oversight

Federal Energy Administration's Contract with the Advertising Council, Inc., for a Public Relations Campaign on the Need to Save Energy

Published by the Government Accountability Office on 1977-08-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT RESUME
03582 -   A24936211

Federal Energy Alministration's Contract with the Avertising
Council, Inc., for a Public Relations Campaign on the Need to
Save Energy. PSAD-77-151; B-178205. August 31, 1977. 23 pp. + 6
appendices (14 pp.).

Report to Rep. John D Dingell, Chairman, House Committee on
Interstate and Foreign Commerce: Energy and Power Subcommittee;
by Elmer B. Staats, Comptroller General.
Issue Area: Energy: Effect of Federal Efforts on Energy
    Conservation (1607); Federal Procurement of Goods and
    Services: Reasonableness of Prices Under Negotiated
    Contracts and Subcontracts (1904).
Contact: Procurement and Systems Acquisition Div.
Budget Function: Natural Resources, Environment, ani Energy:
    Energy (305).
Organization Concerned: Advertising Council, Inc.; Department of
    Agriculture; Department of Defense; Department of
    Transportation; Federal Energy Administration.
Congressional Relevance: Rouse Committee on Interstate and
    Foreign Commerce; House Committee on Interstate and oreign
    Commerce: Energy and Power Sbcomnittee; Senate Committee on
    Energy and Natural Resources.

         In October 1973 The Advertising Council, Inc., was
selected to conduct a nationwide public service advertising
campaign to encourage energy conservation. Although the contract
expired in September 1975, contracturil disputes have prevented
final monetary settlement. Findings/Conclusions: Following
expiration of the contract, Federal Energy Administration
personnel began to question whether the Council should be
reimbursed for some of the costs, and former personnel
publicized allegations of fraudulent claims. No indication of
fraud was found. There were some costs that appeared
questionable until subjected to further audit. Of the $18,985
questioned, $11,351 was allowable, $4,336 was unallowable, aal
$3,296 was unresolved. The Government has withheld $25,659
pending resolution of this matter. The cost questions can be
attributed to a lack of understanding and agreement as to what
constituted reimbursable expenses. The creative services
subcontractor's personnel were not familiar with the Federal
Procurement Regulations and followed what they considered to be
routine business procedures. Recommendations: The Federal
Energy Administration should direct its contracting officer to
reimburse the Council $18,027, the difference between the amount
unpaid and the amounts unallowable or still in question, and to
make a final determination on the $3,296 in unresolved costs and
expedite a final settlement. The Advertising Council, Inc.,
shuuld develop and employ procedures that will alert its
subcontractors to applicable Federal cost principles.
(Author/SC)
                   REPORT TO THE CHAIRMAN,
                   SUBCOMMITTEE ON ENERGY AND
                   POWER
Cm                 HOUSE COMMITTEE ON INTERSTATE
 2>-l              AND FOREIGN COMMERCE
          . ~'~~   BY THE COMPTROLLER GENERAL
t   ...   -w iOF
             3*:      THE UNITED STATES




                   Federal Energy Administration's
                   Contract With The Advertising
                   Council, Inc., For A Public
                   Relations Campaign On The
                   Need To Save Energy
                   In October 1973 The Advertising Council,
                   Inc., was selected to conduct a nationwide
                   public-service advertising campaign to encour-
                   age energy conservation. Although the con-
                   tract expired in September 1975, contractual
                   disputes have prevented final monetary settle-
                   ment.

                   GAO makes recommendations on final con-
                   tract settlement and future federally spon-
                   sored public relations campaigns with The
                   Advertising Council, Inc.




                   PSAD-77-151                                      AUGUST 31, 1977
                       COMPTROLLER GENERAL OF THE UNITED STATES
                                  WASHINGTON. D.C.   20548




B-1782n5



John D.  ingell, Chairman
Subcommittee on Energy and Power
House Committee on Interstate
  and Foreign Commerce

Dear Mr.   Chairman:

     This report is in response to your request for an audit
of the Federal Energy Administration's contract with The
Advertising Council, Inc., foi a public-service advertising
camnaign on energy conservation.  Siqnificant aspects of the
audit are summarized in the report's digest.

     In accordance with agreements reached with your office,
we plan to distribute the report in our usual manner and to
make the report available to the public.

                                     S               y yours




                                    Comptroller General
                                    of the United States
 COMPTROLLER GENERAL'S                FEDERAL ENERGY ADMINISTRATION'S
 REPORT TO THE CAIRMAN                CONTRACT WITH THE ADVERTISING
 SUBCOMMITTEE O   ENERGY              COUNCIL, INC., FOR A PUBLIC
 AND POWER, HOUSE                     RELATIONS CAMPAIGN ON THE NEED
 COMMITTEE ON INTERSTATE              TO SAVE ENERGY
 AND FOREIGN COMMERCE

 D I G E S T

          Because of growing concern over a possible oil
          shortage and the Arab oil embargo of 1973,
          the Government began a nationwide public-service
          advertising campaign to

                  -- make the public aware of the
                     seriousness of the energy situation
                     and

                  -- encourage the public to conserve
                     energy.

          The Advertising Council, Inc., was awarded a sole-
          source contract to conduct the campaign (see p. 6)
          because it has the unique capability to encourage
          national and local media to contribute public-
          service (free) time on television and radio and
          free space in newspapers, magazines, billboards,
          and other print media. Based on Neilson ratings
          and data provided by other advertising media, the
          campaign received an estimated S85 million in
          free advertising over 2 years. (See p. 17.)

          The creative services for the campaign were provided
          by Cunningham & Walsh, Inc. Neither the Council
          nor Cunningham & Walsh charged for teir time
          or services.

         Once the Arab oil embargo was removed, the
         Government decided to redirect the campaign
         toward the need for long-term energy conserva-
         tion, including messages depicting the Nation's
         vulnerability to Arab oil interest. A disa-
         greement between the Federal Energy Administration
         and the Council over presenting such messages
         (see p. 8) could not be resolved, and the con-
         tract expired in September 1975.



            Upon rmoval, the report
       *L5ihmt.
cover dat should be noted hreon.
Federal Energy Administration personnel began to
question whether the Council should be reimbursed
for some of the costs (see p. 9) and former per-
sonnel publicized allegations of fraudulent claims.
The amount questioned was $18,985, or about 3
percent of the $602,176 total contract costs.

GAO found no indication of fraud.  There were
some costs that appeared questionable until
subjected to further audit. Of the $18,985
questioned, $11,351 is allowable, $4,336 is
unallowable, and $3,296 is unresolved. (See
p. 14.)  The total of $7,632 in unallowable
and/or unresolved costs is more than offset
by the $25,659 the Government has withheld
pending resolution of this matter.

GAO believes the cost  uestions can be attributed
to a lack of understanding and agreement as to
wha: constituted reimbursable expenses.  Cunningham
& Walsh personnel were not familiar with the
Federal Procurement Regulations and followed what
they considered to be routine business procedures.

GAO recommends that the Federal Energy Administration
direct its contracting officer to

     --reimburse the Council $8,027,
       the dfference between the amount
       unpaid and the amounts unallowable or
       still in question and

     -- make a final determination on the
        $3,296 in unresolved costs and conduct
        a final settlement in an expeditious
        manner.

GAO suggests that The Advertising Council, Inc.,
develop and employ procedures that will alert its
subcontractors to applicable Federal cost principles.
Council officials told GAO they are

    --taking actions to prevent recurrences
      of the problems which surfaced during
      the energy conservation campaign,

    --currently developing a pamphlet that
      will explain for subcontractors the


                     -   ii -
                  basic provisions of Government cost
                  regulations, and
                -- developing a standard contract that
                   will address the Federal Procurement
                   Regulations and specify what services
                   the Government is obtaining.
           These actions, if effectively carried out, should
           help insure that only costs meeting the criteria
           of Government regulations -ill be incurred by con-
           tractors and reimbursed by Federal agencies.


           AGENCY COMMENTS
           The Federal Energy Administration and the
           Defense Contract Audit Agency concurred with
           GAO's conclusions and recommendations. The
           former also stated that it would make payment
           to the Council upon issuance of GAO's final
           report. (See apps. III and IV.)

           CONTRACTOR COMMENTS

           The Advertising Council, Inc., and Cunningham
           & Walsh, Inc., commented (see apps. V and VI)
           that GAO's report was an accurate presentation
           of the facts, but disagreed wizh GAO's conclusions
           on two costs claimed for reimbursement. (See
           pp. 11 and 15.)




