Anti-Drug Media Campaign: Investigation of Actions Taken Concerning
Alleged Excessive Contractor Cost (Testimony, 10/04/2000,
GAO/GAO-01-34T).

This testimony discusses the Office of the National Drug Control
Policy's (ONDCP) contract with Ogilvy & Mather, the lead media campaign
contractor for the National Youth Anti-Drug Media Campaign. GAO reviewed
ONDCP investigations into: (1) the facts and circumstances surrounding
actions taken by ONDCP after receiving the allegations that Ogilvy may
have over-billed the government, and (2) allegations that Ogilvy had
provided services unrelated to the contract and had submitted invoices
under the contract for those services. The Director of ONDCP, General
Barry McCaffrey, knew about the fraud allegations concerning Ogilvy's
billing practices. GAO found that Director McCaffrey had a private
meeting with Ogilvy's project director after internal ONDCP discussions
of the need for an external audit. However, GAO found no evidence that
this meeting affected any decision with respect to an external audit of
Ogilvy's contract. GAO also found that Ogilvy did not write
congressional testimony for ONDCP employees, which would have gone
beyond the scope of its contract with ONDCP. Ogilvy did provide ONDCP
with figures, research, and documentation for use in responding to
congressional inquiries and testimony. Ogilvy did not provide any
services to Director McCaffrey involving his response to an article in
the New Yorker magazine that was critical of Director McCaffrey's
actions when he was in the military.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-34T
     TITLE:  Anti-Drug Media Campaign: Investigation of Actions Taken
	     Concerning Alleged Excessive Contractor Cost
      DATE:  10/04/2000
   SUBJECT:  Drugs
	     Investigations into federal agencies
	     Contractor violations
	     Fraud
	     Public relations
	     Service contracts
	     Cost overruns
	     Overpayments
IDENTIFIER:  ONDCP National Youth Anti-Drug Media Campaign

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-01-34T

   * For Release on Delivery
     Expected at 10:00 a.m., EDT

Wednesday,

October 4, 2000

GAO-01-34T

ANTI-DRUG MEDIA CAMPAIGN

Investigation of Actions Taken Concerning Alleged Excessive Contractor Cost

[0x08 graphic]
Statement of Robert H. Hast,

Managing Director

Office of Special Investigations

[0x08 graphic]

[0x08 graphic]

Testimony

Before the Subcommittee on Criminal Justice, Drug Policy and Human
Resources, Committee on Government Reform, U.S. House of Representatives

United States General Accounting Office

GAO

[0x08 graphic]

Mr. Chairman and Members of the Subcommittee:

We are here to discuss the investigation you asked us to undertake
concerning the Office of the National Drug Control Policy's (ONDCP) contract
with Ogilvy & Mather (Ogilvy), the lead media campaign contractor for the
National Youth Anti-Drug Media Campaign. The Subcommittee received
allegations that ONDCP had learned that Ogilvy was allegedly inflating its
labor cost and, as a result, was over-billing the government for its
services under the contract by falsifying time sheets. In response, ONDCP's
Chief of the Media Branch hired a consultant to study the Ogilvy contract.
This consultant reported that Ogilvy's labor costs were far above industry
standards. Further, in April 2000, the Director of ONDCP, General Barry
McCaffrey, U.S. Army, Retired, was informed about these allegations and the
results of the consultant's study, which allegedly resulted in his decision
that an external audit be conducted of the Ogilvy contract. However,
according to the allegation, after the director met privately with the
contractor's project director, the project director announced that Director
McCaffrey was satisfied with the contract's costs and no external audit was
to be conducted. In addition, the Subcommittee received information that
Ogilvy allegedly had provided assistance to the director concerning matters
not involving ONDCP and billed for this service under the contract.

