Report to the Chairman, Subcommittee

on Treasury, Postal Service, and

General Government, Committee on

Appropriations, House of

Representatives

United States General Accounting Office

GAO

June 2001 ANTI-DRUG MEDIA

CAMPAIGN

Aspects of Advertising

Contract Mismanaged

by the Government;

Contractor Improperly

Charged Some Costs

GAO-01-623
Page i GAO-01-623 Anti-Drug Media Campaign

Letter 1

Results in Brief 3

Background 5

Ogilvy’s Labor Cost Charges Were Not Reliable 7

The Government Did Not Adequately Manage Aspects of the

Contract Pertaining to Costs Incurred by the Contractor 17

Recent and Planned Actions 25

Conclusions 27

Recommendations for Executive Action 28

Appendix I Scope and Methodology 33

Appendix II Interviews With Ogilvy Employees Who Revised

Their Time Sheets 35

Appendix III Interviews With Ogilvy Employees and Supervisors

Regarding Time Sheets Containing Changes 38

Appendix IV Comments From the Office of National Drug Control

Policy 40

Appendix V Comments From Ogilvy and Mather 42

Appendix VI Comments From the Program Support Center 59

Contents
Page ii GAO-01-623 Anti-Drug Media Campaign

Abbreviations

CAS Cost Accounting Standards

COTR Contracting officer’s technical representative

DCAA Defense Contract Audit Agency

FAR Federal Acquisition Regulation

HHS Department of Health and Human Services

ONDCP Office of National Drug Control Policy

PSC Program Support Center

RFP Request for proposals
Page 1 GAO-01-623 Anti-Drug Media Campaign

June 25, 2001

The Honorable Ernest J. Istook, Jr.

Chairman, Subcommittee on Treasury, Postal Service,

 and General Government

Committee on Appropriations

House of Representatives

Dear Mr. Chairman:

This report discusses the Office of National Drug Control Policy’s

(ONDCP) advertising contract for Phase III of the National Youth AntiDrug Media Campaign. Phase I of the media campaign was a 12-city pilot

featuring paid local television and radio advertisements that ran from

January through July 1998. Phase II was a nationwide campaign that

included all media types and ran from July through December 1998. Phase

III was a continuation of the paid advertising campaign that incorporated

additional campaign components, such as partnerships with community

groups. Phase III started in January 1999 and is planned to run through

December 2003. The Phase III advertising contract is a costreimbursement type with a base year and 4 option years, for a total

estimated value of $684 million. The government awarded the Phase III

contract to the Ogilvy & Mather (Ogilvy) advertising agency in New York,

and Ogilvy is currently performing the third year of the contract.1

We reviewed certain aspects of the media campaign in a July 2000 report.2

During that review, allegations were made that the government was not

 1

 A separate contract was awarded to the public relations firm of Fleishman-Hillard to

provide public relations services for ONDCP regarding the campaign. This report does not

discuss that contract.

2 Anti-Drug Media Campaign: ONDCP Met Most Mandates, but Evaluations of Impact

Are Inconclusive (GGD/HEHS-00-153, July 31, 2000). That report discussed (1) whether

ONDCP provided timely financial reports to Congress, how funds for paid advertising were

managed and disbursed, and whether ONDCP complied with certain statutory

requirements regarding the obligation of funds; (2) what ONDCP did to develop and

implement guidelines in response to statutory program requirements; and (3) whether the

evaluation designs for Phases I, II, and III were appropriate; how well the Phase I and II

evaluations were implemented; and how effective Phases I and II of the campaign were in

influencing group awareness of different types of paid anti-drug media messages and drug

attitudes.

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-01-623 Anti-Drug Media Campaign

adequately managing aspects of the Phase III contract relating to costs

that Ogilvy incurred and that the company was overbilling the government.

Former Subcommittee Chairman Jim Kolbe requested that we assess the

validity of those allegations. Further, Rep. John Mica, the former Chairman

of the House Government Reform Subcommittee on Criminal Justice, Drug

Policy and Human Resources, asked us to review, in addition to the

overbilling allegations, the former ONDCP Director’s role in deciding

whether to audit the Phase III contract. At an October 2000 hearing before

that subcommittee, we testified about those issues on the basis of our

initial investigation.3

 We reported that the former ONDCP Director knew in

April 2000 about allegations of improper billing, including possible

fraudulent conduct, concerning ONDCP’s contract with Ogilvy and that he

agreed with the need to audit the contract after contracting

responsibilities were transferred later from the Department of Health and

Human Services (HHS) to the Navy.

This report provides information on the following questions: Did the

advertising contractor for Phase III properly charge the government for

labor costs incurred under this contract, and did the government

adequately manage aspects of the contract award and administration

related to costs incurred by the contractor?

Our review focused on labor charges that Ogilvy submitted because the

allegations that were raised pertained to labor costs. We reviewed these

costs by examining labor invoices that were submitted to the government

for work done under the ONDCP contract and then interviewed a sample

of Ogilvy employees whose time sheets were revised regarding the amount

of time charged to the contract. We asked these employees about why the

time sheets were revised and who made the changes. We collected other

information by conducting interviews and reviewing contract-related

documentation at HHS, which awarded and administered the contract

during the first 2 years; the Navy, which assumed responsibility for

administering the contract in November 2000; the Defense Contract Audit

Agency (DCAA), which was asked by the Navy to review Ogilvy’s

accounting system and audit the contract; ONDCP; and Ogilvy. We did not

determine the contractor’s actual costs incurred under this contract.

Although we did not focus on the technical aspects of Ogilvy’s

performance, ONDCP officials said that they were very satisfied with

 3 Anti-Drug Media Campaign: Investigation of Actions Taken Concerning Alleged

Excessive Contractor Cost (GAO-01-34T, Oct. 4, 2000).
Page 3 GAO-01-623 Anti-Drug Media Campaign

Ogilvy’s technical performance regarding the anti-drug media campaign. A

detailed scope and methodology is contained in appendix I.

The contractor for the advertising portion of the Phase III anti-drug media

campaign did not properly charge the government for some of the labor

costs claimed under the contract and did not have an adequate accounting

system that could support a cost-reimbursement government contract of

this value. Ogilvy believes that it may have both underbilled and overbilled

the government for portions of its work on the campaign for 1999 and

2000, and has disclosed this to the Department of Justice. The government

disallowed nearly $7.6 million out of about $24.2 million in total labor

charges that Ogilvy submitted during the first 19 months of the contract.

Attorneys for the company, who retained consultants to review time

charges submitted under this contract, have proposed that about $850,000

be disallowed for that period. However, because the contract has not yet

been audited, the amount of money that the government overpaid or

should reimburse the contractor for labor costs incurred currently cannot

be determined. The Navy asked DCAA to audit the costs for 1999 and 2000,

but DCAA does not plan to begin the audit until Ogilvy certifies its

incurred cost proposal (required to establish final costs incurred), which

the company has not yet done. Ogilvy’s attorneys said that the company

expects to certify the incurred cost proposal after it completes the

disclosure process on direct labor charges or reaches an agreement with

the government.

We found that some of Ogilvy’s labor charges to the government were not

reliable and included charges for time that its employees did not work on

the contract. According to Ogilvy officials and an internal company E-mail,

after revenue on the ONDCP contract did not meet projections in the

summer of 1999, certain Ogilvy managers instructed some employees to

review and revise their time sheets. Some Ogilvy employees told us that

they initially did not record all of the time they worked on the ONDCP

contract and that they revised their time sheets to increase the number of

hours that they claimed to have worked. However, some Ogilvy employees

also told us that they did not work the amount of additional time that was

added to their time sheets or could not fully explain why they increased

the number of hours billed to the ONDCP contract. Time sheets for some

other employees (not those who revised their time sheets after certain

Ogilvy managers instructed them to) also showed changes that increased

the number of hours charged for the ONDCP work; however, some

employees said that they did not make those changes to their time sheets

and could not explain who made the changes and why.

Results in Brief
Page 4 GAO-01-623 Anti-Drug Media Campaign

We found other problems associated with Ogilvy’s billing the government

for its ONDCP work. For example, Ogilvy inconsistently charged the

government for employees’ nonbillable hours, such as paid absences and

training, in its invoices. In addition, we found that Ogilvy incorrectly billed

fringe benefits for temporary contract employees. A June 2000 consultant’s

report also found problems with Ogilvy’s accounting system and time

sheets submitted in support of invoices submitted under the contract.

Ogilvy is taking steps to restructure its accounting system and improve its

timekeeping procedures.

The government did not adequately manage aspects of the contract award.

The HHS Program Support Center, under an agreement with ONDCP,

provided a contracting officer to award and administer the contract and

awarded a cost-reimbursement contract to Ogilvy before sufficiently

determining, as required, that the contractor had an adequate accounting

system to support this type of contract. HHS also failed to obtain a

required statement from the contractor that would have disclosed the cost

accounting practices that the company planned to use under this contract.

The disclosure statement would have increased the likelihood that

deficiencies in Ogilvy’s cost accounting practices would have been

identified and addressed earlier.

The government also did not adequately administer the contract by

resolving billing problems when they arose or by auditing the contractor,

despite clear indications that Ogilvy’s cost accounting system and

timekeeping procedures were deficient. The HHS contracting officer

followed the technical representative’s recommendations to disallow

nearly one-third of the labor charges that Ogilvy submitted during the first

19 months of the contract, without reviewing the appropriateness of those

disallowances or arranging to audit the contract. Moreover, the

contracting officer and the technical representative did not have an

effective working relationship, which impeded contract administration.

We are recommending corrective action to ONDCP and HHS to address

the problems we identified and have referred our findings regarding

improper billing by the contractor to the Department of Justice. We

recommend that ONDCP work with the Navy to review the

appropriateness of the disallowed costs and other labor charges and

determine the amount of money that the government overpaid or should

reimburse the contractor, ensure that Ogilvy has an adequate cost

accounting system for continued performance under the contract, and

effectively coordinate the roles and responsibilities of the contracting

officer and the contracting officer’s technical representative (COTR). In
Page 5 GAO-01-623 Anti-Drug Media Campaign

providing comments on a draft of this report, ONDCP said that the report

fairly and accurately portrays the complexities of the contracting issues

regarding the advertising portion of the media campaign, and agreed with

our recommendations. ONDCP also said that significant progress has been

achieved toward resolving the problems that we identified. The HHS

Program Support Center (PSC) said that it agreed with our

recommendation that controls over contracting procedures, particularly

with respect to assessing an offeror’s accounting system, should be

reexamined. In their comments, the Navy and DCAA discussed the actions

that they plan to take regarding the recommendations that we made to

ONDCP.

Phase III of ONDCP’s National Youth Anti-Drug Media Campaign was

initiated in January 1999 as a 5-year effort to reduce youth drug use. The

campaign consists of nationwide print and broadcast advertisements that

are to run through December 2003. Although paid advertisements are the

centerpiece of the campaign, it is part of a broader ONDCP effort that also

includes partnerships with community groups, corporate participation,

public information and news media outreach, collaboration with the

entertainment industry, and use of interactive media. Paid advertisements

for the campaign are to be supplemented by matching advertisements

donated by media outlets on a matching basis. In discussions with Ogilvy’s

attorneys regarding billing issues, the attorneys asserted that the

government received more value than the company was required to

provide under the contract. For example, the attorneys said that Ogilvy

matched 115 percent of the paid advertisements with pro bono

advertisements, compared to the contract’s 100 percent matching

requirement.4

According to ONDCP officials, because the Executive Office of the

President, of which ONDCP is a part, did not have the procurement

resources to award and administer a large contract, ONDCP arranged for a

contracting officer from the PSC to serve as its contracting officer. This

arrangement gave HHS overall responsibility for awarding and

administering the Phase III contract in return for a fee, and ONDCP was to

monitor technical aspects of the contractor’s performance. ONDCP paid

 4

 The matching of paid and pro bono advertisements was not part of this review, and we did

not verify this assertion.

Background
Page 6 GAO-01-623 Anti-Drug Media Campaign

HHS $452,000 to award and administer the Phase III advertising contract in

1999 and 2000.

The request for proposals (RFP) issued by HHS for the Phase III contract

contemplated the award of a type of cost-reimbursement contract known

as a cost-plus-fixed-fee contract. Under this type of contract, in addition to

being reimbursed for costs properly incurred, the contractor is paid a

negotiated fee that is fixed at the inception of the contract. HHS indicated

that the awarding of a cost-reimbursement contact was a joint decision of

ONDCP and the HHS contracting office. According to HHS, a costreimbursement contract was used primarily because ONDCP’s specific

needs for the advertising campaign could not be determined in advance

and the cost of performing this work could not be forecast with a

reasonable degree of accuracy, and therefore a fixed-price contract was

impractical.

