Today, companies involved in live event production in Mexico are constantly evolving. Event producers and creative professionals are required not only to offer something new to an audience faced with a wide variety of shows on the market, but also to provide an “experience” for the audience.
To achieve this, show producers must have robust control structures in place that provide security and support for the established budget, ensuring revenue from ticket sales, food and beverage, sponsorships, and merchandising, and enabling them to recoup the production investment—all without compromising the quality and vision of the show.
Risks in the Spotlight: Internal Auditing in the Entertainment Industry
In this context, the Internal Audit function is of vital importance, as it must become a partner that adds value by anticipating contingencies and preventing excesses, dishonesty, and embezzlement. Given the current environment of the entertainment industry, the audit function can no longer be limited to validating processes and figures from past events; rather, it must collaborate with Management and Finance in designing financial, operational, and production strategies from the show’s conception, verifying the budget by season and by performance.
Planning and Strategy
It is important to emphasize that the goals established in the budget must be clear and aligned with the Mexican entertainment landscape. Given that audience needs are not always clear, it is essential to include, from the outset, a detailed marketing plan that identifies the target audience for the show and sets ticket prices, as well as prices for food and beverages, and specifies the venue where the show will be presented.
This initial stage of the production plan must reassure producers and creatives that the budget figures and objectives are realistic, in order to ensure that the initial investment is recoverable and can serve as a basis for negotiating sponsorships and making decisions.
The 360° View of Auditing
Auditing must be a strategic ally that participates in the project from its inception, acting as a facilitator by providing a “360° view” and not being perceived as an obstacle to creative development, operational management, and administrative controls.
To achieve this, the Audit Department must be present once the shows are underway, not only to provide support but also to validate, on a per-performance basis, aspects of production, general venue operations, audience behavior, and revenue generation, in order to identify, assess, and minimize the following risks in real time:
- Investment: Expenses not included in the budget, unjustified expenses, overpayments, and lack of supporting documentation.
- Finance: Budgets that do not show profitability by event; revenue leakage from box office sales, food and beverage, and merchandising; excessive complimentary items; errors in sales recording systems; malfunctions in payment terminals; and lack of liquidity or cash flow.
- Production: Quality of the show (failures in video, audio, lighting, instruments, costumes) and on-stage performance by talent.
- Operations: Customer service and support; failures in security, emergency response, and medical teams; physical condition and cleanliness of facilities, furnishings, and merchandise.
- Regulatory: Taxes and government permits that result in fines or suspensions.
- Reputation: Failures in marketing campaigns and social media; negative comments due to poor audience experiences with the show, service, or value for money regarding food and beverages.
The identification of these risks and their resolution must be immediately communicated to producers and creative professionals in order to develop a risk management model that takes into account the entire “scenario”: origin, production, development, staging, and audience reaction.
In conclusion, the current approach should not focus solely on validating existing processes. Communication and coordination among the Finance, Administration, Production, Operations, and Audit departments are necessary to ensure profitability and the success of the project. The Audit department faces the challenge of innovating with regard to the technological tools and global trends that the entertainment industry currently offers.
Oscar Luna Garcia Figueroa
Lead Partner, Entertainment Sector