Tear Sht                         -   ii   -
                    Contents

                                               Pa9e
DIC~ST                                           i

CHAPTER

   1      INTRODUCTTON                           1
              Scope of review                    1
   2      THE ADVERTISING COItNOTL, TNC.,
            AND PBLIC-SERVICi   ,iDVERTISING     2
              Public-service advertising         2
               iow the Council identifies
                 candidate campaigns it
                 will accept                     3
              How the Council operates           4
              Contractural arrangements          4

   3      HISTORY OF THE ENERGY CAMPAIGN         6
              Responsible agencies               6
              Campaign development               6
   4      ALLOWABILITV Of COSTS                 9
              Status of contract                9
              Defense Contract Audit Agency
                audits                          9
              FEA questioned items             10
              Other costs questioned           11
              Other items                      13
   5      ADVERTISING BY THE GOVERNMENT        16
              Public-service advertising
                through the Council            16
              Public-service advertising
                with a paid advertising
                agency                         17
              Paid advertising                 17
                                                              Page_


      6       OTHER GOVERNMENT CONTRACTS WITH
                THE ADVERTISING COUNCIL, INC.                  19
                  Cooperative forest fire
                    prevention--Smokey Bear                    19
                  Drive at 55 MPH                              20

      7       CONCLUSIONS, AGENCY AND CONTRACTOR
                COMMENTS, AND RECOMMENDATIONS                  22
                  Conclusions                                  22
                  Recommendations                              22
                      Federal Energy Administration            22
                      The Advertising Council, Inc.            22
                  Agency comments                              23
                      Federal Energy Administration and the
                        Defense Contract Audit Agency          23
                  Contractur comments                          23
                      The Advertisinq Council, Inc.,
                         and Cunningham & Walsh, Inc.          23


APPENDIX

          I   Request from Chairman, Subcommittee
                on Energy and Power, House Committee
                on Interstate and Foreign Commerce
                dated October 18, 1976                         24

      II      Government contracts with The Advertising
                Council, Inc. as of January 1977              26

  III         Federal Energy Administration comments           27

      IV      Defense Contract Audit Agency comments          29

       V      The Advertising Council,    Inc., comments       30

      VI      Cunningham & Walsh, Inc.,   comments            35


                          ABBREVIATIONS

FEA           Federal Energy Administration
GAO           General Accounting Office
                            CHAPTER 1

                          -NTRODUCTION

     As reauested by the Chairman, Subcommittee on
Enerqy and Power, House Committee on Interstate and
Foreign Commerce, we have audited the Federal Energy
Administration's (FEA's) contract with The Advertising
Council, Inc.   (See app. I.) Specifically, the
chairman asked that our audit

     -- determine the basis of all major charges
        made by the Advertising Council and its
        subcontractors;

     --evaluate the justification, if any, for
       such questionable charges as a drug bill,
       a $203 dinner bill for advertising
       executives, liquor bills, and the like;

     -- idencify the reasons why it was necessary
        to contract with the Advertising Council
        ct a sole-source basis rather than by
        competitive procurement; and

     -- determine what steps can be taken in the
        future to insure tighter Government
        controls over Advertising Council expenses.

SCOPE OF REVIEW

     The Defense Contract Audit Agency performed
three audits of the costs charged to this contract.
We discussed the results with its auditors, reviewed
its techniques, and examined its working papers.
The scope and adequacy of its work were sufficient
for us to rely on its findings and conclusions;.

     In addition to reviewing contract files and related
documentation, we also dicussed the contract and its
administration with

     -- numerous former   and current FEA officials;

     -- officers of The Advertising Council,      Inc.;

     -- personnel from Cunningham & Walsh, Inc.,
        the volunteer advertising agency; and

     -- a   film producer of campaign material.


                               I
                        CHAPTER 2
              THE ADVERTISING COUNCIL, INC., AND

                PUBLIC-SERVICE ADVERTISING
     The Advertising Coulncil is a private, nonprofit
organization supported by the dvertising industry,
communications media, and business community. An 85-
member board of directors composed of executives from
the supporting organizations decides what advertising
campaigns the Council will accept. The public policy
committee, made up of nonboard members from various
segments of society, reviews and passes on requests for
Council assistance.
     The Council's unique position is due to its success
in encouraging national and local media to contribute
free public-service time on radio and television and
free space in newspapers, consumer magazines, business
press, outdoor billboards, and other advertising media.
The Council's acceptance and sponsorship of a campaign
was compared to the "Good Housekeeping seal of approval"
by a Council representative.

PUBLIC-SERVICE ADVERTISING

     The Fedoral Communications Commission requires
the managers of each station (television or radio)
to give some indication of the station's public-service
activities at license-renewal time. Managers usually
respond by showing the amount of air time devoted to
public-service announcements. These annoucements are
called public-service advertising because the messages
are intended to be in the general pubJic's interest
and one time is contributed by the station's management.

      Free of charge, the Council makes available to both
the electronics and print media a wide array of adver-
tising materials, suggesting the materials bE aired and/
or published. The media managers know the Council's
materials (1) qualify as public-service advertising,
(2) have been reviewed for public viewing, and (3) are
free.




                             2
HOW THE COUNCIL IDENTIFIES
CANDIDATE CAMPAIGNS
IT WILL ACCEPT
     The Council receives numerous requests from private
organizations and Government agencies to manage their
advertising campaigns. Before the Council considers
any campaign request, the Council's criteria must be
met:
     "The campaign must be non-commercial, non-
     denominational, non-partisan politically,
     and must not be designed to influence
     legislation.
     "The purpose of the campaign is such that
     the advertising methodology can help
     achieve its objectives.

     "If the organization is a fund-raising
     one, the Council will take into consid-
     eration whether or not that organization
     currently meets the standards of public
     and private accreditation organizations,
     such as the National Information Bureau.

     "The campaign must be sufficiently national
     in scope so that it is relevant to media
     audiences in communities throughout the
     nation.

    "The appeal for support shall be one
    properly made to Americans generally,
    whether delivered by national or local
    media.  (The campaign, however, will not
    be rejected because it is in the interest
    of one group if the action messages have
    wide appeal, national significance, and
    local applicability.)
    "The campaign must be of sufficient
    seriousness and public importance to
    warrant donations of space or time by
    national and local media."

     The Council's public policy committee determines
whether a request meets the criteria and makes
recommendations to the board of directors. The board
decides which campaigns the Council will accept.


                             3
HOW THE COUNCIL OPERATES

     After a campaign has been accepted,   the Council
sets up a task force to carry it out.   The task
force consists of

     --a volunteer advertising agency (ad agency)
       that produces the creative ideas included
       in the advertising materials and is selected
       from a list of ad agencies that have ex-
       pressed interest in doing such work;
     --a volunteer coordinator who mediates any
       disputes that may arise between the
       client, Council, and/or ad agency and
       is generally a chief ,rarketing executive
       of a nationally known company and a member
       of the Council's board of directors; and
     -- a campaign manager who is one of the
        Council's paid, full-time staff and
        directs a..i guiles the client and ad agency.
CONTRACTUAL ARRANGEMENTS

     The Council and client sign a contract that docu-
ments the specifics agreed to by the parties. The client
will pay the Council its "out-of-pocket expenses"
incurred during the campaign. The Council also has an
8.5-percent indirect rate to cover costs that cannot be
charged directly to individual contracts. The Council
does not charge the client for its staff salaries.

     The subcontract betwee.i the Council and ad agency
is generally an oral agreemnent or a "handshake" contract.
The client, therefore, ust rely on the Council to
insure that the ad aency carries out the campaign.
The client, through the Council, reimburses the ad
agency for its out-of-pocket expanses incurred while
developing and producing campaign materials.   In
addition, the ad agency usually procures services and
materials from specialized vendors; these are also
reimbursed by the client. The ad agency does not charge
the Council for its creative services or staff salaries,
nor does it add the customary markup charged commercial
clients.




                            4
     Council officials told us that the ad agencies volunteer
their services because (1) such efforts build prestige within
the industry and (2) agency personnel find such work
challenging. Conflicts of interest (i.e., a volunteer ad
agency designing an antismoking campaign while one of their
large accounts is a tobacco company) are avoided through
voluntary disclosure. As an example, a Council official told
us the Government's swine flu vaccine campaign was to be
handled by a certain volunteer ad agency until it was learned
the agency had a pharmaceutical account also manufacturing
the vaccine. Another agency was subsequently selected.
                          CHAPTER 3

               HISTORY OF THE ENERGY CAMPAIGN


     There had been an awareness within the Federal
Government of a potential oil shortage before the 1973
oil embargo. The embargo, however, dramatized the need
for energy conservation.