The RFP notified competitors that the resulting cost-reimbursement

contract would be subject to federal government Cost Accounting

Standards (CAS) and applicable regulations governing the accounting for

costs by the contractor. The RFP required each competitor to submit a

disclosure statement (in a format established by the government) of its

cost accounting practices that would be used by the government to

determine the adequacy of the prospective contractor’s cost accounting

system. During the competition for the contract, Ogilvy submitted to the

government a cost proposal in June 1998 and a best and final offer in

November 1998, but not the required disclosure statement.

Three offerors had submitted proposals for the advertising portion of the

Phase III contract and Ogilvy made the lowest-priced offer. In December

1998, HHS competitively awarded the cost-reimbursement contract to

Ogilvy, with performance to begin in January 1999. Of the $128.8 million

value of the contract award for the first year, $18.9 million was for Ogilvy’s

labor costs, and the rest was for media and subcontractor costs.

In November 2000, attorneys representing Ogilvy disclosed to the Justice

Department’s Civil Division that they had conducted a preliminary review

of Ogilvy’s ONDCP contract costs and found certain “slices of

unreliability” in the company’s accounting system and employee time

sheets. According to the attorneys, the initial review began in response to

the October 2000 hearing before the House Government Reform

Subcommittee on Criminal Justice, Drug Policy and Human Resources.

The attorneys said that they disclosed to the Justice Department

deficiencies in the company’s timekeeping systems, which they said
Page 7 GAO-01-623 Anti-Drug Media Campaign

resulted in possible underbilling of labor costs for the period January

through June 1999, and possible overbilling of labor costs for the last

quarter of 1999. We also referred our findings regarding Ogilvy’s improper

billing under this contract to the Department of Justice. Ogilvy has hired

consultants to help determine the amounts that should have been billed

and to implement an acceptable cost accounting system with improved

timekeeping procedures.

Also, in November 2000, ONDCP transferred contracting responsibilities

from HHS to the Navy after a breakdown in ONDCP’s working relationship

with HHS regarding the contract, which is discussed in more detail later in

this report. In January 2001, the Navy exercised the option (Option Year 2)

to Ogilvy for the third year of the contract, with an estimated value of $137

million. On December 6, 2000, the Navy asked DCAA to review Ogilvy’s

accounting system and conduct an historical audit of costs incurred under

this contract.

The contractor for the advertising portion of the Phase III anti-drug media

campaign did not properly charge the government for some of the labor

costs claimed under the contract and did not have an adequate accounting

system that could support a cost-reimbursement government contract of

this value. Ogilvy believes that it may have both underbilled and overbilled

the government for portions of its work on the campaign for 1999 and

2000. We found that some of Ogilvy’s labor charges to the government

were not reliable and included charges for time that its employees did not

work on the contract. Attorneys for the company, who retained

consultants to review time charges submitted under this contract, have

proposed that the government disallow about $850,000 out of about $24.2

million in labor charges submitted during the first 19 months of the

contract. However, because the contract has not yet been audited, the

amount of money that the government overpaid or should reimburse the

contractor for labor costs incurred currently cannot be determined.

According to Ogilvy officials and an internal company E-mail, after

learning in the summer of 1999 that revenue on the ONDCP contract was

about $3 million lower than projected, certain Ogilvy managers instructed

some employees to review and revise their time sheets. Ogilvy’s attorneys

provided documents indicating that these revisions added about 3,100

hours to employees’ time sheets for the ONDCP contract, which increased

charges to the government by about $238,000. Some of these Ogilvy

employees told us that they initially did not record all of the time they

Ogilvy’s Labor Cost

Charges Were Not

Reliable

Some of Ogilvy’s Charges

Were for Time Employees

Did Not Work
Page 8 GAO-01-623 Anti-Drug Media Campaign

worked on the ONDCP contract and that they revised their time sheets to

increase the number of hours that they claimed to have worked. However,

some of the employees also told us that they did not work the amount of

additional time that was added to their time sheets or could not fully

explain why they increased the number of hours billed to the ONDCP

contract. Time sheets for some other employees that we reviewed (which

were not included among those for the employees who added 3,100 hours

to their time sheets) also showed changes that increased the number of

hours that were charged for the ONDCP work; however, some of those

employees said they did not make those changes to their time sheets and

could not explain who made the changes and why.

A July 28, 1999, E-mail sent by Ogilvy’s former government contracts

manager to the company’s finance director, and copied to the project

director5

 and media director, explained the revenue shortfall on the

contract and the time sheet revision effort. The E-mail stated that, on the

basis of an April 1999 staffing plan, Ogilvy had projected an income of

$15.7 million on the ONDCP contract, but that revenue was about $3

million less than that. In the E-mail, the former government contracts

manager stated the following:

“As we’ve progressed through the year, with real ‘new hires’ taking somewhat longer to

accomplish than originally estimated, staffing needs fluctuating, and actual labor numbers

coming in under those projected on an individual-by-individual basis, we have gotten

somewhat away from that number. (We are currently approximately $3,000,000 under.)

Nevertheless, [the project director] is confident that we can reach the number we

committed to as long as we take some specific steps as soon as possible.”

The E-mail detailed positions to be filled that would increase revenue on

the contract. The E-mail from the former government contracts manager

continued:

“Lastly, a significant contributing factor to our low actuals are [sic] that much of our

existing staff (primarily in media) are spending much less time that [sic] projected. All of

these time sheets are being reviewed (primarily by...[the project director, the media

director, and the former government contracts manager]) and are subject to revision.

 5

 Ogilvy had two project directors working on the ONDCP contract until the first project

director left the company in March 2000. The E-mail cited above and this report refer to the

current project director.
Page 9 GAO-01-623 Anti-Drug Media Campaign

Again,...[the project director] still believes that we can hit our projection of $15,700,000 but

only if we put into effect all of the above-detailed measures at a minimum.”

We asked Ogilvy’s media director, project director, and finance director

about the issues and actions described in this E-mail. The media director

said that the company’s finance department provided him with the time

sheets for about 50 media department employees who were working on

the ONDCP contract, representing hundreds of individual time sheets,

which he passed on to the media department’s four group heads for them

to distribute to their employees for review. The media director said that he

continually received employee time sheets to be revised, but mainly in

September 1999. He also said that, if the amount of time that employees

had charged to the ONDCP contract was not consistent with what they

were projected to work, the group heads were to ask their employees to

reexamine their time sheets to determine their accuracy.

The project director explained that employees spent less time working on

the account at the beginning of the contract than expected because some

tasks were still being performed by the previous media campaign

contractor and because employees were still being hired for the work.6

However, the project director said that she was not involved in revising

time sheets, and that she only asked her secretary and one other employee

to review their time sheets with regard to the time billed against the

ONDCP contract. According to a document provided by Ogilvy’s attorneys,

the project director’s secretary added 375 hours to her time sheets for the

ONDCP contract for time worked from January through May 1999. This

document indicated that the revised time sheets were entered into Ogilvy’s

accounting system on September 2, 1999. The other employee whom the

project director asked to review her time sheets reduced the amount of

time she billed to the ONDCP contract by 3 hours, according to the

company document.

The project director said that the time sheet revision effort mentioned in

the E-mail referred to an ongoing effort to track time worked accurately,

and was not a single review task. She also provided a memorandum dated

June 17, 1999, that she had prepared for Ogilvy staff working on the

ONDCP contract, which stressed the importance of accurate and timely

preparation of time sheets. She added that in a meeting held in the late

 6

 ONDCP’s media director said that a fully integrated media campaign did not begin until

July 1999, even though the contract began in January 1999.
Page 10 GAO-01-623 Anti-Drug Media Campaign

summer of 1999 involving Ogilvy’s president, finance director, former

government contracts manager, former co-project director, and herself,

the company’s president was “angry” about low revenue on the ONDCP

contract, but that he did not instruct anyone to do anything regarding

employee time sheets. In an interview with our Office of Special

Investigations, the company president said that he had conversations with

the finance director and project director about the low forecasts of

revenue on the ONDCP contract, but that he never told anyone at the

company to review or revise his or her time sheets.

Regarding the July 28, 1999, E-mail, Ogilvy’s finance director said that the

government contracts manager, along with other managers, was reviewing

whether employees had charged the correct account for time spent

working for ONDCP. He said that some employees had initially charged

the wrong account for work on the ONDCP contract. The finance director

added that the company did not place a high priority on employees’

preparation of time sheets because the company is paid by other clients

primarily on the basis of commissions and fixed fees, rather than on a

cost-reimbursement basis. In providing comments on a draft of this report,

Ogilvy’s attorneys said that this comment attributed to the finance director

does not fully capture his perspective. The attorneys said that, while the

subject matter of timekeeping was discussed during this interview, the

finance director does not believe that he discounted the importance of

timekeeping accuracy in the manner ascribed to him. Instead, the

attorneys said, the finance director believes he was describing a practice

by some employees that emphasized the importance of achieving accuracy

within quarters and yearly, rather than on a daily time sheet basis.

Ogilvy’s attorneys provided documents indicating that 28 employees had

prepared revised time sheets, primarily in September and October 1999,7

thereby adding a total of 3,127 hours to the ONDCP contract. Ogilvy’s

attorneys provided an estimate of the value of those additional hours,

which was calculated by their consultants, of $87,536, which, when

overhead and fringe benefits costs were included, amounted to $237,733.8

We interviewed 3 of those 28 employees about when and why they revised

 7

 According to the document, some revised time charges were also added for work done in

May, June, November, and December 1999.

8

 We used the provisional rates of 126 percent for overhead costs and 20 percent for fringe

benefits costs.
Page 11 GAO-01-623 Anti-Drug Media Campaign

their time sheets.9 One of the 3 employees said that she did not work the

485 hours that she added to the ONDCP contract; another employee

generally could not recall the work that he did for ONDCP with respect to

most of the 402 hours that he added to his time sheets; and the third

employee, who was the media director, said that he added 67 hours to the

ONDCP contract after reviewing his calendar and finding that he had

worked more hours on ONDCP that he originally reported on his time

sheets. Details regarding our interviews with these three employees and

how we selected them to interview are contained in appendix II.

We also reviewed time sheets that Ogilvy submitted to ONDCP as support

for the labor invoices in 1999 and found hundreds10 containing scratchouts, white-outs, and other changes to the amount of time billed to the

ONDCP contract, all lacking the employees’ initials. We interviewed 12

Ogilvy employees whose time sheets were changed to add time to the

ONDCP contract about why the changes were made. (These were not the

same employees who revised their time sheets after certain Ogilvy

managers instructed them to do so.) Four of the 12 employees said that

they did not make the changes indicated on their time sheets regarding

ONDCP and did not know who made the changes, which added at least 55

hours to the ONDCP contract.11 The other 8 employees said that they made

the changes for various reasons, such as mathematical errors, charging

time to the wrong account, and recording the wrong office departure

times. Details regarding our interviews with the supervisors of the four

employees who said they did not make the changes made on their time

sheets, as well as how we selected these time sheets for review, are

contained in appendix III.

We were unable to determine whether Ogilvy billed the government or if

the government paid for all of the hours that were added to the ONDCP

contract as a result of the time sheet revision effort because, in some

cases, we could not determine whether the invoices reflected the original

or revised time sheets. We also recognize that we questioned employees

 9

 We chose to interview a sample of these employees because of resource limitations.

According to an Ogilvy attorney, 15 of the 28 employees were no longer employed at the

company in January 2001, including one who transferred 435 hours and another who

transferred 322 hours from other company accounts to the ONDCP contract.

10 About 12,000 time sheets were submitted to ONDCP for work done during 1999.

11 More hours may have been added, but it was not possible to determine what numbers

had been whited out or marked out on some time sheets.
Page 12 GAO-01-623 Anti-Drug Media Campaign

about their work activities up to 2 years after they occurred and that the

passage of time may have affected their recollections.

Ogilvy submitted labor invoices to the government that were calculated on

the percentage of time that employees worked on the ONDCP contract,

compared to all time worked for the company during each month.

However, in applying that methodology, the company inconsistently

charged the government for paid absences and training. In addition, Ogilvy

incorrectly billed fringe benefits for temporary contract employees.

Moreover, although the contract required the contractor to bill monthly,

Ogilvy did not submit a labor invoice to the government until 5 months

after the beginning of the contract. The company later voided its first labor

invoice and submitted another invoice to the government 4 months later.

The company also submitted multiple versions of invoices covering the

same time periods.

Ogilvy’s cost proposal and best and final offer were not clear about how

the company planned to bill the government for its labor costs. The

company’s June 1998 cost proposal indicated that the government would

be billed on the basis of the number of hours that employees worked on

the ONDCP contract multiplied by their hourly salary rates, assuming a 40-

hour work week. However, the company’s response to the government’s

question about uncompensated overtime in its November 1998 best and

final offer, which modified the initial proposal, indicated that Ogilvy would

bill the government on the basis of the percentage of time that employees

worked for ONDCP multiplied by their salaries during that month.12

Despite the lack of clarity regarding how Ogilvy planned to bill the

government, it appears that billing on the basis of the percentage of time

that employees worked on the ONDCP contract can be an acceptable

method under the Federal Acquisition Regulation (FAR) and CAS cost

allocation principles and DCAA audit guidance for employees who work

uncompensated overtime and work on more than one account. However,

we note that, although Ogilvy stated in its cost proposal that its employees

work a 40-hour work week, the company’s actual work week is 35 hours

and 32 hours in the summer. Because working less than 40 hours a week

may increase the cost of the government’s pro-rata share for Ogilvy’s

 12 The contract required Ogilvy to report direct labor costs by providing “...all persons,

listing the person’s name, title, number of hours or days worked, hourly rate, the total cost

per person and a total amount for this category.”