Beginning in July 2000, we investigated the facts and circumstances
surrounding actions taken by ONDCP after receiving the allegations that
Ogilvy may have over-billed the government. We also investigated allegations
that Ogilvy had provided services unrelated to the contract and submitted
invoices under the contract for those services. We did not investigate the
allegation that Ogilvy had over-billed the government under this contract;
however, GAO is currently conducting a review and audit of ONDCP's
contracting operations, which will include this issue.

In summary, we found that Director McCaffrey knew about the fraud
allegations concerning Ogilvy's billing practices; and there is evidence
that suggests he agreed with the need for an external audit of the contract.
When we interviewed Director McCaffrey, he initially stated that he had no
recollection of accusations of fraud related to the Ogilvy contract until we
provided him a memorandum dated April 13, 2000, that showed he had been
informed of the allegations. (See app. I.) He then told us that after
receiving the April 13 memorandum and a report that questioned Oglivy's
costs, he traveled to New York City where he met with Ogilvy executives and
told them that their costs were growing and that they needed to get them
under control.

Regarding the allegation that he had ordered an external audit, Director
McCaffrey stated that he had never ordered such an audit. He added that he
had no knowledge of any written order for an external audit or an annotated
memorandum with a handwritten comment stating the need for an external
audit. He was then asked if he ever used the words we need an external
audit, and he stated no. After Director McCaffrey reviewed the annotated
April 13, 2000, memorandum, he acknowledged that the handwritten
commentswhich included the statement, we need an external auditwere his. He
told us that although he admittedly wrote that phrase on the document, he
never ordered an independent audit to be carried out on the Ogilvy contract
but that it was his intention to conduct one at some point in time.

ONDCP's general counsel informed us that after we interviewed Director
McCaffrey, the director approved a closeout audit of all media campaign
contracts, including the Ogilvy contract, in conjunction with the proposed
transfer of contracting responsibilities to the Navy. In addition, Director
McCaffrey has also approved an internal audit of the management practices of
the Media Campaign.

With regard to the allegation of a private meeting, we found that Director
McCaffrey had a private meeting with Ogilvy's project director after
internal ONDCP discussions of the need for an external audit. Director
McCaffrey's description of the meeting and the project director's
description vary as to whether excessive costs were discussed. However, we
found no evidence that this meeting impacted any decision with respect to an
external audit of the Ogilvy contract; and we were told by Director
McCaffrey that he never ordered an audit.

Further, concerning the allegation that services were provided beyond those
covered by the contract, we found that Ogilvy did not write congressional
testimony for ONDCP employees. Ogilvy did provide ONDCP with figures,
research, and documentation for use in responding to congressional inquiries
and testimony. Ogilvy billed for this service under the contract. Ogilvy did
not provide any services to Director McCaffrey involving his response to an
article in the New Yorker magazine that was critical of Director McCaffrey's
actions when he was in the military. Director McCaffrey denied to us that
anyone had assisted him in his response to this article. However, we found
that an official of another ONDCP contractor, Fleishman-Hillard, spent 3 to
4 hours advising Director McCaffrey on this matter. This time was not
charged to the ONDCP contract. We were told that this time was considered a
personal favor to Director McCaffrey.

Chronology of the Ogilvy & Mather's Contract and Allegations of Over-billing

[0x08 graphic]

On December 28, 1998, the Department of Health and Human Services (HHS)
awarded Ogilvy a cost plus fixed-fee contract for the advertising component
of the National Youth Anti-Drug Media Campaign. HHS awarded the contract
pursuant to an agreement with ONDCP. The contract has an estimated value of
over $684 million over 5 years (1 base year plus 4 option years).

Alan Levitt, Chief of the Media Branch at ONDCP, stated that he has
oversight responsibility for the Ogilvy contract. Mr. Levitt told us that
prior to March 2000, Dan Merrick, Ogilvy's then Co-Project Director on this
contract, had informed him that Ogilvy was over-billing on the contract. Mr.
Levitt stated that Mr. Merrick told him that he had previously raised
concerns with Ogilvy's management about their billing practices.