     Nevertheless, there was widespread public skepticism
as to the seriousness of the stuation.    In October 1973
the Government, therefore, requested  the Council  to conduct
a campaign of public-service advertising  on the  need for
energy conservation and elicit public  cooperation.

     The Council agreed, and Cunningham & Walsh, Inc.,
volunteered to be the ad agency.  Energy conservation
advertisements reached the public before the end of 1973.

RESPONSIBLE AGENCIES

     FEA was not in existence when the campaign started
in October 1973.  The Department of the Interior's Office
of Energy Conservation was responsible for energy policy
and the Bureau of Mines for contract administration support.

     The Bureau of Mines awarded the contract to the Council
in October 1973.  The contract, initially valued at $150,000
for 12 months, was subsequently increased to $675,000 and
extended another year.

     In December 1973 Government responsibility for the con-
tract and campaign was transferred to the Federal Energy
Office, and later to FEA when it was formed in June 1974.
Responsi.ility has since remained with FEA.

CAMPAIGN DEVELOPMENT

     The overall goals of the campaign were to (1) generate
public awareness of the seriousness of the energy shortage;
(2) demonstrate how citizens can reduce energy consumption;
and (3) motivate citizens to practice conservation measures.

     Initial campaign direction was quite general, with
ideas being developed at joint conferences attended by




                             6
FEA personnel and representatives of the Council and
Cunningham & Walsh.  The consensus at that time was that
public conservation of energy was the most urgent short-term
need.  The campaign theme "Don't Be Fuelish" was adopted to
communicate this idea.

     The first FEA technical project officer told us that
the campaign proceeded smoothly during these initial stages.
Advertisements were produced quickly and the campaign received
widespread media support.

     After the oil embargo was lifted in early 1974, the
Government decided to redirect the campaign toward more
long-term conservation measures.  At the same time there was
a change in FEA personnel and policy.

     The new FEA personnel wanted to stress America's
vulnerability to foreign energy sources and inclu    this
message in subsequent campaign advertisements.  TLis  theme was
in agreement with the President's "Project Independence" and
was first discussed with the Council and Cunningham & Walsh in
August 1974.

     Cunningham & Walsh, with FEA concurrence, began developing
public-service announcements stressing the need for long-term
energy conservation.  Whilie the first of these announcements
was approved for release, FEA personnel continued to emphasize
the need to develop future advertisements emphasizing U.S.
vulnerability to foreign oil interests.

      The Council and Cunningham & Walsh began expressing
concern that such a theme might not gain media acceptance as
public-service advertising.   They also questioned the inherent
political nature of such a theme because it could be inter-
preted as an attempt to influence legislation.   The Council
expressed its belief that in both respects the vulnerability
theme violated its established campaign criteria.   FEA offi-
cials, however, continued to insist that such advertisements
be. developed.

     FEA's first technical project officer told us that he
agreed with the Council that such advertisements were not
representative of public-service advertising.   This technical
officer left FEA, and his responsibilities were  assumed by two
new Government personnel.  Unlike their predecessor,  these
officials (1) favored the vulnerability concepc  and (2) believed
the advertisements would be representative of Government policy
and should be acceptable as public-service advertising.   In fact,




                            7
FEA obtained the Energy Resources Council's approval to
produce the vulnerability advertisements.  The Energy
Resoorces Council, Executive Office of the President, was
responsible at that time for insuring that the Federal Govern-
ment's energy policy was consistent.

     While Cunningham & Walsh continued to disagree with this
approach, they did create several ideas for advertisements and
presented them to FEA personnel in March 1975.  The FEA people
selected one idea called the "Chessboard" spot, for the next
campaign effort.  Because this idea could be construed as an
insult to the Arab nations, it was rejected by the Council and
Cunningham & Walsh.  Cunningham & Walsh's people told us that
the Chessboard idea had been presented only to show FEA the
unacceptability of the concept.  They did not intend to have
the idea seriously considered.  This refusal to produce the
vulnerability idea led to several confrontations between the
people at FEA and Cunningham & Walsh involving the allowa-
bility of campaign costs and other policy matters.  The dif-
ferences were never resolved and Cunningham & Walsh resigned
from the campaign in June 1975.

     The Council and FEA attempted to work out their differ-
enc s during June and July 1975.  FEA decided, however, in
late July to allow the contract to expire in September 1975.




                            8
                                CH PTER   4

                       ALLOWABILITY OF COSTS


     Early in 1975 FEA personnel beqan questioning whether
certain costs should be reimbursed by the Government.   FEA
subsequently requested the Defense Contract Audit Agency
to examine the basis of costs submitted for reimbursement.
The audit agency performed, not one, but three reviews of the
costs claimed by the Council and/or Cunningham & Walsh.

     Allegations of fradulent claims were also publicized
by former FEA personnel.   As a result, the Chairman,
Subcommittee on Enerqy and Power, House Committee on
Interstate and Foreign Commerce, asked us to audit FEA's
contract with the Council.

STATUS OF CONTRACT

     The contract authorized campaign related costs up to a
maximum of $675,000.  Total costs claimed by the Council
amounted to about $602,000.  Requests for payment, totaling
$25,659, have not been paid by FEA.

DEFENSE CONTRACT AUDIT AGENCY AUDITS

     The first two audit  eports, dated January 13 and
Noveiber 26, 1975, covered the following amounts.

                 Claimed by             Examined by    Percent
                the Council            audit agency   examined

  1st audit          $299,609             $204,315     68.2
  2nd audit           302,567              258,836     85.5

      TOTAL          8602,176             $463,151     76,9


     The first audit did not question any of the costs
claimed by the Council.  The second audit questioned costs
of $2,616 on the basis that they were erroneously charged to
the FEA's contract when they should have been charged to a
Department of Commerce contract.  The Council concurred with
the audit agency.




                                   9
FEA OUESTIONED ITEMS

     On October 13, 1976, a meeting was held with personnel
from FEA, the Defense Contract Audit Agency, Cunningham &
Walsh, and the Council.  The purposes of the meeting
were to have

     --FEA present whatever costs it believed
       questionable and
     -- the Council and Cunningham & Walsh resent
        whatever support they believed justified their
        request for reimbursement.
     FEA questioned costs totaling $15,812. These costs
were for such items as filming a television public-service
announcement in Disneyland, travel expenses, hotel bills,
and film screenings. The Council and Cunningham & Walsh
were able to justify $9,133 of the questioned costs.

     A third audit report was issued on November 13,
1976, covering the cost items discussed at the October
meeting. A total of $6,678 was unresolved as of
April 28, 1977. This total consists of the following
items.

       $   203   Claimed for film screenings.
                 Documentation could not be
                 located at the time of the audit
                 to prove this cost was actually
                 incurred.

       $1,459    Claimed for hotel lodgings.
                 Similarly, documentation could
                 not be located to prove these
                 costs were actually incurred.

       $3,296    Claimed for the costs of labor and
                 equipment rental incurred during
                 2 additional days of filming a
                 public-service announcement.
                 Documentation showed that these
                 costs were incurred; however,
                 documentation was not available
                 to justify the necessity for
                 their being incurred.




                              I0
       $1,720   This amount is the difference
                between flying first class
                rather than coach.  The trips
                were made in preparation for
                filming a public service
                announcement in Disneyland.
                The former FEA technical project
                officer, in charge of the contract
                at that time, explained his reasons
                for authorizing the Disneyland trips
                in an October 21, 1976, memorandum.

     The memorandum explained thac initially the trips
were to be made in a military aircraft. The film producer
submitted his bid on this basis and did not include any
costs for transportation.  At the last minute the military
aircraft was not available, and travel by commercial
airlines was authorized.  A revised cost estimate reflecting
the travel costs not included in the original bid was
approved.  Cunningham & Walsh gave us the movie film
that verifies the public-service announcement was produced.

     In its comments, the Council stated that first class
travel had to be used because of contract requirements.
(See app. V, p. 33.)  The contract requirements are those
of the International Alliance of Theatrical Stage Employees
and Moving Picture Machine Operators of the United States
and Canada, AFL-CIO and the Director's Guild of America
which specifically require that their members be provided
first class accomodations on all travel to and from
assignments.