Ogilvy’s Labor Invoices

Incorrectly Billed Certain

Costs
Page 13 GAO-01-623 Anti-Drug Media Campaign

employees working on the ONDCP contract, the government will need to

determine the acceptability of this practice with regard to the ONDCP

contract.

In March 2001, after completing an internal review of billing practices,

Ogilvy’s attorneys and consultants told us that they had found the

percentage of time billing methodology was not always properly

implemented. For example, they said that Ogilvy failed to add paid

absences to the base of total hours worked, which resulted in an increase

in the percentage of time Ogilvy’s employees worked on the ONDCP

contract. In addition, attorneys and consultants said that the company

misclassified some costs, such as bonuses, by charging them as part of

direct labor rates to individual cost objectives (client accounts), rather

than including them as overhead, but that the misclassifications would be

corrected in a “true-up” of the contract. Ogilvy’s attorneys defined a “trueup” as the process contemplated by the contract to determine the final

actual incurred costs through which the government and the contractor

ultimately settle the amount of costs reimbursable to the contractor for

the contract year.

We found that Ogilvy inconsistently charged the government for

nonbillable hours, such as paid absences and training, in its invoices.

Ogilvy’s calculation of the percentage of time that employees worked on

the ONDCP contract at times included, and at other times excluded, paid

absences (sick leave, holidays, and vacations) and training in the

denominator representing the total number of hours that employees

worked. In its cost proposal, Ogilvy did not indicate that paid absences

(sick leave, holidays, and vacations) were included in the company’s

overhead. However, in a required disclosure statement that Ogilvy

submitted to the Navy in March 2001 regarding the company’s accounting

practices, which was prepared to be effective January 1, 1999, Ogilvy

indicated that sick leave, holidays, and vacations would be included in its

overhead. In addition, when Ogilvy billed employees’ entire monthly

salaries without deducting the value of time that they spent on training, it

may have resulted in double counting, because training was already

included in Ogilvy’s overhead. In administering this contract, the Navy will

need to determine how nonbillable hours should be charged to the

government, including resolving the proper charges for these costs during

the first 2 years of the contract.

We also found that Ogilvy’s invoices included labor charges for temporary

contract employees, which, when the percentage of time methodology was

applied, appeared to result in overbilling. The company’s September 1999
Page 14 GAO-01-623 Anti-Drug Media Campaign

invoice, for example, billed 15.5 hours for a temporary employee’s work,

all of which was dedicated to the ONDCP contract. The invoice also

indicated that the company paid this employee $11,000 that month.13 When

Ogilvy applied its percentage of time billing methodology, this temporary

contract employee’s entire monthly salary was allocated to the 15.5 hours

he worked, resulting in a direct labor bill of $11,100 (or an effective labor

rate of $716 per hour) to the government. After adding overhead and fringe

benefit costs to this invoice, Ogilvy charged the government a total of

$30,146 for 15.5 hours of work performed by this employee in September

1999. ONDCP records indicated that the salary for this employee could not

be substantiated by a payroll register, and therefore the contracting

officer’s technical representative (COTR) recommended disallowing

charges for this employee.

In explaining the billing for this temporary contract employee, attorneys

for Ogilvy said that the $11,100 billed was not for the 15.5 hours of work

indicated on the September 1999 invoice, but for 133 hours that the

employee worked in July and August 1999. The attorneys stressed that

Ogilvy did not disguise this bill to ONDCP and that there should be no

inference that the company attempted to “sneak” this charge past the

government. The attorneys also said that the cumulative billing to ONDCP

for the employee (the 15.5 hours billed in September 1999 and the

remainder of the 133 hours billed in the next invoice) would not have any

material differences, and that any actual errors, such as misallocation of

costs, would be adjusted in the true-up of the costs incurred under the

contract that is currently under way.

Ogilvy’s attorneys also said that Ogilvy billed the government for a total of

22 employees who worked for the firm that provided the temporary

contract labor in the foregoing example. We found that the same overhead

and fringe benefit costs were charged for the temporary contract

employees as they were for Ogilvy employees.14 In commenting on a draft

of this report, Ogilvy’s attorneys said that the company did not correctly

apply the permissible fringe rate to this group of contract employees. The

 13 Other than the 15.5 hours recorded as worked on the ONDCP contract, the time sheets

submitted to ONDCP did not indicate what this employee worked on during the rest of the

month. The time sheets were approved by a supervisor.

14 We found that the government paid for 19 of these 22 temporary employees. It appeared

that the remaining three temporary employees were not paid because of missing time

sheets or payroll data.
Page 15 GAO-01-623 Anti-Drug Media Campaign

attorneys added that, according to PricewaterhouseCoopers and a

reasonable reading of the FAR, charging the same overhead for regular

and temporary contract employees is proper. In a required disclosure

statement that Ogilvy submitted to the Navy in March 2001 (to be effective

January 1, 1999), the company indicated that it would charge the same

overhead for temporary contract and regular employees. This issue is

expected to be resolved between the government and Ogilvy. As of May

2001, this disclosure statement had yet to be approved by the government.

Ogilvy also delayed in submitting its first labor invoice to the government.

The contract required the company to submit its labor invoices monthly,

starting with January 1999. Ogilvy’s finance director said that the company

submitted its first labor invoice to the government in May 1999, but that

the COTR rejected it because the invoice was not in the correct format.

The finance director also said that it was unclear what the COTR wanted

regarding the invoice and that the COTR did not provide a sample format

until June 1999. Ogilvy did not submit another labor invoice until

September 1999—9 months after the contract began.

The COTR said that ONDCP did not cause Ogilvy’s billing delay and that

ONDCP did not reject Ogilvy’s first labor invoice. Instead, the COTR said

that Ogilvy’s delay in submitting the first labor invoice was the result of

the company’s lack of government contracting experience and because

Ogilvy did not hire a government contracts manager until 5 months after

the contract began. The COTR added that after he met with Ogilvy’s

government contracts manager in mid-June 1999 about the invoice, the

former government contracts manager sent the COTR an E-mail on June

21, 1999, voiding the invoice. In that E-mail, the former government

contracts manager said that “[a]fter our meeting, based on info [sic]

received at that time, we voided those invoices and have been preparing

new ones in accordance with your payroll and time sheet needs.”

Ogilvy also regularly submitted two or more invoices for the same period,

with the subsequent invoices charging time for additional employees and

adding more hours for employees previously billed. For example, the

company submitted a total of four invoices for labor charges incurred

during July and August 1999. According to ONDCP, the COTR

recommended that duplicative billings contained in multiple invoices be

disallowed. Ogilvy did not stop billing for 1999 until June 2000, and had not

submitted any labor invoices from July 2000 to the present, as of March

2001.
Page 16 GAO-01-623 Anti-Drug Media Campaign

In April 2000, Ogilvy retained American Express Tax and Business

Services to analyze its accounting systems and procedures and overhead

rates with respect to the ONDCP contract. In June 2000, American Express

reported that it had reviewed Ogilvy’s December 1999 invoice for ONDCP

and found, among other problems, that time sheets contained erasures,

scratch-outs, and white-outs without the employees’ initials on the

changes; in one instance, a supervisor’s approved signature was rubberstamped on the time sheet; and employees were not completing their time

sheets and submitting them to the accounting department on a timely

basis. American Express recommended that Ogilvy establish written time

sheet policies and procedures and inform employees of these policies and

procedures, both orally and in writing, as well as the penalties for not

complying.

American Express also reported in June 2000 that Ogilvy’s accounting

system segregated direct costs from indirect costs as required, and

identified and accumulated direct costs by contract, but that Ogilvy’s

general ledger did not provide for a segregation of unallowable expenses

from allowable expenses and the company’s reporting system did not

allow for it to have a full and complete profit and loss statement. Using an

overhead model it had developed, American Express also concluded that

Ogilvy significantly overbilled ONDCP for overhead in 1999, and that upon

audit and final determination of the rates, Ogilvy would be required to

return the overbilled funds to the government. In discussions with Ogilvy’s

attorneys about the American Express report, they pointed out that

American Express’s use of the word “overbilling” in this context was

misleading because Ogilvy billed its overhead costs pursuant to a

contractually agreed upon provisional rate that the parties understood was

subject to revision after the actual rate was determined. Ogilvy’s

uncertified incurred cost proposal for its New York office for 1999

contained lower overhead and fringe benefits rates than the provisional

ones contained in the contract.

Consultant Found

Problems With Ogilvy’s

Accounting System
Page 17 GAO-01-623 Anti-Drug Media Campaign

The government awarded a cost-reimbursement contract to Ogilvy before

sufficiently determining, as required, that the contractor had an

accounting system able to support this type of contract. In addition, the

government did not obtain from the contractor the required disclosure

statement regarding its cost accounting practices until 27 months after the

contract began and has not obtained the company’s certified incurred cost

proposal for 1999.15 HHS and ONDCP did not resolve billing disputes

between the COTR and the contractor, and failed to perform an audit after

allegations that the contractor was submitting improper time charges were

raised. Moreover, the contracting officer and the COTR did not have an

effective working relationship, which impeded contract administration.

Under the FAR, a cost-plus-fixed-fee (cost-reimbursement) contract is not

to be awarded unless the contracting officer determines that the

contractor’s accounting system is adequate for determining costs of the

contract. Further, at the time the RFP for the Phase III contract was

issued, an entity selected to receive a federal contract of $25 million16 or

more covered by the Cost Accounting Standards (CAS) was required to

submit a CAS disclosure statement, which is a description of its

accounting practices and procedures. A disclosure statement would have

shown whether Ogilvy could meet the government’s cost accounting

standards.17

 15 In March 2001, Ogilvy provided the Navy with an incurred cost proposal for 1999, but it

was not certified. The incurred cost proposal is required to be certified, by statute and the

FAR, before the proposal will be accepted by the government (unless certification is

waived by the government). Specifically, a contractor official no lower than the level of a

vice president or chief financial officer is to certify that, to the best of his or her knowledge

and belief, all costs included in the proposal are allowable in accordance with the FAR cost

principles and that the proposal does not include any costs that are expressly unallowable.

Ogilvy’s attorneys indicated that the required certification is delayed pending the

completion of the disclosure process on direct labor charges, on which the incurred cost

proposal for 1999 must be based.

16 This amount has since been increased to $50 million.

17 HHS officials believed that CAS did not require a disclosure statement to be submitted

until 90 days after the contract award because this would be Ogilvy’s first CAS-covered

contract awarded at the beginning of the company’s current fiscal year. However, we

believe, on the basis of our review of the CAS regulation, that this 90-day extension was not

applicable here. In any event, Ogilvy did not submit its disclosure statement until March

2001, which was about 2 years after the 90-day extension.

The Government Did

Not Adequately

Manage Aspects of

the Contract

Pertaining to Costs

Incurred by the

Contractor

The Government’s Analysis

of the Contractor’s

Accounting System Was

Insufficient
Page 18 GAO-01-623 Anti-Drug Media Campaign

The FAR requires that the contracting officer ensure that the offeror has

submitted the required disclosure statement.18 As a general matter, a

contracting officer is not to award a CAS-covered contract until a written

determination (by the administrative contracting officer) has been made

that the required disclosure statement is adequate.19 The cognizant auditor

is responsible for conducting reviews of disclosure statements for

adequacy and compliance, and the cognizant administrative contracting

officer is responsible for determinations of adequacy and compliance of

the disclosure statement. The HHS contracting officer said that she

verbally asked Ogilvy’s former government contracts manager for the

disclosure statement once or twice in May or June 1999 (about a half -year

after the contact award), and then repeated the request to the subsequent

government contracts manager three or four times starting in January

2000, but did not receive one. In March 2001, more than 2 years after the

contract award, Ogilvy submitted a CAS disclosure statement to the Navy

and DCAA.