Mr. Levitt stated that he immediately notified ONDCP's general counsel,
Edward Jurith. Mr. Jurith told us that ONDCP was aware of billing
irregularities with regard to Ogilvy's labor costs on the contract and that
ONDCP's conclusion was that Ogilvy had billed some nonpayable charges. He
was aware of a concern about a cost overrun but could not remember the exact
figures quoted. He also was aware that these billing concerns had been
brought to Director McCaffrey's attention and that Ogilvy was brought in to
explain why its costs were higher than industry standards. Further, David
Shull, Deputy General Counsel, told us that he was aware that Mr. Merrick
had previously made negative statements regarding Ogilvy's billing
practices.

Mr. Levitt also told us that in late March 2000, he contracted with Jane
Twyon, Director of Worldwide Media Directors, an advertising media
consultant, to review and analyze Ogilvy's compensation and manpower as it
related to its billable labor costs.

Richard Pleffner, ONDCP's project officer and contracting officer's
technical representative, told us that Ms. Twyon's initial findings
reinforced his own concerns. As a result, Mr. Pleffner prepared a memorandum
dated April 13, 2000, titled Irregularities With Ogilvy Billing, and
transmitted it, through the Chief of Staff, Janet Crist, to Director
McCaffrey. In the memorandum, Mr. Pleffner stated that Ms. Twyon had
informed ONDCP that Ogilvy's proposed staffing levels were excessive, its
labor mix was overly top heavy, and its salaries were extraordinarily high.
In addition, Mr. Pleffner identified the issue discussed in this document as
the following:

Excessive billing irregularities under the Ogilvy contract have led to
growing uncertainties with Ogilvy's management practices. These
uncertainties were recently reinforced when a former Ogilvy employee relayed
facts to ONDCP supporting suspicion of fraudulent conduct.

Mr. Pleffner told us that in March 2000, Mr. Merrick had contacted him and
Jill Bartholomew, ONDCP's Deputy Director for National Media Campaign.
According to Mr. Pleffner, Mr. Merrick told them that Ogilvy was falsifying
billing records. In his April 13, 2000, memorandum, Mr. Pleffner stated the
following:

The fact that an outside source, particularly an executive level employee,
corroborates these concerns, prompts me to formally document these issues in
this communication.

In his April 13, 2000, memorandum, Mr. Pleffner stated that he had requested
that HHS audit the base year (1999) of this contract. HHS agreed to request
an audit only if ONDCP agreed to pay for it. He added that since ONDCP was
considering changing contracting offices from HHS to the Department of the
Navy, ONDCP decided to wait before initiating an audit. He also commented
that he had discussed the need for an audit with the Navy acquisition staff,
including the possibility of requesting an immediate audit of this contract.

We were provided a copy of the April 13, 2000, memorandum that contained
handwritten comments attributed to Director McCaffrey. One comment refers to
the last two sentences of the memorandum that read as follows:

Since we are considering changing contracting offices ... we decided to wait
before initiating an audit. I have discussed our audit needs with Navy
acquisition staff and possibility of requesting an immediate audit of this
contract.

The words decided to wait before initiating an audit are underlined. In
addition, the words immediate audit are circled. The words yes and We need
an external audit are handwritten at the bottom of the page under these
highlighted remarks. In addition, the word NO! is written next to a
statement by HHS's contracting office concerning its policy to perform an
audit at the end of the contractin this case, at the end of 5 years.

On April 26, 2000, Dan Schecter, Assistant Deputy Director, and Mr. Levitt
issued a memorandum to the ONDCP Director through the chief of staff and
deputy director. The subject of the memorandum was the Worldwide Media
Directors' report. The purpose of the memorandum was to outline Ms. Twyon's
background and to discuss a number of ongoing and serious concerns of the
media campaign staff regarding Ogilvy nonmedia costs. The memorandum reports
that the general counsel, the chief of staff, and Director McCaffrey
discussed these concerns. Attachments to this memorandum included Ms.
Twyon's report overview, detailed report, and biographical data.

