AGENCY COST-ACCOUNTING IS UNDER TRIAL

A trial involving two former executives of WPP Group's Ogilvy & Mather, set
to begin in Manhattan next week, is drawing a spotlight on a long-running
issue on Madison Avenue: how to keep track of work when much of the effort
can be intangible.

Shona Seifert and Thomas Early were indicted in January 2004 on
federal charges of participating in a scheme to defraud the U.S.
government, in part by falsely inflating the labor costs that Ogilvy &
Mather had incurred under a contract it was awarded by the U.S. Office
of National Drug Control Policy.

Both Ms. Seifert, currently on leave from her job as president of the
New York office of Omnicom Group's TBWAChiatDay, and Mr. Early, a
former director of finance at Ogilvy's New York office, have pleaded
not guilty to the criminal charges. Attorneys for Ms. Seifert and Mr.
Early declined to comment on the trial, which is expected to begin
Tuesday.

TBWA and Ogilvy also declined to comment. Ogilvy paid $1.8 million to
settle civil charges related to the matter in February 2002.

The trial comes as the ad industry continues to struggle with ways to
make itself more transparent to clients and investors. Composed of
sprawling holding companies, advertising is "an industry that is
far-flung and doesn't have any hard and fast products that you can
track with an inventory-tracking device," says Sanford C. Bernstein
analyst Michael Nathanson.

Because the companies offer little direct operational detail about
such firms as Omnicom's BBDO Worldwide or WPP Group's Young & Rubicam
in many financial reports, "there has to be a certain amount of
trust," he adds.

In another legal action involving the advertising industry, the U.S.
Attorney for the Central District of California on Jan. 13 indicted a
former executive at the Los Angeles office of Omnicom public-relations
firm Fleishman-Hillard. Federal charges against John Stodder allege he
participated in a scheme that resulted in fraudulent bills being
submitted to the Los Angeles Department of Water and Power. The
indictment also alleges other Fleishman-Hillard clients were overbilled.

"Mr. Stodder denies the charges and looks forward to his day in
court," says his attorney, Jan Handzlik.

"For us, this issue is an aberration," and involved former employees,
says Richard Kline, the Fleishman executive who oversees the Los
Angeles office. He says the firm took steps "to make it very unlikely
that allegations like these could ever arise again."

Agencies and their customers both may lack some expertise. "I
certainly think a lot of people who work at agencies don't understand
the nuts and bolts of cost accounting and how agencies get
compensated, and I think that's true of clients," says Catherine
Benison, president of Select Resources International, a Santa Monica,
Calif., firm that helps marketers review ad agencies.

In the past, marketing firms typically devised television commercials
and print ads. Now clients are interested in new promotions -- from
influencing authority figures to placing products in shows. If the
business grows more complicated, clients will seek more involvement
from procurement departments, says Jim Singer of management-consulting
firm A.T. Kearney. "That's still shaking out," he adds.

Whatever the situation, marketers are sure to keep their eyes open wide.
Says Mr. Singer: "Agencies will always behave better when they know they are
being watched."