HHS contracting officials said that they relied on the work of an HHS cost

analyst in determining the adequacy of Ogilvy’s accounting system before

awarding the contract. The contracting officer said that the cost analyst

verbally informed her before the contract was awarded that Ogilvy had an

adequate accounting system, but the cost analyst told us that he did not

recall that. The contracting officer also said that the cost analyst should

have documented his determination about Ogilvy’s accounting system in

writing before the contract award. In March 2000, an HHS cost analyst sent

an E-mail to HHS contracting officials stating that Ogilvy had an

accounting system that could “estimate, accumulate, and record costs on a

job-by-job basis.” The cost analyst also said in his E-mail that the financial

documentation that Ogilvy supplied demonstrated that the company used

generally accepted accounting principles, that its accounting system

provided for the segregation of direct and indirect costs, and that the

“identification and accumulation of direct costs by contract is taking place

and there is a logical and consistent method for the allocation of indirect

costs to a final cost objective.” The cost analyst told us that he did not

prepare this E-mail until March 2000, which was 15 months after the

 18 FAR 30.202-6.

19 Under FAR 30.202-6, the contracting officer may waive the requirement for an adequacy

determination before award in order to protect the government’s interest. However, there

is no indication that such a waiver was made here. Where a waiver is made, the

determination of adequacy is required as soon as possible after the award.
Page 19 GAO-01-623 Anti-Drug Media Campaign

contract award, because the HHS contracting officer did not ask him to

until then.

In November 2000, in connection with our review of the award and

administration of this contract, the HHS cost analyst prepared a

memorandum to HHS contracting officials providing additional

information about his basis for concluding that Ogilvy had an acceptable

accounting system to support a cost-reimbursement contract. In his

memorandum, the cost analyst indicated that the analysis of the proposal

to award a cost-reimbursement contract to Ogilvy involved a cursory

review of the offeror’s accounting system and that neither a pre-award

survey nor a complete audit of Ogilvy’s methods and processes was done.

The analyst stated that he considered Ogilvy to have an acceptable

accounting system on the basis of the company’s (1) statement in its

proposal that it used an accounting system that could estimate,

accumulate, and record costs on a job-by-job basis; (2) provision of a

detailed schedule of indirect cost expenditures and a financial statement

for the company that corresponded with the schedule of indirect costs; (3)

statement in its proposal that it had full access to the company’s public

relations office in Washington, D.C., which had managed major

government contracts since 1987; and (4) the fact that Ogilvy’s public

relations office20 had been audited by DCAA, which demonstrated that its

accounting methods and procedures met government standards.

However, even if the cost analyst informed the contracting officer that

Ogilvy’s accounting system was adequate prior to award, we believe this

limited analysis was an insufficient basis for determining that Ogilvy’s cost

accounting system was adequate to support a cost-reimbursement

contract of this magnitude. Because this was the first federal contract

received by Ogilvy’s New York office, the company’s schedule of indirect

costs and its statement that it was using an accounting system that could

estimate, accumulate, and record costs for this contract warranted further

in-depth review. Such an analysis should have included a review of

Ogilvy’s accounting system and timekeeping procedures in its New York

office. Further review should have also been triggered by the clear

indications in Ogilvy’s proposal that the company thought the contract

 20 ONDCP noted that Ogilvy public relations is not an entity that was involved in the

ONDCP advertising contract award. Ogilvy’s attorneys confirmed that Ogilvy public

relations, which was an unsuccessful bidder on another portion of the solicitation that was

awarded as a separate contract, did not have any involvement with the ONDCP advertising

contract post-award.
Page 20 GAO-01-623 Anti-Drug Media Campaign

was not subject to the CAS regulations and that Ogilvy was not submitting

a disclosure statement even though the RFP itself established that the

resulting contract would be subject to full CAS coverage. Because these

issues were not resolved, the government’s determination regarding the

adequacy of Ogilvy’s accounting system and its compliance with CAS was

insufficient.

The government’s award of the Phase III advertising contract to Ogilvy

without sufficiently determining whether the company had an adequate

cost accounting system and without performing the required review and

determination of the adequacy of the required CAS disclosure statement

contributed to the unresolved labor billing problems. Had the requirement

for Ogilvy to submit the necessary disclosure statement been enforced in a

timely manner, it is likely that the company’s cost accounting practices

already would have been subject to review and scrutiny by the

government. Such scrutiny would have increased the likelihood that

deficiencies in Ogilvy’s cost accounting practices would have been

identified and addressed earlier.

Further, the HHS cost analyst’s reliance on DCAA’s audits of Ogilvy’s

Washington, D.C., public relations office to validate the cost accounting

practices of Ogilvy’s New York office under this contract was misplaced.

Full access by the contractor to the Washington, D.C., office of another

business unit within the same firm does not mean that the New York office

would be using the same accounting and timekeeping systems that had

been approved under the other federal contracts with the Washington,

D.C., office. No specific information was provided in the cost proposal

regarding the similarity or compatibility of Ogilvy’s cost accounting

systems in its New York and Washington, D.C., offices.

Finally, HHS contracting officials also referred to a September 21, 1998,

cost analysis of Ogilvy’s proposal as support for the adequacy of the

contractor’s accounting system. However, that analysis noted cost

discrepancies within the proposal and did not indicate that Ogilvy had an

adequate accounting system to support a cost-reimbursement contract.

Given that the RFP for Phase III contemplated the award of a high-dollar

value CAS-covered contract, the fact that Ogilvy’s New York office did not

already have government approval of its cost accounting practices and did

not submit the required CAS disclosure statement should have been

viewed as a significant risk by government contracting officials.
Page 21 GAO-01-623 Anti-Drug Media Campaign

The government has not paid nearly one-third of the labor costs that

Ogilvy billed for work performed under the ONDCP contract. However,

HHS did not review the appropriateness of these disallowances, which

were recommended by the COTR. Further, the government did not audit

the contract, despite the large amount of money that was being disallowed

from the contractor’s invoices or after allegations of improper time

charges were raised. Attorneys for Ogilvy said that they believe that about

$6.8 million of the $7.6 million disallowed under the contact was

improperly disallowed.

The labor invoice that Ogilvy submitted in September 1999 covered

charges back to the beginning of the contract. In that and subsequent

invoices, the COTR routinely recommended that HHS’ contracting officer

disallow portions of them for payment. As part of his review of the

contractor’s labor invoices, the COTR recalculated them and made

disallowance recommendations on the basis of his adjustments. 21 The

COTR said that he made these adjustments in an attempt to ensure that

the government only paid the contractor’s actual costs under the contract.

The COTR recommended disallowing payment for labor costs claimed

where (1) time sheets were not provided in support of labor invoices; (2)

employee salary data were not provided; (3) employee salaries exceeded

those proposed by the contractor; (4) bonuses or other unallowable

compensation, such as car allowances and health club fees, were claimed;

(5) salaries exceeded allowable limits; and (6) computational errors were

made by the contractor. In addition, the COTR recalculated the invoices to

include nonbillable hours in the base of hours that employees worked at

the company, which Ogilvy’s attorneys and consultants told us in March

2001 was, they believed, an appropriate adjustment to the percentage of

time billing methodology. The contracting officer generally followed the

COTR’s recommendations and disallowed payment of about $7.6 million

out of about $24.2 million, or about 31 percent, in labor charges from

Ogilvy during the first 19 months of the contract.

In April 2000, the COTR wrote a memorandum to the ONDCP Director

reporting “irregularities” with Ogilvy’s billing under the contract, including

“suspicions of fraudulent conduct” relayed by a former Ogilvy employee.

The COTR recommended an immediate audit of the base year of the

 21 ONDCP paid an accounting firm $300,000 per year to review Ogilvy’s invoices. The

accounting firm reported to the COTR.

The Government Did Not

Resolve Billing

Disallowances or Audit the

Contract
Page 22 GAO-01-623 Anti-Drug Media Campaign

contract in his memorandum and reported several problems, including a

substantial increase in the number of Ogilvy employees working on the

contract; the submission of multiple invoices for the same billing period;

time sheets that were illegible or contained many changes that increased

the number of hours charged to ONDCP; billing for pro bono work,

excessive salaries, and unallowable compensation; and the use of an

erroneous billing methodology. In addition, the COTR indicated that he

had asked HHS for documentation regarding the acceptability of Ogilvy’s

accounting system, but that he had only received a statement in response

from HHS that the company used generally accepted accounting

principles.

The memorandum also indicated that a former Ogilvy employee informed

ONDCP about suspicions of fraudulent conduct regarding the contract.

According to this former Ogilvy employee (who was a former senior

manager and wished to remain anonymous), after Ogilvy’s president

complained in the summer of 1999 about a lack of revenue on the ONDCP

contract, Ogilvy employee time sheets were altered to increase the number

of hours billed to the contract. The COTR also indicated in this memo that

he asked the HHS contracting officer for an audit, but that HHS responded

that its policy was to conduct an audit at the end of the contract (which, if

all of the option years were exercised, would have been in December

2003) and that ONDCP would have to pay for an audit conducted prior to

then. A copy of the memo containing the ONDCP Director’s handwritten

notes indicated that he agreed with the need for an external audit.

However, ONDCP officials told us that they did not arrange for an audit at

that time because HHS wanted ONDCP to pay for it, which ONDCP

declined to do, and that ONDCP planned to transfer contracting

responsibilities from HHS to the Navy and have the Navy arrange for an

audit after taking over the contract.

We asked the HHS contracting officer when she first heard allegations of

improper charges being submitted on the contract, what she learned, and

what action was taken. The contracting officer said that, after Ogilvy

began submitting labor invoices in September 1999, the COTR verbally

informed her that the contractor might be overbilling the government and

possibly engaged in fraudulent conduct. However, the contracting officer

said that the COTR did not elaborate or provide any support for his

suspicion. The contracting officer said that she did not believe the

allegations were credible because no evidence of improper time charges

was provided and that, therefore, an audit was not needed.
Page 23 GAO-01-623 Anti-Drug Media Campaign

HHS contracting officials also said that, if they had had credible

allegations of improper charges being submitted by the contractor, they

could have referred the matter to the HHS Inspector General, who they

said could have ordered an immediate audit of the contract. HHS

contracting officials said, for example, that ONDCP did not provide them

with a copy of the COTR’s April 2000 memo to the ONDCP Director

regarding improper time charges. However, ONDCP officials said that they

believed an audit should have been done, even without specific knowledge

of evidence of fraudulent charges, because of the large amount of money

that was being disallowed from the contractor’s invoices. The COTR said

that it was an ONDCP management decision not to share the

unsubstantiated allegations of improper time charges with HHS

contracting officials and not to refer the matter to the HHS Inspector

General. ONDCP indicated that its actions were based on the lack of

evidence substantiating the allegations and the fact that an audit of

questioned billings was expected to occur immediately after the

responsibility for contract administration was transferred from HHS to the

Navy, which ONDCP expected would occur in the near future. Further,

ONDCP indicated that it believed that ONDCP’s request to HHS to

withhold payment of Ogilvy’s underlying claim protected the government

until the audit could occur.

At the beginning of the contract, HHS appointed an ONDCP employee as

the COTR to handle contractual technical issues. However, the HHS

contracting officer and the COTR did not have an effective working

relationship, which impeded contract administration and led to the

transfer of contracting responsibilities from HHS to the Navy.22 The

contracting officer said that the COTR did not work within the boundaries

of his appointment. However, ONDCP indicated that the COTR started

performing duties normally performed by the contracting officer only

because the contracting officer was not actively engaged in the

administration of the contract, gave the COTR permission, or acquiesced

to the COTR’s performing the duties. Further, the COTR said that the

working relationship with HHS contracting officials deteriorated because

he refused pressure from the contracting officer to recommend payment

for costs that the COTR believed to be questionable or unsupported by the

 22 HHS officials said that they initiated the transfer of contract responsibilities to the Navy.

However, ONDCP officials said that they began exploring the transfer of contracting

responsibilities, unbeknownst to HHS, after meeting with HHS in November 1999.

Contracting Officer and

COTR Did Not Have an

Effective Working

Relationship
Page 24 GAO-01-623 Anti-Drug Media Campaign

contractor. In some instances, we found documentary evidence to support

the different parties’ accounts of events, although with regard to other

incidents we found no documentation to resolve the differing views.

In December 1998, the HHS contracting officer issued the COTR an

appointment letter authorizing him to (1) correspond and hold

conferences with the contractor on matters of a technical nature, (2)

conduct inspections and perform evaluations permitted by the contract,

(3) approve technical data required by the contract, and (4) maintain the

official technical file. In addition, the appointment letter indicated that all

significant actions taken by the COTR would be documented and a copy

provided to the contracting officer, including trip reports, memorandums

for the file, and correspondence with the contractor. Moreover, the letter

indicated that the appointment did not authorize the COTR to issue or

approve changes or enter into any agreement, modification, or any other

matter affecting the cost or terms and conditions of the contract.

The contracting officer said that the COTR did not comply with his duties

and responsibilities in certain instances. For example, the contracting

officer said that the COTR did not provide contractor performance

reports, which under the contract were required to be submitted 9 months

after the contract award and yearly thereafter. The COTR said that he did

not provide contractor performance reports because the contracting

officer never asked him for them. We found that the contract files

contained an April 16, 1999, fax from the contracting officer to the COTR

providing a form for measuring the contractor’s performance. We also

found an October 27, 1999, letter from the contracting officer to the COTR

indicating that the contractor performance report was due and that,

because the report was required by the contract, either the report needed

to be prepared or the contract had to be modified to delete the

requirement. The contracting officer asked the COTR how he wanted to

proceed on this issue, but we did not find evidence that the COTR

responded in writing. When we asked the COTR about these documents,

he said that ONDCP provided the contractor with an assessment of its

performance on an ongoing basis and was unable to wait until the end of

the performance period to provide this type of assessment.