This memorandum also summarized Ms. Twyon's finding that the cost to execute
Ogilvy's media plan far exceeds the industry norm. Specifically, Ms. Twyon
found the costs associated with nonmedia activities and components to be
dramatically higher than even the high end of what is standard industry
practice. This is due mainly to the high number of people working on the
ONDCP account, allocation of senior manpower, redundancy of manpower, and
cost of manpower versus the industry norm. The memorandum also reported that
there is no doubt that the average cost per salary labor hours, etc. across
all components is far higher than the industry average. Ms. Twyon believes
ONDCP could realize a savings of from $8.5 million to $14.8 million if
Ogilvy's staffing was realigned to reflect industry standards. Ms. Twyon's
analysis reflects that controls over costs were inadequate. The following
recommendation is made in the memorandum submitted to the director:

That the media campaign management team continue its analysis of possible
recommendations to you. In the meantime, this should serve as justification
for you to discuss with Ogilvy their non-media costs, which will be
presented to you as part of a whole package on May 3.

We were provided with a copy of the April 26, 2000, memorandum, which
contained handwritten comments attributed to Director McCaffrey. One comment
refers to the last paragraph under the heading Recommendation, regarding the
media campaign management team continuing its analysis of possible
recommendations to Director McCaffrey. The words continue its analysis of
possible are underlined with the word yes written above. The comment to
discuss was circled, and the statement Give me a letter to have C/S [chief
of staff] send [to] O&M [Ogilvy & Mather] was written in the bottom margin.

On April 27, 2000, Ms. Twyon provided an oral briefing to ONDCP management,
which covered the material attached to the April 26, 2000, memorandum.
Director McCaffrey was present for this briefing.

Ms. Shona Seifert, Senior Partner/Executive Group Director (Ogilvy) and
Project Director for the ONDCP contract, stated that as a result of the
consultant's report, Ogilvy was asked to reduce its costs. Ms. Crist, on
behalf of Director McCaffrey, sent a letter dated May 4, 2000, to Ogilvy in
response to the Twyon report, asking it to reduce costs. Mr. Pleffner stated
that this letter outlined issues (labor costs) raised by the Twyon report
and that as a result of the letter, Ogilvy asked for a meeting to present
its response.

Ms. Seifert stated that on May 23, 2000, there was a meeting held in
Washington, D.C., which she attended, along with other management officials
from Ogilvy. Mr. Pleffner stated that at this meeting, Ms. Seifert attacked
the Twyon report and pointed out errors in it. He said that there were some
discrepancies in the Twyon report but only because Ms. Twyon had not had all
the information and figures available to her to begin with.

Ms. Seifert stated that sometime after the May 23, 2000, meeting, Ogilvy
received another letter from Ms. Crist, which included a form to be filled
out in order to have Ogilvy explain its labor costs.

Director McCaffrey's Response to the Allegations

Investigation of Allegation That Director McCaffrey Failed to Act on
Concerns of Over-billing by Ogilvy & Mather

[0x08 graphic]
[0x08 graphic]
[0x08 graphic]

We interviewed Director McCaffrey on August 24, 2000. At that time, after
being advised of the allegations in this case, he told us that Ogilvy is a
very high profile outfit, ONDCP was very pleased with its work, and he has a
very high confidence level in Ogilvy's integrity. He stated that to his
knowledge, there were no accusations of fraudulent activity on the part of
Ogilvy concerning labor costs. He added that the media campaign was a
5-year, billion-dollar effort in uncharted waters, which ONDCP is constantly
testing. He stated that this is not to say that there aren't any problems
associated with the advertising campaign but that it was the crown jewel in
the government's program in fighting drugs.

