FBI, GAO Continue Probes of White House Drug Account Billings

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NEW YORK (AdAge.com) -- While Ogilvy & Mather Worldwide faces civil and criminal investigations over billings on its White House anti-drug ad account, industry authorities suggest the company will emerge from the controversy unscatched so long as its accounting problems resulted from mistakes and not fraud.
Under investigation by the FBI.

"If it's an issue with the interpretation of government procurement regulations, I don't know that Ogilvy has any problem at all," said an attorney whose firm deals with agencies. "But if this were stealing, then you have a whole other set of difficulties."

WPP Group's Ogilvy faces a criminal and civil probe surrounding billing issues on the media planning and buying for its White House Office of National Drug Control Policy account. It is paid a $1.7 million annual fee plus labor and expenses for that account. The company's billings have been the subject of congressional hearings and media attention.

GAO, FBI probes
Ogilvy approached the Justice Department on its own last year after its billings on the anti-drug account came under fire from the General Accounting Office. The FBI and Justice Department are now looking into whether Ogilvy committed any fraud.

The drug office could decide whether to re-bid the contract by the end of the week. The office has started the research that would allow it to re-bid the contract, including talking to other ad agencies about what more they could offer.

To the casual observer, Ogilvy's troubles could appear to be a case of a company running afoul of the federal government and now facing the consequences.

"The investigation and the stories can't help [Ogilvy's reputation]," said Burkey Belser, president of Washington, D.C.-based Greenfield-Belser, a marketing and communications company. Mr. Belser, whose wife, Donna Greenfield, is a former attorney with the Federal Trade Commission, said he has followed the case closely.

'Onerous burden'?
"But I will say this: There's a built-in cynicism in dealing with the government nationwide. If they were inflating hours, that's fraud. There's no apology for that," he said. "On the other hand, the reason that nobody likes to get involved with the government is a sort of tacit understanding across the board that keeping track of all of that stuff according to government forms and formats is an onerous burden."

Almost word-for-word, industry analysts, executives and consultants agree.

"We had an account with the Navy many years ago," said a former agency executive -- and one of the few willing to talk for this article. "It was all about billings and the interpretation of government regulations. Everybody knows the problems you have in dealing with the government."

"Government accounts are notorious for peculiar accounting practices," said analyst Abe Jones of Ad Media Partners. "What I've been told by people who are involved is that there are lots of landmines that can go off if you're not knowledgeable about their accounting and billing practices. Ogilvy ran afoul, but it appears inadvertent."

Strict guidelines
Mr. Jones said that strict guidelines are often built into contracts between agencies and clients, preventing overbilling.

"You have a standard number of hours, and you're only allowed to bill up to that number," he said, "whereas in a law firm, theoretically, you can bill as many hours as there are in a day if you can prove you've worked on the client's case."

In the end, however, most believe that Ogilvy will not suffer the loss of new business because of the government problems.

"Most potential clients know what the problem is," said the attorney. "They won't be shut out of any new pitches."

Said consultant Hasan Ramusevic of Raleigh, N.C.-based Hasan & Co.: "People understand how it is to work with a government client. As far as I'm concerned, it's ridiculous, and on my little report card [Ogilvy] doesn't have a blemish. Unfortunately, it's not funny because it's affecting a lot of people, but it's more ridiculous than anything."

Question on hours billed
Drug office officials said Ogilvy has exceeded the program's goals on the media planning, buying and negotiation side. The problem has been billing. Ogilvy has acknowledged it initially didn't have an adequate accounting system in place to handle its first government account. There also have been questions on the hours billed.

Ogilvy has acknowledged it can't support $850,000 in its billings to the government. Less than half the amount -- about $341,000 -- is directly for hours worked. The rest is overhead and profit.

CEO admits mistakes
In the first public comment from Ogilvy's top executives since disclosure of the criminal probe, North American CEO Tro Piliguian last week wrote in a letter to AdAge.com that while the agency "did not meet its accounting obligations" under the "unique government contract," Ogilvy has "taken the decisive steps necessary to prevent these issues in the future." Read the Ogilvy letter.

Ogilvy declined to make executives available for interviews.

Billing problems on the account at the agency's New York office have prompted Ogilvy to call in resources from elsewhere in Ogilvy and WPP. Financial management of the drug office account is being supervised by the chief financial officer of Ogilvy North America, rather than by Ogilvy, New York.

Meanwhile, Hill & Knowlton, the WPP-owned public relations agency, is handling press matters.

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