The contracting officer also said that the COTR allowed the contractor to

bill four times a month, rather than once a month, without asking HHS to

amend the contract. However, the COTR said that he allowed the

contractor to bill more than once a month because he wanted to segregate

first and second year costs, as well as media and nonmedia costs. We

found in the contract files a June 6, 2000, letter from Ogilvy’s government
Page 25 GAO-01-623 Anti-Drug Media Campaign

contracts manager to the contracting officer, informing her that a meeting

had been held with the COTR during which it was agreed that Ogilvy

would submit four invoices per month. The letter indicated that billing

four times monthly would help track and identify travel costs, media and

nonmedia billing, and labor costs for 1999 and 2000. We did not find any

correspondence from the contracting officer to the COTR or the

contractor that disagreed with this billing plan.

A November 11, 1999, E-mail that Ogilvy’s former government contracts

manager sent to HHS contracting officials addressed the company’s

concerns about the administration of the contract. In the E-mail, Ogilvy’s

former government contracts manager described “relationship issues with

the COTR creating difficulty in the management of the contract,” including

the COTR’s “reluctance to involve HHS/Procurement in any contract

issues” and “inability to supply [the] agency with adequate direction or

explanation of needs.” (The COTR, however, said that he never told Ogilvy

staff that they could not contact HHS.) Ogilvy sent this E-mail to HHS after

the company’s project director, finance director, and former government

contracts manager met with HHS contracting officials on October 21, 1999,

to discuss concerns they had regarding the contract. During that meeting,

HHS officials asked Ogilvy officials to put their concerns in writing.

However, Ogilvy’s finance director said that HHS officials took no action

in response to the E-mail, and Ogilvy’s project director said that payments

on the contract did not begin until after the company contacted ONDCP’s

General Counsel in November or December 1999. ONDCP’s General

Counsel told us, however, that he was not responsible for expediting

payments to Ogilvy as the payment process took its normal course and

that he did not discuss this issue with Ogilvy’s project director. According

to ONDCP, it took several weeks to sift through the invoice that Ogilvy

submitted on September 27, 1999, and that ONDCP was able to authorize

payment of a substantial portion of the claimed costs by November 11,

1999.

In response to the October 2000 hearing before the House Government

Reform Subcommittee on Criminal Justice, Drug Policy and Human

Resources, Ogilvy hired PricewaterhouseCoopers in November 2000 to

restructure its accounting system to meet government contracting

standards for a CAS-covered cost-reimbursement contract. This included

developing a disclosure statement regarding Ogilvy’s accounting system,

which was required to be submitted at the beginning of the contract, and

an incurred cost proposal for 1999, which was originally due no later than

June 30, 2000.

Recent and Planned

Actions
Page 26 GAO-01-623 Anti-Drug Media Campaign

In March 2001, attorneys for Ogilvy met with us to discuss an estimate of

charges that they proposed be disallowed from the amounts already billed

under the contract. The estimate, which had been developed by

PricewaterhouseCoopers, was for about $850,000, including overhead and

fringe benefits, out of about $24.2 million that was billed for ONDCP work

during the first 19 months of the contract. According to Ogilvy’s attorneys,

PricewaterhouseCoopers did not conduct an audit of all of the ONDCP

time charges to determine what charges were or were not appropriate.

However, the attorneys said that PricewaterhouseCoopers reviewed all of

Ogilvy’s time charges regarding ONDCP to complete three distinct tasks:

(1) assist Ogilvy and its attorneys in developing statistical confirmation of

anecdotal reports of overcharging or mischarging, (2) quantify areas

identified with the attorneys as being “clearly suspect,” and (3)

“conservatively estimate charges in areas identified as being probably

suspect that could not otherwise be precisely quantified.” The attorneys

said that these “conservative assumptions were made in the government’s

favor.” Further, the attorneys said that they did not find $850,000 to be

“improper,” but rather developed an “overestimate of erroneous charges.”

A PricewaterhouseCoopers manager told us that his firm reviewed time

charges in selected areas directed by Ogilvy’s attorneys. We did not verify

the information that Ogilvy’s attorneys or consultants provided to us

regarding the amount of money that they proposed be disallowed,

including the methodology that PricewaterhouseCoopers used in

developing the $850,000 estimate, because our scope of work did not

include determining the total actual costs incurred under this contract. We

expect that DCAA will address the appropriateness of Ogilvy’s time

charges as part of the audit that Navy asked DCAA to conduct.

On March 2, 2001, Ogilvy provided an “advance copy” of an incurred cost

proposal to the Navy, which was not certified. An Ogilvy attorney said that

the FAR requires a contractor to include all direct labor costs in the base

used to determine the indirect rates claimed in the incurred cost proposal.

According to the attorney, such inclusion benefits the government even

when the company does not expect to be paid for all of the direct labor

costs used for the base, as in this case. The attorney said that, in this

circumstance, the company is unable to certify the incurred cost proposal

for indirect rates until the contracting officer and the company agree on

the allowable direct labor. He added that certifying the incurred cost

proposal at this point theoretically could be viewed as wrongly certifying

direct labor charges that the company does not intend to collect. Further,

the attorney said that Ogilvy fully expects to certify an incurred cost

proposal that can be audited by DCAA pending completion of the
Page 27 GAO-01-623 Anti-Drug Media Campaign

voluntary disclosure process or through agreement with the Navy, DCAA,

and the Department of Justice.

In addition to retaining consultants to restructure its accounting system to

meet government contracting requirements, Ogilvy indicated that it has

taken actions to improve the preparation of employee time sheets. In

January 2001, Ogilvy issued its employees revised time sheet guidance

prepared by PricewaterhouseCoopers containing detailed time sheet

procedures and penalties for falsifying them. Also in January 2001,

PricewaterhouseCoopers began providing time sheet training to Ogilvy

employees.

For its part, ONDCP indicated that it has taken actions to improve the

administration of the contract with Ogilvy, such as transferring the

contracting responsibilities from HHS to the Navy. ONDCP also indicated

that it split the COTR’s duties so that the Media Campaign Office will have

various technical representatives, rather than having one COTR handling

all of the media campaign contracts. In addition, ONDCP said that its

media campaign staff have been trained and certified as COTRs. According

to ONDCP, since contracting responsibilities were transferred to the Navy,

communication has been substantially enhanced between the COTRs and

the contracting officer, and regular meetings are scheduled between the

COTRs, the contracting officer, and the contractor to resolve issues.

In March 2001, DCAA began reviewing Ogilvy’s accounting system but

does not plan to start an historical cost audit until the company certifies

its incurred cost proposal. DCAA also plans to routinely review Ogilvy’s

future labor invoices.

The contractor for the advertising portion of the Phase III anti-drug media

campaign did not properly charge the government for some of the labor

costs incurred under the contract. Ogilvy’s submission of time sheets

claiming hours that some employees said they did not work on the antidrug media campaign was clearly improper. Moreover, Ogilvy should not

have been awarded a CAS-covered cost-reimbursement government

contract until the company had an adequate cost accounting system to

support this type of contract. Ogilvy did not comply with FAR and CAS

requirements regarding its accounting system for this cost-reimbursement

contract. Although ONDCP is pleased with the technical aspects of

Ogilvy’s work, the company did not make substantial progress toward

restructuring its accounting system to meet government requirements until

nearly 2 years after the contract was awarded.

Conclusions
Page 28 GAO-01-623 Anti-Drug Media Campaign

The government poorly managed aspects of the award and administration

of the contract. HHS should not have awarded this cost-reimbursement

contract without determining whether the contractor had an adequate cost

accounting system that met CAS standards. In addition, HHS should have

reviewed the appropriateness of the large amount of money that the COTR

recommended be disallowed from the contractor’s invoices or arranged

for an audit of the contract. The COTR appropriately brought allegations

of improper billing to the attention of ONDCP management, but ONDCP

management did not take prompt action to investigate the allegations.

Moreover, contract administration was impeded because the COTR and

contracting officer did not have an effective working relationship.

Because the contract has not yet been audited, the appropriateness of the

disallowed charges and the actual costs incurred is currently unknown. In

assuming contracting responsibilities for the ONDCP contract, the Navy

must determine whether Ogilvy has adequately restructured its accounting

system to meet government requirements and the allowability of costs

charged to the contract, including Ogilvy’s nonbillable hours and

temporary contract employee labor charges. The government should not

exercise the next contract option year with Ogilvy unless substantial

progress has been made toward resolving these issues and ONDCP has

considered both Ogilvy’s administrative and technical performance under

the contract to date.

The Director of ONDCP should direct ONDCP staff to work with the Navy

to (1) review the appropriateness of the disallowed costs and temporary

contract employee labor charges from Ogilvy’s invoices and determine the

amount of money that the government overpaid or should reimburse the

contractor regarding these invoices, (2) ensure that Ogilvy has an adequate

cost accounting system for continued performance under the contract,

and (3) coordinate the roles and responsibilities of the contracting officer

and COTR and ensure that these roles and responsibilities are effectively

carried out. Further, ONDCP should request that the Navy not exercise the

next option year of the contract with Ogilvy until the company has

adequately restructured its accounting system to meet government

requirements and ONDCP has considered the contractor’s administrative

as well as technical performance under the contract to date. In this regard,

ONDCP and the Navy should immediately begin to plan contracting

alternatives for the subsequent Phase III media campaign should they

decide not to exercise the next contract option year with Ogilvy.

Recommendations for

Executive Action
Page 29 GAO-01-623 Anti-Drug Media Campaign

To improve HHS’ compliance with contracting procedures and prevent the

awarding of CAS-covered cost-reimbursement contracts to companies

lacking adequate accounting systems to support that type of contract, the

Director of the HHS Program Support Center (PSC) should direct that

PSC’s controls over contracting procedures be assessed to ensure that

they are adequate for awarding and administering CAS-covered costreimbursement contracts. These controls would include ensuring the

adequacy of potential contractors’ cost accounting systems (including

auditor approval), obtaining the required disclosure statements, arranging

for audits of contracts when significant billing problems arise, and

resolving billing disputes involving substantial disallowances on a timely

basis.

We provided copies of a draft of this report for comment to the Acting

ONDCP Director; the PSC Director; the Director of Contracts for the

Navy’s Fleet and Industrial Supply Center, Norfolk Detachment, in

Washington, D.C.; DCAA’s Branch Manager in New York City; and the

President of Ogilvy in New York City. On May 22, we received written

comments from attorneys representing Ogilvy, which are reprinted in

appendix V; on May 23, we received written comments from the Deputy

Director of ONDCP, which are reprinted in appendix IV; and on May 24,

we received written comments from the PSC Director, which are reprinted

in appendix VI. We received oral comments from the Department of

Defense (DOD), which included comments from the Navy and DCAA.

The Deputy Director of ONDCP said that ONDCP believes that, in general,

the report fairly and accurately portrays the complexities of the

contracting issues regarding the advertising portion of the anti-drug media

campaign. The Deputy Director also said that ONDCP agrees with the

recommendations in the report and offered some additional comments to

clarify actions taken by ONDCP. He said that action already has been

under way for some time and significant progress has been achieved

regarding our recommendations to (1) resolve the appropriateness of the

disallowed costs and subcontractor labor charges and determine amounts

overpaid for which the contractor should be reimbursed; (2) certify

Ogilvy’s cost accounting system for continued performance under the

contract; and (3) coordinate contracting officer and COTR responsibilities,

ensuring effective contract administration.

The ONDCP Deputy Director also said that an excellent working

relationship has been established with the Navy, that all media campaign

staff have been trained and certified as COTRs, and that the Navy has

 Agency and Ogilvy

Comments

ONDCP Comments
Page 30 GAO-01-623 Anti-Drug Media Campaign

agreed to have a full-time contracting officer on-site at ONDCP’s Media

Campaign office. The Deputy Director said that these changes will greatly

facilitate communication and resolution of problems, as well as speed

implementation of the program. The Deputy Director also said that the

Navy, DCAA, and the Department of Justice are actively pursuing a

solution to Ogilvy’s certification of its costs incurred under the contract.

The ONDCP Deputy Director also said that ONDCP has notified the Navy

that the next year option of the contract should not be exercised unless

Ogilvy’s cost accounting system has been approved, and that ONDCP will

coordinate with the Navy on determining whether to exercise that option.

The Deputy Director said that ONDCP has notified the Navy that

acquisition planning is under way to prepare for offering a new contract

for bid should the decision be made not to exercise the next year option

on the contract. Further, the Deputy Director said that a statement of work

is being prepared for a possible new contract offering and that a timeline

has been proposed to the Navy that would provide for a new contract

award prior to the current contract’s option date.