Regarding the allegation that he had ordered an external audit, Director
McCaffrey stated that he had never ordered such an audit. He added that he
had no knowledge of any written order for an external audit or an annotated
memorandum with a handwritten comment stating the need for an external
audit. He was then asked if he ever used the words we need an external
audit, and he stated no. After Director McCaffrey reviewed the annotated
April 13, 2000, memorandum previously discussed, he stated that he must have
seen it, but that he didn't recall it, because he recognized that the
handwriting, which included the statement we need an external audit, was
his. He told us that although he admittedly wrote the phrase we need an
external audit on the document, he never ordered an independent audit to be
carried out on the Ogilvy contract. He added that it was his intention to
conduct one at some point in time. He also stated that he was embarrassed
that he had not remembered the memorandum that we gave him.

Director McCaffrey told us that the statement attributed to Ms. Seifertthat
an audit was not going to be conducted on the Ogilvy contractnever occurred.
He added that Ms. Seifert would never say that because he had never ordered
an external audit on the Ogilvy contract. Although he recalled the report
prepared by Ms. Twyon, he had no recollection of any accusations by anyone
in ONDCP regarding fraudulent activity on the part of Ogilvy. He stated that
this report was in response to questions raised about excessive costs of the
contract. After further questioning, Director McCaffrey stated that he was
aware that Mr. Merrick was alleging fraud with the media campaign contract.

Director McCaffrey told us that after Ms. Twyon's report was reviewed, he
traveled to New York City and had a meeting at Ogilvy's headquarters with
Ogilvy executives, including Ms. Seifert. He stated that he had told them
that their costs were growing and that they needed to get them under
control.

Director McCaffrey stated that he almost never sees anybody, including
Ms. Seifert, alone; however, he recalled only two occasions, one of which
was sometime after his trip to New York City, on which he saw Ms. Seifert
alone in his office. At this meeting, Director McCaffrey stated that
Ms. Seifert had expressed dismay at any problems about excessive costs in
the media campaign contract and said that she would rather throw herself out
the window than lose the contract.

Ms. Seifert told us that on June 5, 2000, she had a private meeting with
Director McCaffrey for approximately 20 minutes. She also stated that she
had met with Director McCaffrey alone approximately 4 to 5 times in the past
2 years and that on other occasions she had met with Director McCaffrey when
someone else was present. In addition, she has had many telephone
conversations with Director McCaffrey. Ms. Seifert stated that the subject
of the June 5, 2000, meeting with Director McCaffrey was to discuss contract
priorities. She said that she was concerned about whether any problems could
develop in the contract at the end of the year. She told us that
over-billing was never a subject discussed at this meeting, allegations of
fraud were never mentioned, and Director McCaffrey never mentioned that he
thought an audit was necessary. She added that at this meeting there was no
mention of labor costs or reducing costs associated with the contract. Ms.
Seifert also denied that she had stated that she would jump out of the
window rather than lose this contract.

Mr. Pleffner told us that after Ms. Seifert left the June 5, 2000, meeting
with Director McCaffrey, she met with Mr. Levitt and Ms. Bartholomew where,
according to them, she announced that Director McCaffrey was satisfied with
the contract costs and that the Ogilvy contract would continue. Mr. Levitt
and Ms. Bartholomew deny that this conversation occurred. Ms. Seifert denies
making this statement.

Director McCaffrey stated that the second meeting was on August 18, 2000,
when Ms. Seifert presented a new proposal to control cost growth in the
contract.

On August 25, 2000, after we interviewed Director McCaffrey, Mr. Jurith,
ONDCP General Counsel, provided a written response to the allegations raised
at the meeting. Mr. Jurith stated in this letter,

Although the Director did signal his agreement in a memorandum which
recommended that DCAA [Defense Contract Audit Agency] conduct an external
audit of Ogilvy, the memorandum recommended that the audit should be delayed
until after contract administration functions transferred from HHS - a
condition which ONDCP is in the process of completing. Director McCaffrey
never `started' or `stopped' an audit process before or after a meeting with
Shona Seifert.

