Once Again About the "Timesheet" Thing
I can't tell you how many times as an agency president, I used to bang on in staff meetings about the importance of documenting your time and keeping accurate timesheets. We weren't a law firm, I'd explain, but if we don't get accurate timesheets from people, there's no way we could really know what it takes to do a job and that hurt our ability to estimate jobs accurately, fairly and (most of all) profitably.
Four weeks would go by and we'd have reams of unbilled (and unbillable) WIP (work-in-process) sitting on account managers' desks. My CFO would begin to sweat uncontrollably and I'd start pacing the halls. Eventually, we'd have another staff meeting and I'd cue up another "timesheet" lecture.
Believe it or not, we actually got to be pretty good about timesheets. All I had to do was tie year-end bonuses to them and the problem was (almost) instantly solved.
Imagine my surprise then when I read about the latest lawsuit involving WPP Group's Ogilvy & Mather, the Office of National Drug Control Policy (ONDCP) and - what else - timesheets. This is the mother of all timesheet disputes. ONDCP has filed an 11-count indictment against O&M and two of their senior managers accusing them of making false billing claims.
Today's online version of Ad Age reported that experts testified on Wednesday, saying O&M's timesheets and vouchers were "sloppy" and were either incorrectly filled out or missing altogether. "There were an excessive amount of timesheets that were scribbled on ... (and) there were also uses of correction fluid and correction tape," said Wesley Mandler, an accountant hired to audit the $700 million media advertising contract and supporting documents.
The prosecution is expected to continue making their case that O&M intentionally inflated the number of hours spent on the ONDCP account in order to "close an anticipated revenue shortfall on the account."
What's that mean?
In all likelihood, it means that in order for O&M to justify the commission they were taking on media and other related expenses, they had to "pad" timesheets to generate enough hours to warrant the fee. Those of us on the inside of the business know this happens - more often than we like to admit. And, typically, it's the result of gross income generated by mark-ups and commissions that can't be directly traced back to "billable" activities and services provided by the agency.
The root cause of this fraud is the same reason timesheets are so important and why agency personnel need to understand the essential value an agency brings to the client in the first place.
Commissions and mark-ups are a historical legacy for ad agencies and other marketing companies. They existed to compensate agencies for representing the services or products of a third party to a client. In fact, in the early days of the ad agency business, agencies used to purchase ad space from magazines in advance and then re-sell the space to clients at a "gross" rate that included their profit margin. The margin was essential because the agency didn't always sell all the space and would pay for unused space with retained revenues left over from other sales efforts.
As clients have become more sophisticated, they've taken more and more of the responsibilities formerly held by agencies and moved them in-house. As a result, the traditional mark-ups and commissions on third party services (like media or printing, etc.) have become harder and harder to justify. But ad agencies and PR firms are slow to change - a hard reality in a business that drives change in their clients - and rather than re-thinking the rationale for these service fees, some firms have taken to "justifying" them by providing timesheets that match hours spent on a client's behalf with the income generated through these alternative methods.
It's a big shell game and clients know it.
When the president of a small agency tells me that all she does to price a television spot is double the quote of the production company, I know that agency doesn't have a clue what it really takes to produce the spot (or service their account, I'll bet). When the manager of a PR firm tells me they charge 24% compounded interest on overdue accounts and build it into their revenue forecasts for the year, I know they have problems that go way beyond accounts receivable aging.
If agencies kept accurate records of all the time spent by all their people during the course of the year, they could see why some clients should pay a larger commission on media purchases or higher mark-ups on outside purchases than others. Some clients need more attention, are slower to pay their bills, are inconsistent in their relationships, etc. But other clients are great pay, fair minded and easy to serve. These are usually the more profitable clients, no matter what the total revenue generated by the account.
Timesheets and accurate record keeping are essential to knowing where you stand. Courage, honesty and transparency are the keys to getting clients on board with a fair compensation program for your company.
