13 Finance

13.3. Finance of the audits

Just as you have to finance operations, so must its members fund the building of the audit system.

Here again, before developing the proper financing of the service, some more questions should be considered:

• Will the size and type of publications have an influence over the cost of audits?
• How often will the audits be carried out (e.g. how many audits per year?)
• Will the ABC hire its own auditors, or will it subcontract one or more audit firms to carry out the work? Or it will be the publishers’ auditing firms that will carry out the audits, and the publishers who will establish the fee with the auditor?
• Will the publishers pay the audit fees to the ABC, or directly to the auditors?
• Will the ABC provide the results of the audits for free, or for charge? Will the members be charged for the data, or only non-members?
• What portion of the audit fee should be allocated to maintain the ABC (audit) operations?

Whatever decision is taken, it is important to understand that it will have a direct influence over the size of the audit fee, as well as over the level of income and the cashflow of the ABC.

The size of an audited publication will have an effect on the audit cost for the given publisher. The larger the circulation for a publication, the larger and more vast the distribution channels (contracts), which means more audit time and effort.

The frequency of issue of a publication also has a direct influence on the cost. The higher frequency, the higher volume of documents and information to be audited.

The more often audits take place, the more the costs to the publishers. ABCs worldwide carry out their audits yearly or bi-annually.

If an ABC has its own auditors, this setup means more administrative work, plus more associated operational and overhead costs. Having external auditors makes life easier, but still requires an oversight program.

If the ABC invoices audit fees directly to the publishers, this accounting function requires supporting personnel and a fee collection operation. The positive side of this collection operation is that it provides a very healthy revenue stream for the ABC.

Selling the data (and other services) requires more administration, but it brings more income to the ABC as well.

In general, once a member has paid its membership fee, it is entitled to have access to all audited data. It is up to each ABC to set a price for the audited data, if the membership decides to release it to non-members.

A margin of the audit fee must also be allocated to the ABC’s operations as well as for the audit itself, auditors, and producing data). This applies even if an ABC decides that publishers are to pay the audit fees directly to the auditors, because even in this case there is a volume of audit administration that cannot be avoided. Do not forget that once the audits start, there will be a great need for marketing and communications (travel to the offices of members and potential members, selling materials, training seminars for the industry, and to create a website to disseminate the data, etc.). This, too, will require financial resources.

ABCs worldwide have an unbalanced income structure: the big chunk of income comes from the publishers (via membership fees and audit fees), while advertisers, media agencies and other members pay only the membership fees.

As part of my research efforts in running an ABC, I surveyed IFABC members about budgeting matters. The results showed that, at the majority of the ABCs, non-publishers contributed a maximum of five to 10 percent of the overall budget of the ABC (membership fees), with the rest coming from publishers (membership and audit fees).

This unbalance is a subject of continuous debate among publishers and non-publishers. It is always resolved with the reasoning that the advertising money comes from the advertisers (via media agencies); therefore, the audit is financed by the publishers.

I would suggest that any new ABC agree in principle that a proper income stream (proper rate-card) will have two income sources: membership fees equally divided among members, and audit fees divided unequally among publishers – here one must take into account the number of publications audited by a single publisher, the size (circulations) of the audited publications, frequency, etc.

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