Mr. Jurith further wrote,

ONDCP has questioned a number of Ogilvy billings and specifically questioned
the amount of Ogilvy's salaries. ONDCP advised the HHS contracting officer
of its concerns, and requested an interim audit. HHS refused to fund the
audit. In reaction, ONDCP: (1) looked for a new contract administrator; (2)
hired an independent consultant to examine Ogilvy's compensation practices;
(3) demanded a formal explanation from Ogilvy; and (4) advised the HHS Chief
of Staff of its findings.

In addition, Mr. Jurith wrote,

The Director has approved a recommendation by the Office of General Counsel
that ONDCP conduct an internal audit of the management practices of the
Media Campaign. The purpose of the internal audit is to determine where
ONDCP has excelled, and to identify those areas that need improvement. The
Director has approved a recommendation by the Office of General Counsel that
HHS conduct a close-out audit of all media campaign contractors in
conjunction with the proposed transfer of contracting responsibility to the
Navy.

Investigation of Allegations That Ogilvy & Mather Provided Services Not
Covered by the Contract and Billed the Contract for Those Services

[0x08 graphic]

Congressional Testimony

[0x08 graphic]

With respect to the allegation that Ogilvy prepared congressional testimony
for Director McCaffrey and Mr. Levitt and billed for this service even
though the service was not included under the contract, Director McCaffrey
stated that neither Ogilvy nor any other outside contractor ever wrote
congressional testimony for any employee of ONDCP. He further stated that it
is common practice to ask contractors for input into congressional inquiries
and testimony but that these requests are for figures, research, and
documentation to support the testimony. These contractors, in turn, bill
ONDCP for their services.

Ms. Seifert told us that Ogilvy never directly provided written testimony
for congressional inquiries. It did provide figures to ONDCP and helped
prepare responses specifically asked of Ogilvy at congressional hearings.
Ogilvy regularly provides facts, figures, and research material to ONDCP in
response to requests for information from ONDCP resulting from outside
inquiries. She stated that, to her knowledge, these responses go through
layers of review at ONDCP and are rewritten by members of the congressional
liaison staff at ONDCP before they are issued. She told us that at no time
did Ogilvy ever draft congressional testimony for ONDCP's use. She said that
Ogilvy was never asked to prepare testimony for Director McCaffrey or Mr.
Levitt. She stated that Ogilvy bills ONDCP for any time spent on preparing
facts and figures or researching material pertinent to the contract, since
the time spent preparing the information relates to Ogilvy's handling of the
media campaign.

The New Yorker Article

[0x08 graphic]

With respect to the allegation that Ogilvy had helped shape Director
McCaffrey's response to a New Yorker magazine article and billed for this
service, Director McCaffrey stated that neither Ogilvy nor anyone else
outside of ONDCP had done any work for him whatsoever in response to
criticisms brought forth in the New Yorker article. Nothing was ever billed
to the ONDCP media campaign contract by Ogilvy or anyone else as a result of
concerns raised in the article. Ms. Seifert stated that neither she nor any
other Ogilvy employee ever supplied material to Director McCaffrey for him
to respond to this article. She said that she did write a personal note to
Director McCaffrey expressing her distaste for the article and offering her
personal assurances that she knew that the statements accusing Director
McCaffrey of any wrongdoing were not true.

Mr. Pleffner stated that the Fleishman-Hillard public relations firm helped
Director McCaffrey respond to criticisms raised in the New Yorker article.
He stated that Paul Johnson, President of Fleishman-Hillard, told
Fleishman-Hillard employees that he was helping Director McCaffrey shape
responses to the article and that he had referred Director McCaffrey to a
libel attorney. Mr. Pleffner added that he did not know whether
Fleishman-Hillard had billed for these services under its ONDCP contract.