     Cunningham & Walsh in their comments (see app. VI)
also pointed out that first class travel was required by
industry union agreements to which they were a signatory.
The advertising agency noted that there was always
tremendous pressure to perform on an urgent and immediate
basis and therefore, many actions were initiated without pro-
per reflection on their own established policies, as well
as on Government policies.

OTHER COSTS OUESTIONED

     Other costs were identified and questioned by a
former FEA official but were not presented to the Defense
Contract Audit Agency for review.  These costs were as
follows.




                           11
      Dinners                              $403.13
      Drinks                                 86.82
      Tuxedo rental                          37.80
      Valet                                  19.56
      Medicine                                2.00
      Cleaning                                6.25

          Total                            $555.56


     Our analysis of the documentation showed these costs
were taken from the expense accounts of five individual
employees of Cunningham & Walsh who wre working on the
FEA campaign.  The expenses were ncL red during the
period February 26, 1974, through January 9, 1975. We
noted that the expenses (including dinners and drinks)
charged to FEA were identical to and treated in the same
manner as expenses charged commercial clients.  In some
instances, the dinner or drink expense was incurred while
contacting well-known personalities to request appearances
in support of the FEA campaign.

     In commenting on our draft report the Council
stated:

     "The reference to a 'tuxedo rental' refers to the
      attendance at the Advertising Council Annual
      Dinner of 1974 by the creative director of the
      volunteer advertising agency in connection
      with FEA campaign matters.  His presence would
      not have been required otherwise.

     "Reference to 'valet services' reflects the nee3
      for such service by a member of the volunteer
      advertising agency's campaign task force while
      on travel in connection with campaign-related
      activities.  A separate reference to 'cleaning'
      covers similar expense in similar context.

     "The 'medicine' referred to was for a headache
      remedy required by a member of the volunteer
      cask force and ws billed because he possessed
      the required dosage in his medicine cabinet
      at home and felt that to purchase same while
      on travel was a legitimate added expense he
      would not otherwise have incurred."




                            12
     Section 1-15.201-3 of the Federal Procurement
Regulations states:


        --A cost is reasonable if, in its nature or
          amount, it does not exceed what an
          ordinarily prudent person would incur
          in the conduct of competitive business.

        --What is reasonable depends upon a variety
          of considerations and circumstances
          involving both the nature and amounts of
          the costs in question.

        -- In determining the reasonableness of a
           given cost, consideration shall be given
           to (among other things) whether the cost
           is of a type generally recognized as
           ordinary and necessary for the conduct
           of the contractor's business or the
           performance of the contract.

        In our   opinion, the questioned costs of $556 meet the
above criteria of the Federal Procurement Regulations and are
allowable.  In addition, Cunningham & Walsh personnel
told us, and the expense accounts show, that the questioned
items are considered routine business expenses.
OTHER    TEMS

     Two additional items were also questioned by former
FEA officials. These items are discussed below:
        --A former FEA official questioned why a
          35-percent markup was added to a bill
          for travel costs claimed by the film-
          maker who produced the Disneyland film.
          This rate represents the standard
          industry charge normally added to
          production costs. It was not, however,
          added to the travel costs claimed under
          the FEA contract.




                                13
     -- An FEA official questioned the equitability
        of the Council's 8.5-percent indirect cost
        rate.  The Defense Contract Audit Agency
        found the Council was applying the 8.5-percent
        rate while it was actually incurring indirect
        cost rates of 17.35 to 19.54 percent.  We
        also noted that the Council applies the same
        8.5-percent rate to all public-service
        campaigns.

     We found no indication of fraudulent expense claims.
It is our opinion that of the $18,985 total amount questioned,
$11,351 is allowable.  These costs are shown below.

     $9,133    The amount justified by the Council
               and Cunningham & Walsh at the
               October 13, 1976, meeting.

     $   203   Documentation was provided by
               Cunningham & Walsh on June 10, 1977,
               that showed this cost was incurred
               and was for screenings of FEA films.

     $   556   Costs  uest tred by a former
               FEA official   The costs meet the
               criteria of the Federal Procurement
               Regulation as ordinary and necessary
               for the conduct of the contractor's
               business.

     $1,459    Hotel lodgings during the filming of the
               Disneyland public-service announcement.
               Documentation to show these costs were
               actually incurred was provided on June 15,
               1977, and July 18, 1977.

     A total of $4,336,   in our opinion,   is unallowable
because:

     $2,616    The amount was erroneously charged to
               the FEA contract.  The amount has been
               billed to the Department of Commerce and
               the Council has been reimbursed.




                             14
    $1,720    The difference between first class
              and coach air fare.  The contractors
              explained the circumstances regarding
              their use of first class accommodations
              'see p. 11).  We do not disagree with
              these facts; nevertheless, Government
              policy is that coach accommodations  are
              to be used unless none are reasonably
              available.

       A total of $3,296 in costs claimed for 2 additional
days of filming is unresolved.   The contracting officer,
therefore, will have to make a final determination on
the allowability of these costs.

     The Council and Cunningham & Walsh in commenting on
our draft report (see app. V and VI) stated that, in their
opinion, prior approval by the technical project officer
had been obtained before the costs were incurred.

     We found that Cunningham & Walsh did submit an estimate
dated January 14, 1975, for the additional costs that would
be incurred because the Government could not provide trans-
portation as originally planned.   A letter dated January 15,
1975, transmitted the estimate and indicated that the
revision was based on the addition of 2 days of shooting
and additional travel costs.   (This is the documentation
referred to in the contractors' comments as being provided
to us.)  This estimate, however, was not approved.

     A revised estimate dated January 23, 1975, was then
submitted and approved on January 27, 1975.  The revised
estimate did not indicate whether the costs for 2 additional
days of photography were included.




                             15
                          CHAPTER 5

                ADVERTISING BY THE GOVERNMENT


     An agency can select one of the following methods
to advertise:

     -- Public-service advertising through the
        Council (e.g., FEA's campaign).

     -- Public-service advertising through a
        paid advertising agency, with time and
        space still contributed by the media
        without charge.

     -- Advertising through an advertising
        agency .d paying for time and/or
        space (e.g., some of the recruiting
        campaigns by the military for the all-
        volunteer for-e).

PUBLIC-SERVICE ADVERTISING THROUGH THE COUNCIL

     The major advantage of this mthod is cost savings
because the Government agency ps   neither for staff services
of the Council and advertising agency nor for media time arind
space.  In addition, the Council's prestige provides a high
degree of media acceptability, and the volunteer coordinator
and the advertising agency provide professional expertise.

     The disadvantages are that control over the content of
the campaign is shared with the Council and the volunteer
agency.  Also, Council campaigns are generally broadly
baaed instead of directed toward selected segments of the
p . ation.

     The FEA contract was awarded on a sole-source basis
because (1) the Government wanted immediate action,
therefore, time-consuming competitive bidding procedures
could not be used and (2) the Council is the only
organization that offers such a full range of services.

     The Council also gives each of its clients a
dollar estimate of the time and/or space donated to
the client's campaign.  This estimate is based on data
the Council receives from the media plus Neilsen ratings.
The client can use this information to determine the
extent of media exposure its campaign has received.


                            16
     The Council estimates the FEA campaign received $85
million in media exposure over a 2-year period ending in
September 1975. The Council acknowledged that the oil
shortage and embargo significantly contributed to motivating
the media to publicize the FEA campaign.
PUBLIC-SERVICE ADVERTISING WITH A
PAID ADVERTISING AGENCY

     Under this method the Government pays for the services
of the advertising agency which tries to obtain free time
and space from the media.

    There are several advantages of this method:
    -- The Government selects the advertising agency
       it wishes to deal with.

    -- The Government has greater control over the
       content and direction of the campaign.
    -- The campaign can be directed toward specific
       localities or population segments instead of
       the entire Nation.
    The disadvantages of this method are:

    -- It is more expensive. Cunningham & Walsh
       estimated it would have cost about $500,000
       more to run the FEA campaign under this method.
    -- It is extremely difficult for an advertising
       agency to obtain free media time and space
       without the Council's "endorsement." Also,
       the media knows the agency is being paid and
       is, therefore, reluctant to provide free time
       and space.
    -- Because it does not provide readily available
       information that can be used to measure exposure,
       evaluation of the campaign's success is difficult.