Later.
This information is (c) 2005, Brand Central Station, all rights reserved. If you are interested in receiving news and analysis directly from BCS, please log onto our website.
Four weeks would go by and we'd have reams of unbilled (and unbillable) WIP (work-in-process) sitting on account managers' desks. My CFO would begin to sweat uncontrollably and I'd start pacing the halls. Eventually, we'd have another staff meeting and I'd cue up another "timesheet" lecture.
Believe it or not, we actually got to be pretty good about timesheets. All I had to do was tie year-end bonuses to them and the problem was (almost) instantly solved.
Imagine my surprise then when I read about the latest lawsuit involving WPP Group's Ogilvy & Mather, the Office of National Drug Control Policy (ONDCP) and - what else - timesheets. This is the mother of all timesheet disputes. ONDCP has filed an 11-count indictment against O&M and two of their senior managers accusing them of making false billing claims.
Today's online version of Ad Age reported that experts testified on Wednesday, saying O&M's timesheets and vouchers were "sloppy" and were either incorrectly filled out or missing altogether. "There were an excessive amount of timesheets that were scribbled on ... (and) there were also uses of correction fluid and correction tape," said Wesley Mandler, an accountant hired to audit the $700 million media advertising contract and supporting documents.
The prosecution is expected to continue making their case that O&M intentionally inflated the number of hours spent on the ONDCP account in order to "close an anticipated revenue shortfall on the account."
What's that mean?
In all likelihood, it means that in order for O&M to justify the commission they were taking on media and other related expenses, they had to "pad" timesheets to generate enough hours to warrant the fee. Those of us on the inside of the business know this happens - more often than we like to admit. And, typically, it's the result of gross income generated by mark-ups and commissions that can't be directly traced back to "billable" activities and services provided by the agency.
The root cause of this fraud is the same reason timesheets are so important and why agency personnel need to understand the essential value an agency brings to the client in the first place.
Commissions and mark-ups are a historical legacy for ad agencies and other marketing companies. They existed to compensate agencies for representing the services or products of a third party to a client. In fact, in the early days of the ad agency business, agencies used to purchase ad space from magazines in advance and then re-sell the space to clients at a "gross" rate that included their profit margin. The margin was essential because the agency didn't always sell all the space and would pay for unused space with retained revenues left over from other sales efforts.
As clients have become more sophisticated, they've taken more and more of the responsibilities formerly held by agencies and moved them in-house. As a result, the traditional mark-ups and commissions on third party services (like media or printing, etc.) have become harder and harder to justify. But ad agencies and PR firms are slow to change - a hard reality in a business that drives change in their clients - and rather than re-thinking the rationale for these service fees, some firms have taken to "justifying" them by providing timesheets that match hours spent on a client's behalf with the income generated through these alternative methods.
It's a big shell game and clients know it.
When the president of a small agency tells me that all she does to price a television spot is double the quote of the production company, I know that agency doesn't have a clue what it really takes to produce the spot (or service their account, I'll bet). When the manager of a PR firm tells me they charge 24% compounded interest on overdue accounts and build it into their revenue forecasts for the year, I know they have problems that go way beyond accounts receivable aging.
If agencies kept accurate records of all the time spent by all their people during the course of the year, they could see why some clients should pay a larger commission on media purchases or higher mark-ups on outside purchases than others. Some clients need more attention, are slower to pay their bills, are inconsistent in their relationships, etc. But other clients are great pay, fair minded and easy to serve. These are usually the more profitable clients, no matter what the total revenue generated by the account.
Timesheets and accurate record keeping are essential to knowing where you stand. Courage, honesty and transparency are the keys to getting clients on board with a fair compensation program for your company.
Later.
This information is (c) 2005, Brand Central Station, all rights reserved. If you are interested in receiving news and analysis directly from BCS, please log onto our website.
posted by Mike Bawden at 2/10/2005 09:37:00 PM
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