Although ONDCP indicated that significant progress has been achieved

toward resolving the appropriateness of the disallowed costs and resolving

subcontractor labor charges, we note that DCAA’s audit of the contract

has not yet begun. As also noted in the report, the Navy has asked DCAA

to audit the costs that Ogilvy incurred under the contract in 1999 and 2000,

but that DCAA does not plan to begin the audit until the company certifies

its incurred cost proposal, which Ogilvy has not yet done. Further,

although Ogilvy’s attorneys said that the company expects to certify the

incurred cost proposal after it completes the disclosure process on direct

labor charges or reaches an agreement with the government, we are not a

party to these negotiations and cannot comment on their status. With

regard to “subcontractor” labor charges, which we referred to in our draft

report, after consulting with Ogilvy’s attorneys and reviewing an

agreement that Ogilvy had made with a firm that provided temporary

contract labor to the company, we agreed to refer to “temporary contract”

employees, rather than “subcontractor” employees, in the report.

With regard to ONDCP’s comments that significant progress has been

made toward certifying Ogilvy’s cost accounting system for continued

performance under the contract, we recognize, as noted in the report, that

DCAA began reviewing Ogilvy’s accounting system in March 2001, but we

have not assessed the progress of that work.
Page 31 GAO-01-623 Anti-Drug Media Campaign

Regarding ONDCP’s comments that significant progress has been made

toward coordinating contracting officer and COTR responsibilities, we

recognize, as noted in the report, the efforts that ONDCP indicated have

been made to train and certify its employees as COTRs.

ONDCP also suggested some technical clarifications to the report, which

we incorporated where appropriate.

Ogilvy’s attorneys provided comments on many issues addressed in this

report. In general, Ogilvy’s attorneys said that the report was fair; that the

company regrets the billing errors that were made and is making extensive

efforts to correct the problems; and that, despite the billing problems, the

government ultimately benefited from the company’s extraordinary

performance under the contract. Our specific responses to the attorneys’

comments are included in appendix V. The attorneys did not make any

comments on the recommendations. They also suggested specific

technical changes to clarify our report, which we have made where

appropriate.

The PSC Director said that, while PSC believes that adequate contracting

procedures are in place to ensure that awards of CAS-covered costreimbursement contracts are made to companies with adequate

accounting systems, it concurs that the PSC controls over contracting

procedures, particularly with respect to assessing an offeror’s accounting

system, should be examined. The Director said that PSC has initiated such

a review and will strengthen procedures whenever possible.

DOD provided a summary of oral comments from the Navy and DCAA. In

their comments, the Navy and DCAA discussed the actions that they plan

to take regarding the recommendations that we made to ONDCP. DOD

indicated that, since taking over the ONDCP contract administration from

HHS, the Navy has requested that DCAA perform audits of Ogilvy’s cost

accounting system and historical audits of all past invoices to determine

what, if any, money the government has overpaid or should reimburse

Ogilvy. DOD also said that, until Ogilvy’s cost accounting system is

approved by DCAA and the contracting officer, DCAA is providing audit

support for all invoices to determine the appropriate amount to reimburse

the contractor. In addition, according to DOD, the respective roles of the

contracting officer, the Navy contracting officer’s technical representative,

and DCAA have been coordinated and clarified between the Navy and

ONDCP to ensure that these roles and responsibilities are effectively

carried out.

Ogilvy Comments

PSC Comments

Navy Comments
Page 32 GAO-01-623 Anti-Drug Media Campaign

DOD also indicated that the Navy is working with Ogilvy and ONDCP to

restructure the contract to better track the funds to appropriate categories

under the contract. However, DOD indicated that Ogilvy has not provided

a certified copy of its indirect costs, which prevents DCAA from

conducting that portion of the requested audit and will delay the

resolution and payment of the outstanding invoices. DOD also indicated

that DCAA is working with Ogilvy to ensure that its cost accounting

system meets government requirements. Moreover, DOD indicated that,

should ONDCP and the Navy decide not to exercise the next contract

option year, alternative plans are being made with ONDCP to cover Phase

III of the media campaign.

We are sending copies of this report to the Chairman and Ranking

Minority Member, House Committee on Appropriations; the Ranking

Minority Member, House Appropriations Subcommittee on Treasury,

Postal Service, and General Government; the Chairman and Ranking

Minority Member, Senate Committee on Appropriations; and the

Chairman and Ranking Minority Member, Senate Appropriations

Subcommittee on Treasury and Postal Service. We are also sending copies

of this report to the Acting Director of the Office of National Drug Control

Policy; the Director of HHS’ Program Support Center; the President of

Ogilvy and Mather in New York; and the Administrator of the Office of

Federal Procurement Policy in her capacity as Chairman of the Cost

Accounting Standards Board. Copies will also be made available to others

upon request.

Major contributors to this report were Bob Homan, John Baldwin, Jason

Bair, Seth Taylor, Adam Vodraska, Jim Higgins, and Mark Connelly. If you

have any questions, please contact me on (202) 512-8387 or at

ungarb@gao.gov

Sincerely yours,

Bernard L. Ungar

Director, Physical Infrastructure Issues
Appendix I: Scope and Methodology

Page 33 GAO-01-623 Anti-Drug Media Campaign

In conducting this review, we interviewed HHS, Navy, and ONDCP

officials involved in awarding and administering the Phase III media

campaign contract. We also reviewed relevant documentation, including

the contractor’s cost proposal and best and final offer; the contract;

invoices and supporting documentation, including time sheets and payroll

registers; correspondence between HHS, ONDCP, and the contractor;

consultant reports; and previous GAO reports and testimony on the media

campaign.

To determine whether the government and the contractor followed the

FAR and CAS requirements in awarding and administering the contract

related to ensuring the acceptability of the contractor’s accounting system,

we compared the actions taken, as evidenced in the contract

documentation and interviews that we conducted, with the actions that

should have been taken under FAR and CAS. We also interviewed DCAA

officials about their audit plans and procedures regarding the ONDCP

contract.

To determine whether the contractor properly billed the government, we

analyzed the invoices that were submitted, the cost proposal, contract, and

the FAR and CAS, and we interviewed contractor officials and employees,

including those who prepared the cost proposal and invoices. In addition,

we met with Ogilvy’s attorneys and consultants who reviewed the

contractor’s invoices and accounting practices. We interviewed 3 of 28

employees who were identified by an Ogilvy attorney as having revised

their time sheets for the ONDCP contract. We chose two of those three

employees for our sample because they added the largest number of hours

to the ONDCP contract on their time sheets, according to a company

document. We chose the third employee because he was the media

director who supervised many of the employees who worked on the

ONDCP contract. We did not interview the rest of the employees who

were identified as having revised their time sheets because of resource

limitations and because 15 of the 28 employees were no longer employed

at the company as of January 2001.

We also identified employees with changes on their time sheets for the

ONDCP contract by reviewing copies of the time sheets that were

submitted to ONDCP as supporting documentation. From this set of time

sheets with changes, we judgmentally selected a sample of 20 employees

with the largest number of hours added to the ONDCP contract. An Ogilvy

attorney told us that 12 of those 20 employees were still working at the

company in December 2000, and we interviewed those 12 employees in

December 2000 and January 2001. We also interviewed the supervisors for

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 34 GAO-01-623 Anti-Drug Media Campaign

the four employees who said someone else made the changes that were

shown on their time sheets.

Our review objective did not include determining the amount of money

that the government overpaid or should reimburse for labor costs. In

addition, other problems with employee time sheets could have existed

that we or the company (or its attorneys and consultants) did not identify.

We did not verify the information that the company or its attorneys and

accountants provided. We also did not review the costs of media that

Ogilvy incurred for the government. Further, although we reviewed Ogilvy

invoices that included charges for temporary contract employees and

discussed the billing of a temporary contract employee in this report, we

did not review the billing for all of the temporary employees. We also did

not review the overall award process used for the initial contract award.

We did our work from September 2000 through April 2001 in Washington,

D.C., and New York City in accordance with generally accepted

government auditing standards. We provided a draft of this report to

ONDCP, HHS, the Navy, DCAA, and Ogilvy. Their comments and our

evaluation are provided at the end of our letter and in appendix V.
Appendix II: Interviews With Ogilvy

Employees Who Revised Their Time Sheets

Page 35 GAO-01-623 Anti-Drug Media Campaign

Ogilvy’s attorneys provided documents indicating that 28 employees

prepared revised time sheets, primarily in September and October 1999,

and added a total of 3,127 hours to the ONDCP contract. We judgmentally

selected a sample of 3 of those 28 employees to interview about when and

why they revised their time sheets.1

 We chose two of the three employees

for our sample because they had added the largest number of hours to the

ONDCP contract, according to the document that Ogilvy’s attorneys

provided to us. We chose the third employee because he was the media

director who supervised many of the employees who worked on the

ONDCP contract.

One of the three employees in our sample prepared revised time sheets for

16 weeks, covering time from January through May 1999, and added 485

hours to the ONDCP contract. However, this employee said that she did

not work an extra 485 hours on the anti-drug media campaign and revised

her time sheets because an Ogilvy manager instructed her to do so. This

employee said that the manager told her to add the extra hours to the

ONDCP contract because her original charges did not reflect the amount

of time that she was projected to work on the anti-drug media campaign.

The employee could not recall which Ogilvy manager gave her those

instructions, but said it was either the former government contracts

manager or the project director. (The former government contracts

manager, through his attorney, declined to comment on this matter. The

project director said that she did not instruct this employee to add the 485

hours to her time sheets.2

)

Ogilvy’s finance department did not retain the original versions of the time

sheets that this employee prepared before adding the 485 hours to the

ONDCP contract. However, the employee kept copies of her original and

revised time sheets, which showed that time charges were transferred

from other company accounts in the first set of time sheets to the ONDCP

contract in the second set. In the original set of time sheets, no time had

been charged to the ONDCP contract in 8 of the 16 weeks. In addition, the

total number of hours claimed as worked during particular weeks

 1

 We chose to interview a sample of these employees because of resource limitations.

According to an Ogilvy attorney, 15 of the 28 employees were no longer employed at the

company in January 2001, including one who transferred 435 hours and another who

transferred 322 hours from other company accounts to the ONDCP contract.

2

 These revised time sheets were signed by the employee’s supervisor, who is also Ogilvy’s

project director for the ONDCP contract.

Appendix II: Interviews With Ogilvy

Employees Who Revised Their Time Sheets
Appendix II: Interviews With Ogilvy

Employees Who Revised Their Time Sheets

Page 36 GAO-01-623 Anti-Drug Media Campaign

remained unchanged in both sets of time sheets. The employee could not

recall when she revised her time sheets, but a document provided by

Ogilvy’s attorneys indicated that the revised time sheets were entered into

the company’s timekeeping system on September 2, 1999. Ogilvy’s

consultants calculated the value of these 485 hours to be $6,199, which,

when we added overhead and fringe benefits costs, totaled $16,836.

Another of the three employees in our sample prepared revised time

sheets for 14 weeks, covering time from January through May 1999, and

added 402 hours to the ONDCP contract. This employee said that his

supervisor asked him to revise his time sheets because the employee’s

original time charges did not reflect the number of hours that he was

projected to work on the ONDCP contract. The employee said that he

added the 402 hours to his time sheets in the summer of 1999 on the basis

of his memory of time worked. He also said that he believed the revised

time sheets were more accurate than the originals. When asked why he

added time to the ONDCP contract, this employee said that, early in 1999,

he was doing tasks for multiple clients that involved gathering information

about the media market in general, but that also benefited ONDCP. (This

employee originally did not charge any time to ONDCP in January and

February 1999, but added 238 hours to the ONDCP contract in his revised

time sheets for those 2 months.) This employee also said he was working

for ONDCP in mid-April 1999 in preparation for a presentation, but could

not recall why he added more time to the ONDCP contract for the other

weeks.

Ogilvy’s finance department retained this employee’s original and revised

time sheets for 5 of the 14 weeks for which he added 402 hours to the

ONDCP contract. In addition, Ogilvy sent copies of original and revised

time sheets for 4 other weeks (among the 14 weeks) to ONDCP as support

for its labor invoices, which we reviewed. Those time sheets showed that

time charges were transferred out of other company accounts in the first

set of time sheets to the ONDCP contract in the revised set, while the total

number of hours worked during individual weeks was generally left

unchanged in both versions.3

 A document provided by Ogilvy’s attorneys

indicated that the revised time sheets were entered into the company’s

timekeeping system on September 14, 1999. Ogilvy’s consultants

 3

 For one week, the total number of hours worked was reduced by 1 hour in the revised

time sheet, while the total number of hours worked was reduced by 2 hours in another

week’s revised time sheet.
Appendix II: Interviews With Ogilvy

Employees Who Revised Their Time Sheets

Page 37 GAO-01-623 Anti-Drug Media Campaign

calculated the value of these 402 hours to be $13,403, which, when we

added overhead and fringe benefits costs, totaled $36,401.