PAID ADVERTISING

     The advantages of this method is that the Government has
complete control over the campaign and can direct it at the
specific population segment desired. Such precision cannot
be assured under public-service advertising.



                            17
     The obvious disadvantage is cost. For example, the
Council estimated that the value of media time and/or
space donated to the 1975 Cooperative Forest Fire Prevention--
"Smokey Bear" campaign was about $36 million.




                            18
                          CHAPTER 6

               OTHER GOVERNMENT CONTRACTS WITH

                THE ADVERTISING COUNCIL, INC.


     The Advertisino Council, Inc., had 13 contracts with
various Government agencies as of January 1977.  (See
app. II.) The total value of these contracts was about
$2.5 million.
     We selected two of these contracts, the Departmeit of
Agriculture's Cooperative Forest Fire Prevention--"Smokey
Bear" and the Department of Transportation's Drive at 55
MPH, to compare with the FEA contract. We found the Council's
procedures were very similar on all three contracts, but
the agencies' management procedures and the form of the
contracts varied.

COOPERATIVE FOREST FIRE '?REVENTION--SMOKEY BEAR

     The original contract between Agriculture's Forest
Service and the Council is in the form of a memorandum of
agreement which has been renewed annually since 1942.
The objective of the 1977 campaign is to increase public
knowledge and concern over the money spent and natural
resources wasted by man-caused fires. The agreement
specifies (1) what costs shall be reimbursable, (2) the
services provided without compensation, and (3) the proce-
dures the Council shall follow to incur obligations.

     Campaign responsibility is vested in a 13-member task
force that includes

     -- seven Federal and state forestry
        representatives,
     --a volunteer coordinator,

     --a campaign manager from the Council,

     --a representative from the advertising
       agency,
     --a Forest Service technical advisor,
       and

     -- two Smokey Bear program staff
        members.


                            19
An executive cmmittee gives direction concerning annual
program goals, but sets no bounds on the advertising
agency's creativity. The advertising agency submits its
production cost estimates and ideas to the committee at
planning sessions. The committee then selects the ideas
which capture their concept of the program within
funding limitations.

     The following procedures are used by the Government
and contractors to insure the allowability and reasonablenpc$
of costs:

     -- The advertising agency solicits a minimum
        of three bids from vendors for required
        goods or services.
     -- The Forest Service, with the advice of
        the Council's campaign manager, selects
        the winning bid.
     -- Vouchers are reviewed for technical
        questions and verified against purchase
        orders. Vouchers are also checked for
        reasonableness and adequacy of support.
      Forest Service representatives told us that
advertising agency personnel had been confused as to
what constituted allowable travel costs in the earlier
years of the program. We reviewed several expense
vouchers for the 1976 campaign and found no questionable
travel costs.

     Overall the Forest Service representative told us
they were very pleased with the campaign and the performance
of the Council and the advertising agency. They report
that media coverage has been extensive ($36 million in
donated time and space in 1975) and that the campaign is
popular and successful.
DRIVE AT 55 MPH

      The objective of this campaign was to encourage the
driving public to voluntarily obey the national speed limit
of 55 miles per hour.   The Department of Transportation
awarded tne Council its standard contract on October 22,
1975.




                            20
     The contract is specific in detailing the program
strategy, identifying the persons responsible for preparing
and implementing the media schedule and campaign budget,
approving announcements, and producing campaign materials.
It also describes the oral and written reports equired
on the campaign's progress but is not specific regarding
the extent of media coverage.
     Transportation's program manager stated all expense
vouchers are accompanied by supporting bills from suppliers
that identify individual cost items. Whenever cost questions
arise, he usually seeks explanations from the Council's
campaign manager. He deals with the advertising agency
only when immediate answers are needed. Our review of
selected expense vouchers showed that the stated procedures
are generally being followed in actual practice.




                           21
                            CHAPTER 7

      CONCLUSIONS, AGENCY AND CONTRACTOR COMMENTS,

                  AND RECOMMENDATIONS

CONCLUSIONS

     We did not find any indication of fraud.  Unallowable
and unresolved costs total $7,632, or only 1.2 percent
of the total $602,176 claimed.

     These cost questions arose because of a lack of
understanding and agreement between the people at FEA and
the Council as to what constituted out-of-pocket expenses.
Cunningham & Walsh personnel were not familiar with the
Federal Procurement Regulations and followed what they
consider to be routine business procedures.


RECOMMENDATIONS

Federal Energy Administration

     We recommend that the Federal Energy Administration

     -- reimburse the Council $18,027, the difference
        between the amount unpaid and the amount still
        unresolved or unallowable and

     -- resolve speedily the allowability of costs   still
        in question and make final settlement.

The Advertising Council,   Inc.

     We recommend that the Council develop and employ proce-
dures that will alert its subcontractors to applicable
Federal cost principles.  Council officials told us they are

     -- taking actions to prevent recurrences of the
        problems which surfaced during the energy conser-
        vation campaign,




                             22
     -- currently developing a pamphlet that will
        explain for subcontractors the basic pro-
        visions of Government cost regulations, and
     -- developing a standard contract that will address
        the Federal Procurement Regulation and specify
        what services the Government is obtaining.

     We believe the above actions, if effectively carried
out, should help insure that only costs meeting the criteria
of Government regulations will be incurred by contractors
and reimbursed by Federal agencies.
AGENCY COMMENTS

Federal Energy Administration and the
Defense Contract Audit Agency
     FEA and the audit agency concurred with our conclusions
and recommendations.  (See apps. III and IV.)  FEA also
indicated that it would make payment to the Council upon
issuance of our final report.
CONTRACTOR COMMENTS

The Advertising Council, Inc. and
Cunningham & Walsh, Inc.

     The Council and advertising agency commented (see apps.
V and VI) that our report accurately presented the facts.
     Both contractors pointed out that there were
extenuating circumstances--union agreements and urgent
demands--(see p. 11) that should be considered when
assessing the use of first class travel. While we do not
dispute these facts, it is Government policy that first class
accommodations can only be used when coach is not reasonably
available.

     The contractors also indicated that, in their opinion,
prior approval was obtained before the $3,296 of costs for
2 additional days of filming were incurred. We believe the
documentation regarding prior approval is not clear
(see p. 15).




                            23
APPENDIX I                                                                                                                   APPENDIX   I



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                                                           CONGRESS OF THE UNITED STATES
   .A..          .. l--
                '.          -1...1                                HOUSE OF REPRESENTATIVES
                                                                .....

  -
              ,.,~,~.~
      . o n,4~.,.
                    ·~                ~ ~                COMMITTEE ON INTERSTATE ANDFOREIGN COMMERCE
                    r,                                        SUBCOMMITTEE ON ENERGY AND POWER
                                                                             WASHINGTON, D.C. 20515
                                                                                 October 18,   I76


              The Honorable Elmer B. Staats
              Comptroller General of the United States
              General Accounting Office
              441 G Street, N. W.
              Washington, D. C. 20548

              Dear Mr.      Staats:

                   A recently completed Investigatic   v the Subcommittee on
              Energy nd Power has revealed evidence of fraudulent claims agalnsL
              the government in a Federal Energy Administration contract with tr
              Advertising Council, Inc., for a public service advertising campaign.

                   Under a $602,000 contract designed to promote energy conservation,
              both the Ad Council and Its subcontractors have billed the government
              repeatedly for a variety of unwarranted expenses. These include dinners
              and lunches for ad agency personnel, liquor, tuxedo rentals, cleaning,
              drugs and unauthorized travel--such as side trips for executives to
              Disneyland while they were on business in Los Angeles.  Evidence also
              points to at least one instance of double billing and billing for work
              not directly related to FEA business.

                   Terms of the Ad Council's contract do not allow FEA t audit the
             expenses of subcontractors, who submitted most of the questionable
             claims.   The oily aency with authority to perform a complete audit
             of the subcontractors is the General Accounting Office.   I am therefore
             requesting that /ou make a comprehensive GAO audit of the FEA's contract
             with the Adve;tisinq Councill.  And because of the implications raised
             by the auestionable laimns n this contract, I would like you to audit
             all other Executive Branch contracts with the Advertising Council as well.
             This includes, but should not be limited to, the Agriujlture Department's
             Smokey the Bear campaign, the Commerce Department's program to instill
             appreciation of the American free enterprise system and the White House's
             1974 Wit (Whip Inflation Now) campaign.

