’s facilities and their reflection on the brand, and customer service’s impact on the brand. The external environment also is about what sets the organization’s brand apart from its competitors’ brands.
To evaluate the organization’s response to external environment risks, internal audit first should determine whether the organization has identified the various customer impact points. Auditors then can identify those that present the greatest risks to the organization’s reputation and review policies and procedures intended to support brand management in those areas. Auditors also can ensure that differentiators have been identified, communicated, and applied.
Creative services can be defined broadly as the development and communication of the organization’s message. There are two primary aspects to creative services — qualitative and financial.
The areas that make up the qualitative aspect of creative services include:
- Research and Planning. Determining the best communication strategy and implementation.
- Creative Messaging. Documenting the rationale for creation of the deliverable, including the message’s goals; current market conditions; key features of the product, service, or organization; competitive landscape; target markets; and budget.
- Message Consistency. Ensuring the organization’s actions align with its intended message.
- Image Standards. Verifying the consistent presentation and protection of all aspects of the brand in all situations.
- Message Quality. Ensuring there is no degradation of the message, which includes review, quality control, and final sign-off responsibility.
Internal audit first should ensure that all of these areas have been considered and that there is coordination among all departments involved. Standards should be in place, and there should be evidence of quality assurance built into every step of the process — not just “after-the-fact” reviews. The key to evaluating the quality aspect of creative services lies in obtaining documentation of research, planning, development, and communication.
Most auditors are more familiar with the financial aspect of creative services. The primary expense categories to consider related to marketing materials include research and planning, design, production, media (i.e., television, print, radio, and social media), monitoring of success and consistency, and vendors. Audits of financial areas are a matter of understanding how these expenses are used and recorded in a marketing environment. Because of the significant use of vendors in most marketing operations, an analysis of vendor contracts, compliance, and billed expenses is recommended.
Media and Strategy Planning
Strategy and planning as it relates to media is the process of evaluating and assessing the various brand messages and marketing channels with the intent of prompting the desired customer action at the most efficient cost. There are three aspects to media strategy and planning — developing the strategy, developing the plan, and implementing the plan.
Developing the media strategy includes steps such as building the various profiles (overall market, product, competitive, and target market), advertising message (including how the message was developed), market priorities (which markets will be chosen), media mix (the forms of media to be used), media evaluation (how the success will be measured), media scheduling (when and how media will be delivered), and budget constraints (how money will be allocated among the media). The media plan is the tactical document that itemizes the areas considered in the strategy, including:
- The information obtained from the various profile analyses.
- The type of messaging.
- The market priorities.
- The media mix, evaluation, and scheduling.
- The specific media classes, vehicles, and units that are to be purchased.
- The cost of the media.
- The exact formats of units.
- The dates the media will appear.
- The expected results of that media.
Successfully implementing the plan depends on the completeness of the strategy and the plan itself. Built into this must be methods for measurement and feedback. Moreover, there must be assurance that payments are correct, supported, and issued for the intended services.
In evaluating media strategy and planning, internal audit should review two broad areas — the strategy and planning itself, and the financial considerations. Auditors should begin by reviewing the documentation around plan development, including the research and analysis that was performed. This documentation will allow auditors to determine whether the strategies and plans have appropriate support. Auditors also should assess whether the actual actions taken align with the articulated strategies and plans.
For financial considerations, internal audit must evaluate how expenses are supported and paid, including the timeliness and accuracy of the related payments. This will require auditors to gain a complete understanding of the discounts, refunds, and credits outlined in the contracts. Moreover, in some cases, organizations may use another agency to help monitor and pay agency bills. This means internal audit may have to work through a morass of agencies and documents to get to the true costs — but because it is where much of the expense lies, it warrants the extra work.
Differences Pose the Greatest Risk
While internal auditors are building their understanding of the unique aspects of the marketing function, they must ensure their approach looks at all areas of marketing to determine where to spend their resources. That includes evaluating familiar organizational risks that also exist in the marketing area such as strategies, governance, plans, expense approvals, budgeting, vendor management, regulations, and human resources.
It becomes quickly apparent, though, that many areas within marketing have processes similar to those throughout the organization, it is the differences that represent the increased risk. For example, although all organizations must be concerned about regulations unique to their industry, there are additional regulations that speak specifically to marketing, advertising, and the delivery of messages to consumers. And it is because of this uniqueness that internal audit must gain a better understanding of the overall marketing operations and the associated risks.
While this understanding is imperative for a successful review of these operations, internal audit can provide additional value. Although most executives recognize reputational risk as a key issue for the organization and marketing’s impact on reputation, they may overlook the significant expenses related to marketing operations and increased fraud risk. By advising stakeholders of the impact the marketing department has on these areas, auditors can help ensure these key risks are understood and mitigated at the highest levels.
ONLINE EXTRA: Read about auditing the marketing function's use of advertising agencies.