O&M case shakes confidence

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The government accusation that Ogilvy & Mather Worldwide executives padded timesheets on the national anti-drug ad campaign look certain to fuel greater marketer scrutiny of their shops and lead to more agency audits.

In the trust-but-verify world of marketer-agency relationships, audits are already fairly commonplace, particularly among the pharmaceutical companies, Big Three automakers and beverage giants such as Coca Cola Co. But this high-profile case, in which two former Ogilvy executives were last week charged with overbilling the Office of National Drug Control Policy, are expected to prompt greater suspicion and more auditing of timesheets, according to marketers, consultants and agency veterans.

"I'm really disturbed by Ogilvy's thing with the government," said one chief marketing officer. "It's definitely going to increase the level of scrutiny and nudging to get into the books and overall frequency of audits we do ... It's a bracing reminder that we're in a world where you've got to inspect."

Ian Beavis, senior VP-marketing at Mitsubishi Motors North America, said his company employs checks and balances, but that "every system can be broken. Like terrorism, you can protect yourself only so far."

The American Association of Advertising Agencies said inappropriate billing is rare, but Bob Cauley, partner at the New York compensation consulting firm Beekman Associates, said clients increasingly worry it will happen to them.

This is not going to be helped by events last week. After an FBI investigation, the government charged that executives Shona Seifert and Thomas Early instructed other Ogilvy employees to revise time sheets to show they had worked longer on the Office of National Drug Control Policy contract than recorded. It also said the executives wanted timesheets doctored to show employees had spent a specified amount of time on the account regardless of whether they had done so.

Ms. Seifert and Mr. Early pleaded innocent. They face a fine and up to 100 months in prison. Mr. Early resigned last week. Ms. Seifert has been president of Omnicom Group's TBWA/Chiat/Day's New York office for almost two years. WPP Group's Ogilvy earlier settled for $1.8 million civil charges that it overbilled the government for work on the campaign. Lawyers for Mr. Early and Ms. Seifert did not return calls for comment.

percentage plan

In an era in which corporate accounting practices are under close scrutiny, marketers are watching their own expenses and want to ensure they are not victims of sloppy or creative record keeping. To address that, some marketers, such as Procter & Gamble Co., have an incentive system that bypass fee disputes by paying a percentage of sales for their brands rather than compensating based on fees or media spending.

"We work collaboratively with our agency partners on an ongoing basis to make sure our compensation practices are transparent and monitored consistently," said Kim Kraus, a purchasing executive at P&G who holds the title strategic relationship optimization director and reports to Global Marketing Officer Jim Stengel. "Cases like O&M's heighten visibility across the industry, but they don't change the way we do business, because the system is already in place."

Other executives pointed out that billing for time spent on a campaign is an imprecise science and mistakes cannot be totally eradicated.

"Misreporting can work both ways. People spend extra time and extra hours-sometimes it doesn't get reflected. It will let itself be sorted out in the wash," said David Beals, president of Jones Lundin Beals consultancy in Chicago. "No matter what the accounting system, people can mistakenly put in wrong hours or they can put in misleading hours by design.

"At the end of the day, even with audits, it's still going to be ... impossible to be 100% accurate," added Mr. Beals. "But what you try and avoid is where hundreds or thousands of hours can be mischarged or misrepresented."

contributing: ad age staff

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