                    Your audit of the FEA contract should seek to establish the following:

              --substantiation of all Advertising Council and subcontractors' major
            expenses, which were often submitted in amounts as large as $7,000 without
            any deti led justifica ion to or advance approval from FEA;




                          THIIS rTA IONERY PRINTED ON PAPER MADE WITH RECYC.LED FIrE




                                                                          24
APPENDIX I                                                                      APPENDIX I

       T,&e '.:.rable Elmer B. Staats
       October 18, 1976
       Page Two


          --justification--or lack of it--for various questionable expenses,
       such as a drug bill, a $203 dinner bill for advertising executives,
        liquor Dil!s, cleaning bills and the like;

         --an explanation of why it was necessary to contract with the Advertising
       Council on a sole-source basis rather than by competitive procurement;

         --determination of what steps can be taken in the future t ensure
       tiqhter overnment control over Advertising Council expenses.  In this
       regard, no out-of-town trip or other major expense should b undertaken
       without approval of the contracting agency.

            Similar procedures, as necessary, should be applied to other agency
       contracts.

            At present, some 24,000 in outstanding claims still has not been
       paid by FEA because of disputes over their propriety. I have asked FEA
       to withhold payment of These claims until the GAO audit is completed.

             I believe our inquiry has uncovered~..Ivh evidence of misuse of
       Federal funds to warrant a thorouh       audit.) I look forward to an
       early meetinj with you and your    aff to disc s my proposal.

                                           Sincerel,




                                           J n D. Din
                                           CFa i rman




       JDD:Pdt,




                                         25
APrENDIX    II                                      APPENDIX II

   GOVERNMENT CONTRACTS WITH THE ADVERTISING COUNCIL,       INC.

                       AS OF JANUARY 1977
                                                           Contract
         Agency                       Programn             amount

Action                       Action                    $    178,838

American Revolution
  Bicentennial
  Administration             Register and Vote               92,884

.epartment of
  Transportation             Carpooling                     160,000

Defense Supply               Employer Support
  Service,                     of Guard and
  Washington                   Reserve                      483,222

Department of                Export
  Commerce                     Development                  100,000

Department of Health,        Food, Nutrition
  Education, and               and Health                    49,625
  Welfare

Department of                Prevent Forest Fires
  Agriculture                  ("Smokey Bear")              272,500

National Institutes
  of Health                  High Blood Pressure            264,685

Department of Health,
  Education, and
  Welfare                    Swine Flu                       89,214

Department of Health,
  Education, and             Technical Education
  Welfare                      Training                     250,000

Treasury Department          U.S.   Savings Bonds           183,812

National Center for
  Productivity and
  Quality of working
  Life                       Productivity                   114,355
Department of
  Transportation             55 MPH                         260,000

     TOTAL                                             $2,499,135

                              26
APPENDIX III                                                                     APPENDIX III


                       FEDERAL ENERGY ADM         CISTRATION
                               W'ASHINUTON, DC   2ul61

         L~rlr                   JUN 0 1977                    OFFICE OF   THE   ADINITRATUR




         Mr. Monte Canfield, Jr.
         Director
         Energy and Minerals Division
         United States General Accounting Office
         Washington, D.C. 20548

         Subject:   Contract # 14-01-0001-1613

         Dear Mr. Canfield:

         Thank you for affording the Federal Energy Administration
         (FEA) the opportunity to review and conment upon your draft
         report, coded 950377, covering the subject contract.  Please
         be advised that FEA concurs with all conclusions and
         recommendations contained therein. Two minor errors were
         noted in the boty of the report and are indicated below:

               (1) On page (ii), at the end of the second paragraph,
               it is stated that, "The disagreement could not be
               resolved and the contract was terminated." No termina-
               tion action, per se, was taken on subject contract;
               rather, as the report correctly indicates on page 12,
               the contract was allowed to expire. [See GAO note p. 28.]

               (2) The report states, in discussing the "vulnerability"
               theme, that discussions on this approach were first held
               in August, 1974. FEA beliLves the correct date for
               onset _,l discussions o be December, 1974.

         In addition to reporting on its audit of the subject contract,
         the General Accounting Office (GAO) has addressed the general
         subject of Government advertising efforts, and has drawn
         several conclusions with rey-ard to the various methods
         available to Government agencias in pursuing advertising
         campaigns. Among these conclusions are two wit; which FEA
         feels should be refined.

               (1) On page 21 of the report, GAO states that it is
               more expensive to pursue an advertising campaign through
               a "Paid Advertising Agency" than obtaining these services
               through the Advertising Council. While it is true that
               if the same agency were used under both methds, given
               identical circumstances and time-frame, procurement
               through the Advertising Council would be less expensive;
               [See GAO note p. 28.]




                                       27
APPENDIX III                                                        APPENDIX III




           there is some reason to believe that a paid advertising
           agency, competitively selected, might create and pursue
           to fruition an advertising campaign for a similar, or
           lesser amount than the AdvertFsing Council.   Liaison on
           Advertising Council work can be cumbersome and time-
           consuming, as is demonstrated in the case of the subject
           contract, and no motivating factor exists to control
           incurrence of costs. Moreover, it is difficult, if not
           impossible, to assign a cost value to the creativity
           and impact of any given advertising campaign.   If the
           campaign is successful, the monies have ben well spent;
           if unsuccessful, little of value has been received.

            (2) The report states that, "...it is extremely
           difficult for an advertising agency to obtain free
           media time and space without the [AdvertisingJ Council's
           endorsement." While it is true that the Advertising
           Council is the primary vehicle for obtaining free public
           service time from the media, the difficulty (or lack
           thereof) of an individual advertising agency in obtaining
           free media time and space is directly proportional to
           its size ad stature in the advertising industry.
           Difficulty may or may not be experienced in varying
           degrees dependent on which specific agency makes the
           request.

      With regard to the GAO recommendation that FEA reimburse
      Advertising Council in the amount of $14,401, assurances the
                                                                 were
      made by the former Administrator of FEA, Mr. Frank Zarb,
                                                                 to
      Congressman John Dingell, that no further payments would
      made to the Advertising Council until completion of the be
                                                                GAO
      review. FEA will make payment to the Advertising Council
      as recommended upon issuance of the final GAO report,
                                                             or
      upon release by Congressman Dingell, should such release
                                                                 be
      given in advance of issuance of the GAO report. In the
      meantime, all necessary steps will be taken to negotiate
      a settlement of the unresolved amount, as GAO has s'uggested.

                                        Sincerely,



                                        John F. 'Leary
                                        Administrator




      GAO note:  Page references in this appendix refer to the
      draft report and do not necessarily agree with
                                                     the paqe
      numbers in final report.




                                   28
APPENDIX IV                                                                            APPENDIX IV


                             ADm4           CONTRACT AUDIT AGIDCY
                                            CARIMin *TATON
                                    i w.5        . VINWINIA Uni4




       OND                                                         20 JUN 1977
       Mr. R. W Gutmann
       nirector, Procurement and Systems
         Acquisition Division
       U.S. General Accounting Office
       Washington, DC 20548

       Dear Mr.   Gutmann:

            This is in reply to your letter of 18 May 1977 requesting comments
       on your draft report on "Federal Energy Administration's (FEA) Contract
       with the Advertising Council, Inc., For a Public Relations Campaign
       on the Need to Save Energy," OSD Case #4626, Code 950377.

            We were pleased to note that you found our audits sufficient and
       relied on our findings and conclusions.  We concur with your recommen-
       dations.

            We noted that you reported $23,986 withheld by the Government.
       Our audit disclosed an additional amount of $1,673 on voucher no. 16
       that was withheld by ,EA for further review.  The contractor has not
       resubmitted the laim since they were subsequently informed by FEA
       that the costs claimed were satisfactory and payment would follow.
       The $1,673 remains outstanding, therefore the total withheld by the
       Government should -. $25,659.

             We appreciate this opportunity to coment on your draft report.

                                             Sincerely,




                                             DARRELL /dYER         X
                                             Acting Asistant 1irector
                                             Operations and Professional Development




                                                 29
APPENDIX V                                                                                                              APPENDIX V



      ROObes P K rII




       The Advetising Co                               ilInc
       P25 Th,d A.er,!-.
       NewY.Y L NY 1r
                                                                                                         .-
       2!2 758-0400                                                                                       ..




