How to avoid getting snared in financial fraud

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[Miami Beach, Fla.] Rebecca Meiklejohn, a Justice Department trial attorney who sent six executives to prison in the Grey/Color Wheel bid-rigging scandal, riveted marketers last week with tales of advertising-procurement fraud.

Speaking at the Association of National Advertisers' Advertising Financial Management Conference, Ms. Meiklejohn encouraged marketers to ensure systems are in place to provide protections so they aren't the next victim.

Procurement fraud involving advertising production is a recurring problem with numerous victims among marketers big and small. Ms. Meiklejohn took an interest in the topic in 1992, when a Philip Morris USA attorney called to say the marketer had uncovered kickbacks involving point-of-purchase suppliers.

Since then, she has investigated cases involving victims across the liquor industry, in pharma (Pfizer, Merck) and in other industries. (She wasn't involved in the recent case involving Ogilvy & Mather employees and the government's anti-drug account.)

The Grey Worldwide case involved kickbacks and bid-rigging on work for Procter & Gamble Co. and Brown & Williamson Tobacco Corp. Grey cooperated in the investigation, which sent former Grey Exec VP Mitch Mosallem and five others to prison starting in 2002 and 2003.

"I'm not here to slam Grey, but Mr. Mosallem had a reputation as a huge taker," said Ms. Meiklejohn. Asked whether P&G and B&W should have severed ties with Grey after the fraud, she suggested someone in the back of the room might better respond: Grey Global Group Senior VP Mark Gaston, a conference attendee whom she had interviewed in the investigation.

Mr. Gaston leapt to Grey's defense, saying both clients were smart to stay with the agency because the corruption was an isolated issue. "It was a body or two bodies in a company [with] 10,000 employees," he said.

Ms. Meiklejohn stressed the need for advertisers to require competitive bidding, though that won't necessarily prevent fraud. In the Grey case, she noted the agency had procured competitive bids as required by B&W-but the bids were "all fakes."

PAPER TRAILS

Bid files "may provide the only useful paper trail" if fraud does occur, she said. The clues often are remarkably simple-such as faxes with date stamps sliced off. "This is the kind of thing that you look for-arts and crafts," she said.

She encouraged advertisers to make sure that both marketer and agency enforce solid conflict of interest policies (such as a prohibition on accepting gratuities from suppliers) and that advertiser and agency separate authority for awarding contracts and approving invoices.

Ms. Meiklejohn, an attorney in the New York office of the Justice Department's antitrust division since 1975, encouraged companies-and tipsters-to inform the division about procurement fraud.

Simple rules

Four tips to avoid procurement fraud

1. Require competitive bidding. Bids may be the only useful paper trail in the case of fraud.

2. Beware "arts and crafts," such as faxes with date stamps sliced off.

3. Enforce solid conflict-of-interest policies (such as a prohibition on accepting gratuities from suppliers) on the part of both marketer and agency.

4. Separate authority for awarding contracts and approving invoices.

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