CLOSE-UP: LIVE ISSUE/ONDCP - Ogilvy is counting the cost of overbilling a US govt account. Jeremy White investigates embarrassing blunders in billing for anti-drugs work

There are never good circumstances in which to see your $160

million-a-year account call a review, but there are few worse than those

currently endured by Ogilvy & Mather. If you haven't been reading the US

ad press recently, it might shock you to know that the agency is under

criminal investigation by the US government over its billing on the

Office of National Drug Control Policy account. The probe has dashed

hopes of the government renewing a five-year, $800 million to

$1 billion contract.



O&M took on the task to oversee the anti-drug campaign back in January

1999. The agency was placed with the duty of overseeing the creative

product - produced by the Partnership for a Drug Free America - and

planning and booking the media.



Things went badly wrong, however, when a disgruntled ex-employee accused

the agency of fraudulent billing on the account. Whistle-blowers aren't

always the most reliable sources of information, but the powers that be

have been convinced to conduct both civil and criminal investigations

into the agency.



Now to be fair, O&M was the first to raise questions about discrepancies

in billings and it is widely considered that the agency is above such

underhand practices as overbilling. But insiders at the time said that

Bill Gray, the president of Ogilvy, held a meeting with senior staff to

complain of the lack of revenue from the contract. As a result, it is

alleged that timesheets were subsequently altered to increase hours

worked on the ONDCP contract. There is no evidence to support these

claims.



However, the investigations so far have unearthed some surprising

blunders by O&M. The agency submitted expense claims for items not

accepted by a federal contract, such as lunch bills on shoots. And, in

the case of one freelancer, the ONDCP was billed $11,000 for 15.5

hours work - that's $716 an hour.



By Ogilvy's own admission, it estimates that it has overcharged the

government department by approximately $850,000. Such a

high-profile and embarrassing error, O&M claims, is due to its

accounting system not being up to scratch as this is its first federal

contract. PricewaterhouseCoopers was brought in to set the agency

straight and its systems now comply with the standards of government

billing.



"Ogilvy did not meet its accounting obligations under that unique

government contract," Shelly Lazarus, the chairman and chief executive

of Ogilvy & Mather Worldwide, admits. "We are deeply troubled by the

difficulties but proud of the manner in which we have dealt with

them."



In its defence, Ogilvy sources have claimed that $850,000 out of

$1 billion is small beer and that the complicated logistics of

implementing such a large account will always bring about some

mistakes.



But even if we take the most likely explanation - that O&M's accounting

is at fault - this is still a damning indictment of the financial

practices of a top agency. One wonders what other mistakes have been

made over the years and how many other clients have been accidentally

overcharged.



O&M UK's chairman and chief executive, Paul Simons, suggests that the

process of billing by the hour for creative work might be at fault.

"While advertising agencies do sell time, the accuracy of how they

account for it is not as rigid," he argues. "The reason for this is that

you cannot fill in a timesheet that says 'all day Sunday', which is

actually when you worked on the idea. When you do the work and how you

do it is very different from a lawyer. It's less of a science and not as

quantifiable."



Some would disagree. Lawyers also have to spend great periods of time

thinking about a client's legal problems and they do indeed bill for

this time - accurately too.



Barrie Brian, the financial director at Lowe Lintas, says that things

are different in the US when it comes to financial accountability. "More

procurement people pore over the information and they are more worried

about the cost," he says. He warns that it is getting that way in the UK

too. "There's been a huge change in the last two years as we move from a

commission system to a fee system. This is not a bad thing but spending

too much time on breakdowns of fees, rather than the quality of the

work, is a shame."



The US General Accounting Office has also criticised the ONDCP for

awarding the account without checking that the agency's accounting

procedures were up to scratch. Peter Buchanan, COI Communications' head

of advertising, is confident that the organisation's framework

agreements would prevent such a scandal occurring in the UK.



"These agreements are very detailed in how we expect the service to be

provided," he explains. "What we are prepared to pay for, what we are

not prepared to pay for. What is liable for commission and what we

expect to be passed on at cost."



In addition to this, agencies are asked to supply accounts for two years

if they apply to join the roster so that COI can see if they are up to

standard.



"We are dealing with taxpayers' money so we are dealing with public

accountability," Buchanan says of the need for extra rigour. "Secondly,

as we've seen with O&M in the US, if something goes wrong, it becomes

news very quickly in a way that it might not if it were a commercial

company."



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