The third employee in our sample, Ogilvy’s media director,4

 prepared

revised time sheets for 7 weeks, covering time from January through June

1999, and added 67 hours to the ONDCP contract. This media director said

that he added the time after reviewing his calendar and finding that he had

worked more hours on ONDCP than originally claimed. Ogilvy’s finance

department retained copies of this employee’s original and revised time

sheets, which showed that time charges were transferred from other

company accounts in the first set of time sheets to ONDCP in the second

set of time sheets. The total number of hours worked during individual

weeks remained unchanged in both versions. A document provided by

Ogilvy’s attorneys indicated that the revised time sheets were entered into

the company’s timekeeping system on September 14, 1999. Ogilvy’s

consultants calculated the value of these 67 hours to be $5,147, which,

when we added overhead and fringe benefits costs, totaled $13,978.

 4

 The media director was also the supervisor for the employee who added 402 hours to his

time sheets for the ONDCP work.
Appendix III: Interviews With Ogilvy

Employees and Supervisors Regarding Time

Sheets Containing Changes

Page 38 GAO-01-623 Anti-Drug Media Campaign

We reviewed time sheets that Ogilvy submitted to ONDCP as support for

the labor invoices in 1999 and found hundreds1

 containing scratch-outs,

white-outs, and other changes to the amount of time billed to the ONDCP

contract, all lacking the employees’ initials. We judgmentally selected a

sample of 20 employees’ time sheets with such changes that added time to

the ONDCP contract and asked to interview the employees about why the

changes were made. These time sheets were selected for our sample

because, after reviewing all of the time sheets that were submitted to

ONDCP, they appeared to have the most time added for the ONDCP

contract.2

 In some cases, Ogilvy had submitted to ONDCP two versions of

time sheets for the same employee, and, in those instances, we questioned

those employees about the reasons for the differences between the two

sets of time sheets. In other cases, we only had copies of the time sheets

containing the changes, and we questioned the employees about why the

revisions were made. Attorneys representing Ogilvy indicated that 12 of

those 20 employees whose time sheets were included in our sample were

still employed at the company as of December 2000.

During our interviews with those 12 employees, 4 said that they did not

make the changes indicated on their time sheets for ONDCP work and did

not know who made the changes, which added at least 55 hours to the

ONDCP contract.3

 The other eight employees said that they made the

changes for various reasons, such as mathematical errors, charging time to

the wrong account, and recording the wrong office departure times.

We interviewed the three supervisors of these four employees who said

that they did not make the changes indicated on their time sheets

regarding the ONDCP contract. (One supervisor approved the time sheets

for two of the four employees.) The supervisor for two of the four

employees said that he changed one employee’s time sheets, adding at

least 14 hours4

 charged to ONDCP, after his supervisor instructed him to

 1

 About 12,000 time sheets were submitted to ONDCP for work done during 1999.

2

 Our sampling methodology was similar to that prescribed in the DCAA Audit Manual

(January 2001) for reviewing labor costs. Paragraph 6-404.8 (Pre-interview Analysis) of the

manual advises that once high-risk areas are identified, such as labor charge adjustments

that are more than normal corrections, and the corresponding employee population

identified, employees with the most questionable labor charges are normally interviewed.

3

 More hours may have been added, but it was not possible to determine what numbers had

been whited-out or marked-out on some time sheets.

4

 More hours may have been added, but it was not possible to determine what numbers had

been whited-out on the some time sheets.

Appendix III: Interviews With Ogilvy

Employees and Supervisors Regarding Time

Sheets Containing Changes
Appendix III: Interviews With Ogilvy

Employees and Supervisors Regarding Time

Sheets Containing Changes

Page 39 GAO-01-623 Anti-Drug Media Campaign

make the changes. This supervisor said that he did not change the time

sheets of his other employee in our sample. According to an Ogilvy

attorney, the supervisor who was identified by this supervisor as

instructing him to make the changes is no longer employed at the

company.

The supervisor for the third employee said that she did not make the

changes to her employee’s time sheet and did not know who did. In that

case, the employee originally recorded that she did not work on a

particular day, but that the “0” hours had been written over with “7” hours.

That employee said that she was returning from a personal foreign trip and

was not doing work for Ogilvy that day.

The supervisor for the fourth employee said that she did not add to her

employee’s time sheet the number of hours worked on the ONDCP

contract on a certain day. However, she thought that the change made

was appropriate because the employee had recorded on the time sheet

when she arrived and departed that day, but apparently had forgotten to

record the number of hours that she worked. The supervisor said that it

would have “made sense” for the accounting department to have made

that change. 
Appendix IV: Comments From the Office of

National Drug Control Policy

Page 40 GAO-01-623 Anti-Drug Media Campaign

Appendix IV: Comments From the Office of

National Drug Control Policy
Appendix IV: Comments From the Office of

National Drug Control Policy

Page 41 GAO-01-623 Anti-Drug Media Campaign
Appendix V: Comments From Ogilvy and

Mather

Page 42 GAO-01-623 Anti-Drug Media Campaign

Appendix V: Comments From Ogilvy and

Mather

Note: GAO comments

supplementing those in

the report text appear at

the end of this appendix.

See comment 1.
Appendix V: Comments From Ogilvy and

Mather

Page 43 GAO-01-623 Anti-Drug Media Campaign
Appendix V: Comments From Ogilvy and

Mather

Page 44 GAO-01-623 Anti-Drug Media Campaign
Appendix V: Comments From Ogilvy and

Mather

Page 45 GAO-01-623 Anti-Drug Media Campaign

Now on p.16.

See comment 3.

See comment 2.
Appendix V: Comments From Ogilvy and

Mather

Page 46 GAO-01-623 Anti-Drug Media Campaign

See comment 4.

See comment 2.

See comment 7.

Now on p.10.

See comment 6.

See comment 5.
Appendix V: Comments From Ogilvy and

Mather

Page 47 GAO-01-623 Anti-Drug Media Campaign

See comment 9.

See comment 8.

See comment 12.

Now on p.15.

See comment 11.

See comment 10.

Now on p.12.
Appendix V: Comments From Ogilvy and

Mather

Page 48 GAO-01-623 Anti-Drug Media Campaign

See comment 17.

Now on p. 35.

See comment 16.

See comment 15.

See comment 14.

Now on p. 21.

Now on p. 27.

See comment 13.
Appendix V: Comments From Ogilvy and

Mather

Page 49 GAO-01-623 Anti-Drug Media Campaign

See comment 19.

See comment 18.
Appendix V: Comments From Ogilvy and

Mather

Page 50 GAO-01-623 Anti-Drug Media Campaign

The following are GAO’s comments on the letter from attorneys

representing Ogilvy & Mather dated May 22, 2001.

1. Ogilvy’s attorneys said that the billing errors that the company

voluntarily made known to the government are a source of profound

disappointment to Ogilvy, but that notwithstanding the billing

irregularities, the government ultimately benefited from the company’s

“extraordinary performance.” Ogilvy’s attorneys cited several

examples of how they believed the government received more value

under the contract than the contract required. The attorneys indicated

that the company (1) provided more advertising per labor dollar than

the contract required; (2) gave ONDCP a lower effective commission

rate than its commercial clients, after applying a hypothetical effective

commission rate analysis; (3) saved ONDCP additional sums by

controlling overhead to reduce the overhead rate to be applied in the

true-up; (4) outperformed the contract’s requirement of a 100 percent

pro bono match; (5) provided many high quality intangibles under the

contract; and (6) recorded millions of dollars less in direct labor costs

than the government thought it would, given the contract and

additional tasks undertaken in 1999. However, Ogilvy’s attorneys said

that despite these observations, the company does not intend to

excuse the billing errors that were made.

Although we cannot comment on the company’s claims regarding its

technical performance under this contract because the scope of our

review was limited to aspects of the award and administration of the

contract and Ogilvy’s billing practices, as noted in this report, ONDCP

is pleased with Ogilvy’s technical performance regarding the anti-drug

media campaign. We agree with Ogilvy’s attorneys that the company’s

claims of extraordinary performance do not excuse the billing

problems that were found to have occurred.

2. Ogilvy’s attorneys suggested that our treatment of the report by

American Express Tax and Business Services be expanded in our

report. The attorneys said that American Express made a number of

observations that “would (and did) lead reasonable financial managers

to believe that the Ogilvy accounting system and billing to the

government was essentially sound and could reasonably be relied

upon by both the company and the government.” We did not attempt to

provide a comprehensive summary of the American Express report,

but chose to report problems that American Express found that

corroborated some of our findings. We also did not agree with some of

American Express’ findings. For example, Ogilvy’s attorneys asked us

GAO Comments
Appendix V: Comments From Ogilvy and

Mather

Page 51 GAO-01-623 Anti-Drug Media Campaign

to include in our report that American Express had found that Ogilvy’s

method of accounting for paid absences (vacation, sick, and holiday

time) was consistent with industry practice. However, we found that

the company inconsistently charged the government for paid absences.

Ogilvy’s attorneys also noted that the American Express report

“reinforced the company’s view that a CAS disclosure statement was

not required in the first year of the contract.” The attorneys also said

that, if American Express was correct, “then neither the government

nor Ogilvy’s failure to have a disclosure statement in place is critical to

what occurred under this contract.” In addition, the attorneys said that

Ogilvy and its counsel and consultants believe that a CAS-compliant

accounting system should have been in place and that having a

disclosure statement would have provided a basis not only for

preventing many of the issues, but also for ensuring open dialogue

with the COTR, which Ogilvy does not believe currently exists. Ogilvy’s

attorneys continued that “there has been neither the ‘ongoing

assessment’ of Ogilvy’s performance attributed to the COTR in the

report, nor have there been the ‘regular’ meetings that the COTR

reports to have arranged.”

We believe that, because the ONDCP contract was a CAS-covered

contract over a certain value, Ogilvy was required to provide a

disclosure statement at the time of the award. We were unable to

verify whether the COTR provided an “ongoing assessment” of Ogilvy’s

performance because, as noted in the report, the COTR said that he did

not prepare a formal contractor performance report. We also did not

verify whether regular meetings have recently been scheduled and

taken place between the COTR and Ogilvy.

3. Ogilvy’s attorneys also indicated that the American Express report was

“wholly consistent with the feedback that the company received from

the government...and other feedback that was understood by virtue of

a review conducted by government auditors at the Finance

Department in December 1999.” We understand from discussions with

Ogilvy’s attorneys that this review refers to work conducted by us in

connection with our July 2000 report regarding the anti-drug media

campaign. However, the scope of that review, which is detailed in

footnote 2 of this report, did not include determining the adequacy of

Ogilvy’s accounting system with respect to the ONDCP contract. As

indicated in the July 2000 report, we did not conduct a financial audit

of the campaign’s fiscal operations or review the related internal

controls to determine the accuracy of the campaign’s obligations and
Appendix V: Comments From Ogilvy and

Mather

Page 52 GAO-01-623 Anti-Drug Media Campaign

expenditures. Our records do not indicate that we met with Ogilvy

financial staff in December 1999, but rather that we met with Ogilvy

media staff in September 1999, and the discussion focused on billing

media, rather than labor costs. Further, our record of that meeting

does not indicate that we provided feedback regarding the adequacy of

Ogilvy’s accounting or timekeeping systems.

Ogilvy’s attorneys also said that, in light of the review conducted by

government auditors in December 1999, it was reasonable for the

company to take an “iterative approach” to systems enhancement until

the late summer of 2000, when it learned of the more serious matters

raised regarding billing reliability, at which time the company stopped

billing the government altogether. Therefore, they said, the inference

that the company is “late” in sending bills seemed unfair when the

delay was intentional and the reasons for the delay have been

explained to the government as being motivated by a desire to ensure

accurate and FAR-compliant billing. We did not mean to imply that the

company had been late in billing the government after problems were

raised in late summer 2000. We understand that Ogilvy has stopped

billing for labor until it has completed restructuring its accounting

system to meet government contracting requirements. However, we

did intend to indicate that Ogilvy was late in billing the government for

labor at the beginning of the contract. Ogilvy did not provide the

government with its first labor invoice until May 1999, even though the

contract, which began in January 1999, required the company to bill

the government on a monthly basis. Ogilvy should have had the

processes and staff in place to bill the government in accordance with

the contract terms at the beginning of the contract.

4. Ogilvy’s attorneys said that the revenue shortfall on the ONDCP

contract was “perceived as clerical insofar as the hours seemingly

devoted to the project were not being captured by those seemingly

under-reporting time on the project.” However, if the revenue shortfall

was perceived solely as a recordkeeping problem, the actions that

some Ogilvy employees took in response, which included adding time

charged against the contract that some employees said they did not

work, was not the proper solution. Further, we were not able to

comment on the perceptions of Ogilvy management at the time or

whether their perceptions, whatever they were, were accurate.

5. Regarding the low revenue that Ogilvy realized on the ONDCP contract

in the late summer and fall of 1999, the company’s attorneys said that

Ogilvy New York was ahead of its officewide performance budget by
Appendix V: Comments From Ogilvy and

Mather

Page 53 GAO-01-623 Anti-Drug Media Campaign

the third quarter and eventually exceeded those projections by more

than 20 percent. Ogilvy’s officewide performance in 1999 was outside

of the scope of our review of the ONDCP contract.