                                                                                     June 16, 1977



      Mr. R. W. Gutman
      Director
      United States General
        Accounting Office
      441 G Street, N.W.
      Washington, D. C. 20548

      Dear Mr. Gutman:

      This is in response to yo.r letter o May 18, concerning the
      preliminary draft of the GAO reporL to the Chairman, Subcommittee
      on Energy and Power, HouRe Committee on Interstate and Foreign
      Commerce, which you submitted for our review.

     At the very onset we would like to say that we appreciate this
     opportunity. On the whole we found the report to be balanced
     and objective.  It i.s our hope that our comments, which follow,
     will only add to the already commendable clarity and accuracy of
     this important document.   For ease of interpretation we are
     offering them on a page-by-page basis.

     Page i. "The Advertising Council was requested to conduct the
     campaign." We believe that it would be helpful to note that
     this request was made by the then-Federal Energy Of rice and The
     White House, and that the contract was let by the US Department
     of the Interior. (See GAO note p. 34.]

     Page ii.   "The Federal Energy Administratio,. and the Council
     disagreed over the public acceptability of such messages." This
     is not precisely the case. The Council's primary concern was
     that the messages which were being proposed by the Federal Energy
     administration were in violation of the Council's criteria for
     campaign acceptance.   Specifically, these criteria hold that any
     advertising under Cncil auspices shall be "non-partisan politi-
     cally, and not designed to influence legislation. {See GAO note p.
                                                                        34.1
     Page 1.        We suggest that the four points on which the chairman
     asked your audit be set off by quotation marks and that they be
     referenced to his letter of October 18, 1976. It is also important
     to note that "a $203 dinner bill for advertising executives, liquor
     bills and the like" was in fact not a single bill but the total of


      t£E DVERTISING COUNC*i !S U? Nb                 ANi;i ?
                                            POiT   OFGr-         N   'O *ROU   b<
                                                                               WA;      AMFR+fAN BUAINt-i ADVEnTlNCj
     ANO tHE COMMUNCA* Ns NSTREOu'ai        ON P   u r TA FR    SF   LS AND    ,jU.i.P;   TI POMOTI
                                                                                          T         VOLUNTARY CITIZEN
     ACTIONS IN SOLVING NATIONAL PRO8LEM'




                                                                30
APPENDIX V                                                               APPENDIX V


       Mr. R. W. Gman                                ithe Avrtisin53 CtncI   inc
       June 16, 1977
       Page Two

       a number of small, daily, legitimate out-of-pocket expenses on
       the part of volunteer advertising agency personnel while on
       travel in connection with the shooting of FEA-authorized TV-
       film footage and had been incurred in accordance with prevail-
       ing industry standards.[see GAO note p. 34.1
       Pa e 3. "The Public Policy    Comnnittee ... review the acceptabil-
       ity of materials to be used   in the campaigns." While this is
       sometimes true, the primary   function of the Committee is to
       review and pass on requests   for Council assistance.
       "The Council also acts as a 'buffer' between the many public
       service organizations soliciting free time and space from the
       media." We believe that the word "buffer" is possibly too
       strong a term, inasmuch as there is nothing in the Council
       methodology that prevents or prohibits public service organi-
       zations from approaching the media direct.   t is true that the
       media do rely on the Council logo as their assurance that a
       campaign meets criteria which will insure that it is "of suf-
       ficient seriousness and public importance to warrant donations
       of space or time by national or local media.lsee GAO note p. 34.1
       Page 6. "This person is generally a chief executive. .. "The
       correct term is "chief marketing executive." [See GAO note p. 34.]
      Page 7. "Council officials told us that the ad agencies volun-
      teer teir services free because such efforts. .. help the agency
      obtain commercial clients." While it is true that volunteer
      advertising agencies do sometimes exhibit their Council-related
      work to prospective clients, it is done so within the context
      of demonstrating their commitment to their social obligations.
      (See GAO note p. 34.1
      Page 8. "The Government, therefore, in October 1973, requested
      theCouncil to conduct a campaign of public service advertising
      on the need for energy conservation." It would enhance the
      accuracy of this statement if the phrase, "and to elicit public
      cooperation" were added to it. [See GAO note p. 34.1
      Page 14. Reference is made to "filming a television commercial."
      This should be more properly called "a public service announce-
      ment."[See GAO note p. 34.1
      Page 15. Reference is made to an item of $203 "claimed for a
      film screening." In point of fact, this total refers to cumula-
      tive hourly charges for projection room personnel over an
      extended period of time. These people work on contract and
      are not on the payroll of the volunteer advertising agency,
      which does not charge fo~ its own personnel's time.  A a meet-
      ing on June 10, 1977, at Council headquarters in New York, true




                                      31
APPENDIX V                                                           APPENDIX V


    Mr. R. W. Gutman                          The AdertisingCouic linc
    June 16, 1977
    Page Three

    copies of actual time-charge transcripts provided by Cunningham
    & Walsh, the volunteer advertising agency on the FEA campaign,
    in the amount of $178.14 were delivered to Mr. Tom Dorney of
    CAO.  C&W personnel indicated that they would attempt to pro-
    vide documentation on the remaining $24.86. ([See GAO note p. 34.1
    Reference is also made to $1,459 "clained for hotel lodgings"
    and to the fact that Council personnel were attempting to obtain
    copies of original hotel bills.
    On June 15, 1977, the Council provided true copies of film crew
    hotel invoices as supplied by the Watergate Hotel in Washington,
    D. C., to Mr. Dorney of GAO. It should be noted that the
    expenses in question also covered food and telephone expense.
    Cunningham & Walsh, the volunteer advertising agency, is also
    attempting to obtain similar documentation from the Fairmont
    Hotel in San Francisco for film crew expenses incurred while
    at that location. See GAO note p. 34.1
    Page 16. Reference is made to certain expense items totaling
    $555.56. The impression is conveyed that these items were
    incurred at one time and at one place, whereas they were in-
    curred over a period of nearly a year by five different volun-
    teer advertising agency personne' in coinection with their
    normal campaign responsibilities and in ccordance with gen-
    erally prevailing industry practice. The references to
    "drinks" do not necessarily refer to alcoholic beverages.
    The reference to a 'tuxedo rental" refers to the attendance
    at the Advertising Council Annual Dinner of 1974 by the creative
    director of the volunteer advertising agency in connection with
    FEA campaign matters. His presence would not have been required
    otherwise.
    Reference to "valet" services reflects the need for such service
    by a member of the volunteer advertising agency's campaign task
    force while on travel in connection with campaign-related
    activities. A separate reference to "cleaning" covers similar
    expense in similar context.
    The "medicine" referred to was for a headache remedy required
    by a member of the volunteer task force and was billed because
    he possessed the required dosage in his medicine cabinet at
    home and felt that to purchase same while on travel was a
    legitimate added expense he would not otherwise have incurred.
    [See GAO note p. 34.1




                                    32
APPENDIX V                                                            APPENDIX V

      Mr. R. W. Gutman                           The Adtiesin Couill nc
      June 16, 1977
      Page Four

      Page 17. It is noted that of some $556 in itemized expense
        items, some $290 "exceeds Government allowances." In deter-
      mining this fact, reference is made to the terms of Section 1-
      15.201-3 of Federal Procurement Regulations, which describes
      the limits of "reasonable" vendor expense. It is urged that
      in the interpretation of this regulation, consideration be
      given to the fact that the volunteer advertising agency ren-
      dering the incurred out-of-pocket expenses, performed its
      services on a non-profit basis, and that no fees, markups or
      commissions were added, billed or paid. Conversely, the
      "subcontractor", or volunteer advertisin g agency, estimates
      that it has incLrred recorded manpower time charges in excess
      of $250,000 against this project, none of which was billed
      to the Government. [See GAO note p. 34.]
      Page 18. Wth regard to some $2,616 "erroneously charged to
      the FEA col .act," this amount has been properly rebilled to
      the U. S. Department of Commerce and the Council has been
      reimbursed.
      Concerning the $290 "that exceeded GoverLment allowances,"
      we refer you to our comments pertaining un page 17.
      With respezt to the item in the amount of $3,296 for "labor
      and equipment rental" which "should be assumed by the contrac-
      tor," the Council on June 10, 1977, provided Mr. Dorney of GAO
      with additional documentation in the form of a signed estimate
      which demonstrated that prior approval for the additional
      expense in question had in fact been given by the then-project
      officer, Mr. Bart McGarry. [See GAO note p. 34.1
      Page 19   Our comments concerning the $203 item for "a film
      screening" are covered under remarks pertaining to page 13.
      An item of $1,720 is listed as "the difference between first
      class and coach air fare," and it is mentioned that "the con-
      tractors did have a rationale for flying first class." We
      believe that the record should carry this rationale; that is,
      that 1) a military aircraft was originally to have beer. pro-
      vided through the facilities of the FEA project officer's
      office; 2) that this aircraft did not materialize and a last-
      minute switch to commercial ir transport was necessary; and
      3) that the contract requirements of International Alliance
      of Theatrical Stage Employees and Moving Picture Machine
      Operators of the United States and Canada, AFL-CIO, as w 11
      as those of the Directors Guild of America, specifically
      require that their members be provided with first class
      accommodations on all travel to and from locations assign-
      ments.