On May 16, 2000, Messrs. Schecter and Levitt issued a memorandum to Director
McCaffrey, through the chief of staff and the deputy director. The
memorandum involved topics discussed for an upcoming meeting with Paul
Johnson from Fleishman-Hillard. The memorandum included a statement that Mr.
Johnson let it be known to Fleishman-Hillard staff that he had been helping
Director McCaffrey with the New Yorker article and had referred Director
McCaffrey to a libel attorney.

Mr. Johnson told us that he is Regional President & Senior Partner of
Fleishman-Hillard, a public relations firm, and that he is the project
director for the media campaign contract that his company has with ONDCP. He
stated that Fleishman-Hillard basically handles public relations matters for
ONDCP concerning the advertising media campaign. He was aware of the article
that appeared in the New Yorker magazine. He stated that Director McCaffrey
called him about it and was very concerned about the article. He added that
Director McCaffrey's concern was not so much for personal reasons but rather
for the effect it would have on the war against drugs. He advised Director
McCaffrey to seek his own legal counsel because of the accusations made in
the article and provided him with the name of a law firm. He subsequently
learned that Director McCaffrey did engage a libel attorney from the law
firm he had recommended.

In addition, Mr. Johnson stated that Fleishman-Hillard regularly responded
to inquiries from ONDCP to provide information, statistics, or responses to
congressional inquiries. He stated that he provided information to Director
McCaffrey and to ONDCP on how to respond to the New Yorker article. He
stated that to his knowledge, all information that Fleishman-Hillard
provides to ONDCP goes through many layers of review before ONDCP crafts a
final response to be presented to any outside inquiry. He stated that at
most, he spent 3 to 4 hours on the New Yorker magazine matter for Director
McCaffrey and that Fleishman-Hillard did not bill ONDCP for this time. He
told us that he did this as a personal favor to Director McCaffrey.

Contacts and Acknowledgements

[0x08 graphic]

For information about this testimony, please contact Robert H. Hast,
Managing Director, Office of Special Investigations, on (202) 512-7455.
Individuals making key contributions to this testimony included John Cooney
and Patrick Sullivan.

[0x08 graphic]
This concludes my prepared statement. I will be happy to respond to any
questions you or other Members of the Subcommittee may have.

Appendix I

April 13, 2000, Memorandum With Director McCaffrey's Handwritten Comments

[0x08 graphic]

[0x01 graphic]

(600739)

[0x08 graphic]
Orders by Internet

For information on how to access GAO reports on the Internet, send an e-mail
message with info in the body to:

[email protected]

or visit GAO's World Wide Web home page at:

http://www.gao.gov

[0x08 graphic]

[0x08 graphic]
Contact one:

Web site: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: [email protected]

1-800-424-5454 (automated answering system)

ONDCP entered into an agency reimbursable work agreement with HHS to provide
administrative contract support for ONDCP's paid advertising efforts,
including award of the contract.

Mr. Merrick was the project director for Bates, U.S.A, which held the
previous two contracts for the ONDCP media campaign.

The initial findings were that total compensation charges of over $34
million were very high compared to the industry norm.

On Apr. 13, 2000, Director McCaffrey approved a recommendation that ONDCP
negotiate dissolution with HHS and enter an agreement with the Navy to
accept contract administration of the media campaign contracts from HHS.

Two days prior to our meeting with Director McCaffrey, we interviewed
ONDCP's general counsel, deputy general counsel, and assistant general
counsel and raised the issue of a memorandum annotated by Director McCaffrey
discussing the need for an external audit. All individuals denied knowledge
of the existence of such a memorandum.

We interviewed Ms. Seifert on Sept. 6, 2000.

An article by Seymour Hersh appeared in the May 22, 2000, issue of The New
Yorker. The article was critical of Director McCaffrey's actions during the
Persian Gulf war.
*** End of document ***