U.S. Army Audit Claims ‘Ineffective Marketing Programs’ Have Wasted Millions in Taxpayer Dollars Each Year

Documents also indicate conflict of interest with AOR McCann

Omnicom and WPP are currently pitching against the IPG-owned incumbent for the business. Getty Images
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The results of an internal audit of the U.S. Army’s budget question the effectiveness of the hundreds of millions in taxpayer dollars the organization spends on marketing and advertising each year. Its conclusions call many of these programs “ineffective,” claiming that the majority do not justify the costs.

“An audit of our outreach efforts is not yet complete, and any comment on the findings would be premature,” said a spokesperson for the Army Marketing and Research Group, or AMRG, in response to a related query. The audit launched in 2016 during a still-ongoing competitive review for the Army’s marketing account, which could concern up to $4 billion in spending over a period lasting as long as 10 years, according to Department of Defense estimates.

A series of U.S. government documents acquired by Adweek also appear to indicate a conflict of interest involving the AMRG and McCann Worldgroup, which has been the Army’s agency of record since 2005. A McCann representative deferred to the client for comment.

This development follows an earlier Adweek report in which Department of Defense sources claimed that the review had been “compromised” due to allegations of an improper relationship between executives at AMRG and McCann. The Army leader in question, James Ortiz, was removed from his position, but remains employed by the U.S. government.

The aforementioned documents concern a portion of the Army’s events marketing work that includes providing IT and data-based services for such events as the All-American Bowl and an Army-sponsored Tough Mudder series, as well as conducting assessments of the work performed by the primary contractor, McCann.

Until recently, those responsibilities had been assigned to a group consisting of two federally contracted companies, MSB Analytics and Rivera Group, that worked alongside AMRG. Those two companies worked under an 8a contract, which is specifically designed to be awarded to businesses designated as being owned by socially or economically disadvantaged people.

Documents reviewed by Adweek confirm the contract was worth approximately $2 million per year.

An ongoing audit

In mid-2016, the Army Auditing Agency launched a formal review of the Army’s marketing and advertising budget. Four sources with direct knowledge of the matter claim the order came about as the result of an internal investigation that followed AMRG’s request for additional funding.

A spokesperson for the Army Auditing Agency declined to provide details regarding the review in response to an email query. “It is difficult to precisely predict how long a specific audit review will last and when the corresponding audit report(s) will be published,” he wrote, stating that they might be available by mid-2018. But Adweek acquired a summary of the audit’s findings, dated Oct. 5, 2017 and titled “The Army’s Marketing and Advertising Program, Return on Investment.” This document states that, in fiscal year 2016, the AMRG failed to reach all but one of its six established performance goals.

“In addition, our analysis showed that only 3 of the 23 (about 13 percent) marketing programs generated a positive impact during the year,” it reads.

The document goes on to claim that the AMRG spent more than $930.7 million from 2013 to 2016 “on marketing efforts that potentially didn’t provide best value to support Army recruiting,” noting that 20 different programs costing a collective $36.8 million in 2016 alone “didn’t demonstrate a positive return.” The summary continues, “For [fiscal years 2018-2023], AMRG would continue to use about $220 million for the same ineffective marketing programs.”

In its response, AMRG writes that the report’s conclusions “are not supported logically and may appear as lacking in objectivity,” arguing that AMRG’s leaders have long realized that the Army’s marketing strategy “was not effective and needed replacement” and that they have repeatedly attempted to develop a more ROI-focused approach since the organization came into existence in 2013.

The response also notes increases in traffic to the Army’s website and cites various factors, including a steady drop in the overall unemployment rate, to explain lower quarterly recruitment totals. It claims that the audit’s results “ignore that marketing and recruiting are separate activities” and that connecting campaigns to specific goals “is a challenge in both the private sector in general and for the military in particular.”

The AAA’s negative conclusions, it says, demonstrate a “lack of marketing understanding or criteria for performance assessment.”

Canceled contract

Tharon Honeycutt, founder and president of MSB Analytics, received an official notice from an Army contracting officer’s representative on July 13, 2017. It stated that the U.S. Army would not renew his company’s contract, which expired the following day after approximately eight years.

Unbeknownst to Honeycutt, McCann and AMRG executives had collaborated, weeks earlier, on an ADS, or advertising direction sheet, detailing plans to move the work previously handled by his company to McCann’s activation agency Momentum Worldwide without a pitch. The ADS outlined Momentum’s proposed new responsibilities, the relocation of some of its employees to AMRG headquarters in Virginia and the terms of payment between the two parties.

The document’s metadata indicates that AMRG revised the document after a Momentum executive created it on May 5. Official Federal Acquisition Regulations (FAR) state that the act of “developing or approving any contractual documents, to include documents defining requirements, incentive plans, and evaluation criteria” creates a conflict of interest for any and all employees of federally contracted companies.

The ADS sheet bore the name of AMRG deputy director Jeff Sterling, and it would have assigned all related Events Division Support work to Momentum for a period lasting from November 2017 to November 2018. According to multiple sources close to the matter, Jeff Sterling is both the primary Contracting Officer’s Representative for McCann and one of four people on the AMRG selection committee that will ultimately decide which agency gets the multi-billion dollar contract currently in review. Omnicom and WPP are pitching against McCann.

In a draft audit sent to the incumbent contractors MSBA and Rivera nearly a month after the Momentum ADS was initially drawn up, the Army Auditing Agency recommended that the 8a contracts be eliminated because much of the work those companies performed was no longer needed (which is the only reason such “protected” contracts can officially be canceled).

A side-by-side comparison of the draft audit and the Momentum ADS indicates that the AMRG planned to move the tasks in question, which include drafting operations orders, preparing briefing decks and coordinating conference calls, to the McCann agency rather than eliminating them.

“During a review of our event marketing efforts, it was determined that there was some overlap in the contracted work being performed by two separate agencies and Army contracting took corrective actions,” said an AMRG spokesperson. “No new requirements were given to the current prime contractor,” she continued, meaning Momentum never officially assumed responsibility for the work in question.

For further queries, the spokesperson referred Adweek to the U.S. Army’s Mission & Installation Contracting Command for Public and Congressional Affairs. In response to a subsequent request for comment, an Army representative confirmed that “findings from the recent AAA audit of Army marketing and advertising efforts are currently under investigation,” adding, “it is our policy not to discuss ongoing procurement actions.”

Jeff Sterling has not responded to a request for comment.

The 8a contractors later issued a point-by-point rebuttal to the draft audit, but the contracts were canceled anyway. MSB Analytics president Tharon Honeycutt did not return an email seeking comment.

Performance reviews

As noted above, the responsibilities assigned to MSBA and Rivera under the 8a contract included assessing certain aspects of McCann’s events work for the U.S. Army. The Auditing Agency’s comparative analysis document arguing for the cancellation of their contract states that those two companies were “unable to properly report on the primary contractor’s performance” because they were not “allowed to review the task order.” The contractors responded that their responsibility in that context was not to “check deliverables” but to “assist in the execution of the event … and then report back to their Program Manager with their [after-action review] on the event with an unbiased opinion.”

None of the documents reviewed by Adweek clarify which party will be tasked with evaluating McCann’s event marketing work moving forward.

On July 14, the 8a contract expired, effectively ending MSBA and Rivera Group’s relationship with the Army.

Meanwhile, the larger review continues. In a January 2017 statement announcing its decision to solicit ad agency services for “a base period of five years,” a U.S. Army spokesperson estimated that the winning shop would be announced in fall of that year and begin working on the account by September.

@PatrickCoffee patrick.coffee@adweek.com Patrick Coffee is a senior editor for Adweek.