6. Ogilvy’s attorneys noted that they made disclosures regarding the

company’s billing practices under this contract not only to the Justice

Department, but also to ONDCP, HHS, the Navy, and GAO’s Office of

Special Investigations. We did not verify Ogilvy’s disclosures to all

other government agencies.

7. Ogilvy’s attorneys said that a statement attributed to the financial

director (referred to in our report as the “finance director”) did not

fully capture his perspective regarding Ogilvy’s timekeeping

procedures. The attorneys provided an additional statement regarding

his perspective, which we added to the report.

8. Ogilvy’s attorneys said that the 3,127 hours that employees added to

the ONDCP contract should be viewed in the context of the more than

150,000 hours worked on the project in 1999. Because we found that

some of the time sheets that Ogilvy submitted to the government in

1999 were not reliable, we did not calculate the total number of hours

that Ogilvy’s employees worked on the ONDCP contract in 1999.

9. Ogilvy’s attorneys said that the company’s submission of repetitive

invoices for the same months was necessitated by the COTR’s

direction to bill only individual employees who had submitted all time

sheets for a particular month and by the difficulty Ogilvy had in

securing timely submission of time sheets by its employees. The

attorneys also said that such repetitive billing does not appear to have

resulted in double-billing for the same labor time. We did not

determine whether any double-billing for the same labor time

occurred, but expect that issue will be examined as part of the

contract “true-up” and DCAA audit.

Ogilvy’s attorneys also said that, with regard to the billing of overhead

and fringe benefits for certain temporary contract workers, Ogilvy did

not correctly apply the permissible fringe rate to this group of

employees, but that the failure to maintain separate rates was not

material and is expected to be resolved in the true-up. The attorneys

also said that charging the same overhead for regular and temporary

contract employees is proper. This issue is expected to be resolved

between the government and Ogilvy.
Appendix V: Comments From Ogilvy and

Mather

Page 54 GAO-01-623 Anti-Drug Media Campaign

10. Ogilvy’s attorneys said that, although there is a genuine costaccounting issue under the FAR with regard to a 35-hour corporate

work week, it should be noted that company employees worked

hundreds of hours of uncompensated and unbilled overtime on the

ONDCP project. The government will need to resolve whether a 35-

hour work week is appropriate under this contract. We also note that

Ogilvy’s billing methodology contemplated uncompensated overtime

and the company’s timekeeping system should have captured all hours

worked on the contract.

In addition, the attorneys said that some of the cost allocations

questioned in the draft report, although rejected by the COTR, were

nonetheless verbally approved by HHS. We were unable to determine

which cost allocations were verbally approved by HHS. However, in

response to questions that we posed to the HHS contracting officer

regarding the contract administration, the contracting officer wrote us

in November 2000 that a determination had not been made about

whether bonuses and perquisites were allowable or allocable costs

under the contract and that no payments were made to Ogilvy for

these costs.

11. Ogilvy’s attorneys also said that some of the costs that were described

as “incorrectly billed” are more properly described as “misclassified”

because some charges that may not belong in the direct labor bill

would nonetheless have an offsetting effect in relation to the overhead

rate under the FAR. Accordingly, we revised a statement contained in

the draft report attributed to Ogilvy’s attorneys to indicate that certain

costs were “misclassified” rather than “incorrectly allocated.”

12. Ogilvy’s attorneys said that the company’s submission of its first labor

invoice in May 1999 followed numerous consultations with the COTR

and was accomplished with the help of an outside consultant on the

format. They also said that the bill was withdrawn when the COTR

made additional formatting demands as a condition of payment. A June

21, 1999, E-mail that Ogilvy’s former government contracts manager

sent to the COTR, which is described in the report, appears to

corroborate Ogilvy’s assertion that the COTR provided direction on

how the invoices should be prepared. In that E-mail, the former

government contracts manager indicated that the original invoices had

been voided and that they were preparing new ones “in accordance

with your [the COTR’s] payroll and time sheet needs.”
Appendix V: Comments From Ogilvy and

Mather

Page 55 GAO-01-623 Anti-Drug Media Campaign

13. Ogilvy’s attorneys said that, although not ideal from the perspective of

either the government or Ogilvy, the practice of backbilling as

complete sets of time sheets for employees were received and entered

into the billing system was done with the approval of the COTR.

However, it appears that labor charges could not have been properly

calculated until an employee’s entire set of time sheets for that billing

period were submitted when applying the methodology that was used

to prepare labor invoices under this contract—the percentage of time

that each employee worked on the ONDCP contract during that billing

period. Further, in his April 2000 memorandum to the then ONDCP

Director, the COTR expressed concern about Ogilvy’s delays in billing.

In the memorandum, the COTR said that, as of April 2000, the company

had billed only 58 percent of the estimated value of the first year of the

contract.

14. Ogilvy’s attorneys said that, once the public relations contract for the

anti-drug media campaign was awarded to another company, Ogilvy

New York did not have the benefit of Ogilvy’s Washington, D.C., public

relations firm’s government cost accounting expertise, as anticipated

when submitting the best and final offer. However, once this was

realized by Ogilvy, it should have obtained any needed expertise from

other sources, which it apparently did not do until 16 months after the

contract began. We did not examine the relationship, if any, between

the accounting systems of Ogilvy’s Washington, D.C., public relations

and its New York City advertising offices.

15. Ogilvy’s attorneys said that, while the contracting officer approved the

COTR’s disallowances, as noted, pending the provision of additional

documentation, numerous decisions by the COTR to withhold payment

were overruled by the contracting officer. However, HHS contracting

officials told us that they generally followed the COTR’s disallowance

recommendations. We were unable to determine how frequently the

contracting officer followed the COTR’s disallowance

recommendations regarding labor costs because the payment records

combined both media and labor costs.

The attorneys also said that it is Ogilvy’s position that the withholding

of payments for labor costs claimed was done largely for erroneous

reasons. The appropriateness of the disallowed costs is expected to be

examined and resolved in an audit of the contract.

16. Ogilvy’s attorneys said that they disagreed with our conclusion in the

draft report that the company “did not begin making serious efforts to
Appendix V: Comments From Ogilvy and

Mather

Page 56 GAO-01-623 Anti-Drug Media Campaign

restructure its accounting system to meet government requirements

until nearly 2 years after the contract was awarded.” They also said

that, while the efforts may not have produced the desired system

within the time frame referenced, the seriousness of the effort in the

intervening time cannot be seriously questioned. The attorneys noted

that in 1999 the company hired a government contracts specialist, an

accounting consultant, and a government contracts lawyer, none of

whom are currently in those positions, and that it promulgated

timesheet policies and attempted to have a dialogue with the COTR on

contract requirements. The attorneys added that, although none of

these efforts prevented the billing problems that they reported to the

government, the efforts were nonetheless good faith efforts to create

an accounting system acceptable to the government by a novice

government contractor.

We recognize, as indicated in the report, that Ogilvy retained American

Express Tax and Business Services in April 2000, which was 16 months

after the contract award, to review billing and accounting system

issues related to the ONDCP contract. However, although American

Express reported in June 2000 that it had found several problems

regarding the company’s accounting and timekeeping systems, our

review indicated that significant progress toward restructuring Ogilvy’s

accounting system to meet government contracting requirements did

not occur until after the company retained PricewaterhouseCoopers in

November 2000, which was nearly 2 years after the contract award. We

also believe that Ogilvy should have had an accounting system in place

to meet government contracting requirements at the beginning of the

contract. Therefore, we revised our statement to indicate that “Ogilvy

did not make significant progress toward restructuring its accounting

system to meet government requirements until nearly 2 years after the

contract was awarded.” The report indicated that Ogilvy had issued

new time sheet guidance in January 2001. As noted in comment 2, we

did not verify whether regular meetings have recently been scheduled

and taken place between the COTR and Ogilvy.

17. Ogilvy’s attorneys said that, although there was a clear failure of

recollection by the employee who added 485 hours to her time sheets

regarding which manager instructed her to add that time, there is

“strong, if not conclusive, extrinsic evidence that the manager who

gave the instruction was the Ogilvy contract coordinator” (who is

referred to in the report as the “former government contracts

manager”). The attorneys said that the former government contracts

manager “admits as much and the account manager [who is referred to
Appendix V: Comments From Ogilvy and

Mather

Page 57 GAO-01-623 Anti-Drug Media Campaign

in the report as the “project director”] denied doing so.” In addition,

the attorneys said that “the contemporaneous handwritten instructions

to move the time are in his and not the account manager’s

handwriting.” However, we could not substantiate these statements

made by Ogilvy’s attorneys because we were unable to ask the former

government contracts manager whether he instructed this employee to

add the 485 hours or whether the handwritten instructions to add the

time to the ONDCP contract on this employee’s time sheets were his.

As indicated in the report, the former government contracts manager,

through his attorney, declined to discuss this matter with us. The

report also indicated that the project director denied that she had

instructed this employee to add the 485 hours to the ONDCP contract.

18. Ogilvy’s attorneys said that the discussion of the audit activity

regarding white-outs and extraneous markings on time sheets should

include two contextual observations. First, the attorneys said, as

appendix II makes clear, most of the markings were explained as

innocent self-correction with some of the unidentified changes being

corrections of obvious math errors. In addition, the attorneys said that

such extraneous markings, though viewed as auditing red-flags, “are

not all uncommon in government and private time sheet reviews.”

However, the fact that 4 of 12 employees in our sample, or one-third,

said that they did not make the changes shown on their time sheets

adding time charged to the ONDCP contract, raises serious questions

about the reasons why the changes were made and who made them, as

well as about the accuracy of the time billed to the government. (We

note that one of the four employees and her supervisor provided a

possible explanation for the change that was made to the employee’s

time sheet, as described in appendix III.) We had no data that would

confirm whether these types of “extraneous markings...are not all

uncommon in government and private time sheet reviews,” as

indicated by Ogilvy’s attorneys. We also note that Ogilvy’s recently

revised timekeeping policy requires employees and their immediate

supervisors to initial all changes made to their time sheets, which was

not done for the changes made to the time sheets in our sample.

Further, we note that guidance contained in DCAA’s audit manual

(Section 5-909.1) requires that corrections to timekeeping records be

“made in ink, initialed by the employee, properly authorized, and

provide a sufficient and relevant explanation for the correction.”

19. Finally, Ogilvy’s attorneys said they believed that the report should

reflect some of the positive comments we made during the informal

review process regarding the company’s “admirable openness during
Appendix V: Comments From Ogilvy and

Mather

Page 58 GAO-01-623 Anti-Drug Media Campaign

the audit process.” The attorneys noted that the company helped

broaden the focus of our work beyond our initial extraneous marking

analysis of the time sheets, and that the accounting issues have been

the subject of a review by PricewaterhouseCoopers on a time sheet by

time sheet basis and shared with the various government agencies

involved. The attorneys also said that, although Ogilvy does not intend

to excuse the billing errors that were made, they should be understood

in the context of the manner in which the contract was administered,

and ultimately assessed in light of the value of the service delivered.

Further, the attorneys said that although they recognized that we did

not review the efficacy of the campaign, by all independent and

reported measures, the anti-drug media campaign was a success.

As noted in the report, we recognize that Ogilvy, with the assistance of

PricewaterhouseCoopers, has made significant recent efforts to

restructure the company’s accounting system to meet government

contracting requirements and that the company voluntarily provided

us data on the 28 employees who prepared new time sheets, revising

the amount of time that they charged to the ONDCP contract.

However, as stated in the report, we cannot comment on the efficacy

of the anti-drug media campaign.
Appendix VI: Comments From the Program

Support Center

Page 59 GAO-01-623 Anti-Drug Media Campaign

Appendix VI: Comments From the Program

Support Center

(393001)

The first copy of each GAO report is free. Additional copies of reports are

$2 each. A check or money order should be made out to the

Superintendent of Documents. VISA and MasterCard credit cards are also

accepted.

Orders for 100 or more copies to be mailed to a single address are

discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

Orders by visiting:

Room 1100

700 4th St., NW (corner of 4th and G Sts. NW)

Washington, DC 20013

Orders by phone:

(202) 512-6000

fax: (202) 512-6061

TDD (202) 512-2537

Each day, GAO issues a list of newly available reports and testimony. To

receive facsimile copies of the daily list or any list from the past 30 days,

please call (202) 512-6000 using a touchtone phone. A recorded menu will

provide information on how to obtain these lists.

Orders by Internet

For information on how to access GAO reports on the Internet, send an email message with “info” in the body to:

Info@www.gao.gov

or visit GAO’s World Wide Web home page at:

http://www.gao.gov

Contact one:

• Web site: http://www.gao.gov/fraudnet/fraudnet.htm

• E-mail: fraudnet@gao.gov

• 1-800-424-5454 (automated answering system)

Ordering Information

To Report Fraud,

Waste, and Abuse in

Federal Programs