                                    33
APPENDIX V                                                          APPENDIX V


      Mr. R. W. Gutman                           The Adertising3Couill nc
      June 16, 1977
      Page Five

      Thf reference to $1,459 "for hotel lodgings" is discussed under
      our comments pertaining to page 15. Partial documentation has
      been provided, and additional documentation is forthcoming.
      [See GAO note below.]
      Page 20. Under the heading, "PUBLIC SERVICE ADVERTISING THROUL
      THE COUNCIL" the advantages of dealing through the Council should
      include the fact that in addition to cost savings and media
      acceptability, the Council offers the professional expertise
      of the volunteer coordinator (usually a chief marketing officer
      with a major national advertiser) and a major volunteer adver-
      tising agency of national stature. Council staff expertise is
      also contributed. [See GAO note below.]
      Page 24. It is indicated that the Council's contract with the
      U, S. Department of Transportation had been cancelled. While
      DOT did cancel its advertising contracts with other sources,
      its relationship with the Council was not affected.
      (See GAO note below.]
      Page 26; Here aain, the reference to a cancellation of the
      Council's contlact with the U. S. Department of Transportation
      should be deleted, as this contract remains in force.
      [See GAO note below.]
      Page 27. Reference is made to FEA's subsequent contract with
      Grey Advertising. This contract has since been cancelled.
      [See GAO note below.]
      Page 28. The discussion of lack of familiarity with Federal
      Procurement Regulations on the part of Cunningham & Walsh per-
      sonnel as a mitigating factor in the incursion of certain out-
      of-pocket expense should also include recognition of the fact
      that much of the work carried out under this contract was
      executed in a crisis environment precipitated by he Arab Oil
      Embargo and under extremely urgent demands from White' House and
      FEO/FEA personnel in the months that followed. This frequently
      occasioned the need to execute the development of the vital
      conservation messages required at all possible speed without
      the opportunity to examine possibly less costly alternatives.
      It should be noted that volunteer advertising agency personnel
      uevoted Saturdays and holidays such as Thanksgiving, Christmas
      and New Year's Day to this effort at no cost whatsoever to the
      Government for the manpower involved. See GAO note below.l
      We believe that the foregoing comments are self-explanatory.
      However, please do not hesitate to call on us if you have any
      questions. In the meantime, please be assured once again that
      we appreciate this opportunity to enter our comments in the
      record.
                                                S.ncerely,




      RFK/kl
      GAO note:  Page references in this appendix refer to the
      draft report and do not necessarily agree with the page
      numbers in final report.




                                    34
APPENDIX VI                                                                  APPENDIX VI




 VceRecwo   July   8, 1977



            Mr. R. W. Cutman
            Director
            United States General
            Accounting Office
            441 G Street, N.W.
            Washington. D.C. 20548

            Dear Mr. Gutman:

            Thank you for the opportunity to comment on the GAO draft proposed
            report on the Federal Energy Administration's contract with The Ad-
            vertising Council, Inc. We regret the delay in responding however,
            we were awaiting receipt of copies of certain hotel bills which were
            discussed with Mr. Thomas Dorney of the GAO at our June 10 meeting.

            Cunningham and Walsh believes that the draft report is essentially
            accurate as concerns most of the pertinent facts covering our in-
            volvement as the volunteer advertising agency on this project. It
            is our opinion that the report would more accurately fulfill its in-
            tended purpose if it would directly address the four points raised
            by Representative Dingle. Specifically point two (Pg. 1) where he
            quest.ons a single $203. dinner bill for advertising executives as
            well as bills for drugs, liquor, and the like. While the report ad-
            equately explains the GAO findings on these items it is important
            to point out that these costs are not single items but represent a
            total of many individual items over the entire contract period of
            several years. (S8e GAO note p. 37.1

            It is also our opinion that the phrase on page 7 which refers to ad-
            vertising agencies volunteering to work on Ad Council projects be-
            cause such work "help(s) the agency obtain commercial clients" should
            be deleted. We feel that this insinuation casts unfair aspersions
            on the motives of all volunteer advertising agencies involved in public
            service campaigns. Cunningham and Walsh worked as a member of a com-
            munity contributing skills and resources to promote voluntary public
            action in helping to solve a national problem...energy conservation.
            There are no other motives. Projects of this nature are extremely
            costly to ar.agency and to date there is still monies due us from the
            Ad Council. (See GAO note p.       37.1




                                           35
APPENDIX VI                                                                 APPENDIX VI




          To specifically reply t the $6,678. total of unallowed or un-
          resolved costs as of April 28, 1977 we offer the following in-
          formation inorder to obtain the GAO's allowance of these items.

          On pagec 15 and 19 of the report the $203. reported for film
          screenings represents a direct out-of-pocket expense to unningham
          and Walsh and once again covers a longer period of time not just
          the sequence shot in Disneyland.   We have provided the Ad Council
          and Mr. Dorney with back up invoices covering these charges. Hope-
          fully this item should now he considered as fully justified by GAO.
          [See GAO note p.       37.1
          The Ad Council had previously provided copies of hotel receipts
          for the Watergate Hotel in Washington amounting to $516.01 of the
          $1459.22 questioned in the report. Our San Francisco office has
          been able to obtain legible copies of Fairmont Hotel receipts amount-
          ing to $943.21 which represents the balance of the questioned charges.
          These copies are enclosed for your review. Presumably these costs
          can also be considered as resolved.

          The additional expense of $3,296. for labor and equipment was ex-
          plained to, documented and approved by Mr. Bart McCarry, the pto-
          ject officer, prior to the commencement of photography. Mr. Dorney
          was given copies of correspondence confirming these facts on June 10.

          Finally there is thr:question of the fi-st class air fare costs.
          Even though we are now aware of the Government's policy specifying
          coach air fare we believe that there are extenuating circumstances
          which we would likte to have taken into consideration.

          There was always a remendous pressure put on Cunningham and Walsh
          to perform on an urgent and immediate basis throughout the entire
          contract period. Our creative and production work was always on a
         priority completion basis as if it were a wartime effort. Demands
         were frequent and at times excessive. Many things were initiated
         without proper ref'ection on our own established procedures and pol-
          icies not to mention stated Government policies. The first class air
         travel was one of these situations. Additionally, since the produc-
          tion company and acting talent were contracte  by C&W it was incumbent
         upon us to follow all prescribed industry ii-: agreements to which
         we are    signatory. All of these union at.-    nts specify first class
         air travel for their membership so there w.,srver an alternative for
         us to consider. It seems unfair that the AO disallow these costs on
         the basis of prescribed GCoernment policy without considering hese
         realities. We respectfully request that these costs he reviewed in
         the light of the circumstances described above and approved for pay-
         ment to the Ad Council.




                                       36
APPENDIX VI                                                                  APPENDIX VI



          We are in agreement with the comments previously submitted to
          you by the Advertising Council in their letter of June 16, 1977.

          We are anxious to have this matter resolved and are hopeful that
          the publication of the facts will correct some of the misconcep-
          tions about Cunningham   Walsh, and the Council which were con-
          veyed to the public in Representative Dingle's press releases.

          Thank you again for the opportunity to give you our comments.
          If you have any further questions please do not hesitate to call
         me.

         Ve 7   truly yours,



              d J, Wi'lson
         Administator of
         Comtrcial Production


         cc: C. Nichols
             H. Halfa
             C. Rogers
             D. Dowd
             R. Keim - Ad Council
             C. Harris - Ad Council




         DJW/lm
         Enc.

         GAO note: Page references in this appendix refer to the
         draft report and do not necessarily agree with the paqe
         numbers in final report.




                         K'   1 ii    .   .        i i t   '




                                              37