Robert H. Hast, director of the General Accounting Office's office of special investigation, told a congressional hearing the probe being conducted for the U.S. attorney for the Southern District of New York is examining potential criminal as well as civil violations stemming from overbillings that Ogilvy estimates could be as high as $850,000.
WPP Group's Ogilvy itself initiated the Justice Department investigation last November, though at a time its billings were under scrutiny from the GAO. The ad agency acknowledged last year it didn't have proper accounting controls in place to deal with government accounting needs and also overbilled the government on some time sheets. It asked for a meeting with the Justice Department to detail bills and time sheets that couldn't be adequately documented.
The criminal side to the investigation and the FBI's involvement had not previously been confirmed, and drug office top officials said they first learned about it at last week's hearings. The U.S. attorney's office in Manhattan declined repeated requests for comment.
Ogilvy executives did not speak at the hearing. Paul Clark, an Ogilvy spokesman, told Advertising Age the ad agency intends "to continue to cooperate. We will cooperate to get it resolved."
U.S. Rep. Bob Barr, R-Ga., confirmed the investigation includes allegations of criminal conduct. He pressed the acting director of the drug office, Edward Jurith, to suspend Ogilvy's contract and possibly disbar the agency from handling government contracts.
"Aren't any of you indignant about what the company has done?" Rep. Barr said at the hearing. "Don't you have any regard for the taxpayer money? There is clear evidence that they committed fraud, isn't there? What are you going to do ... wait for a final conviction upheld on appeal before you do something? Would your attitude be the same if your personal money were at stake?"
Rep. Barr said the drug office, which has to decide in the next month whether Ogilvy's contract to handle media buying and planning will be extended another year, should not just rebid the contract but should immediately suspend Ogilvy.
Navy Capt. Mark Westin, who oversees the contract, however, said Ogilvy's willingness to revamp its accounting system and work with the government indicated the contract didn't need to be suspended. Capt. Westin said Ogilvy has held off billing the government for labor and other non-media costs since July 2000, pending a revamp of its accounting system. He said he had turned the matter over to the Navy Criminal Investigative Service and the Navy Office of Procurement Integrity as required, but with a recommendation that the contract not be suspended.
The comments came at a House Government Reform committee panel hearing ostensibly called to examine anti-drug ads' effectiveness.
Two GAO studies have suggested that while some billing issues stem from problems with Ogilvy's accounting system in meeting the needs of a cost-plus government contract, others were because Ogilvy billed more hours than its people worked. A whistleblower has alleged that Ogilvy executives, concerned the ad agency wasn't producing enough revenue on the drug account, demanded Ogilvy employees inflate the hours worked on their time cards (AA, Oct. 9). The government has so far refused to pay $6.1 million in bills from Ogilvy's initial billing in 1999. Ogilvy said its own review shows $850,000 in possible overbilling.
Bernard Ungar, director of the GAO's physical infrastructure team, testified at the hearing that some Ogilvy officials instructed employees to alter time cards to show additional hours they hadn't worked, while hours worked on time cards of other discrepancies were increased by someone at Ogilvy without knowledge of the employees.
"Our view is falsifying time records is fraud," he said.
Congressmen differed on the effect of Ogilvy's decision to hold off billing the government for many of its own costs. U.S. Rep. Elijah Cummings, D-Md., who praised the drug campaign, said Ogilvy in effect had "suspended itself," eliminating any need for others to act. But U.S. Rep. Mark Souder, R-Ind., said Ogilvy's action wasn't entirely voluntary.
"In effect they had their hand in the cookie jar at the time they suspended themselves," he said, while calling Ogilvy "one of the most distinguished advertising firms in the U.S."
Mr. Jurith, the drug office acting director, defended the office's continuing work with Ogilvy, saying there had been no formal charges of criminal conduct and that a major step to resolve accounting issues took place last week when Ogilvy's new accounting system was certified as complying with government standards.