Review Questions Use of Milk Money

A dairy group that runs the highly visible “milk mustache” advertising campaign should be suspended from operations because it lacks effective control over its $105-million annual budget, federal investigators said.

The National Fluid Milk Processor Promotion Board has spent more than $127 million in milk company money without government approval, awarded advertising contracts without competition and has no idea whether its campaign to stimulate milk consumption is working, the investigators said.

“Our review disclosed serious problems with the National Fluid Milk Processor Promotion Board’s management structure and with the manner in which expenditures were made,” said Roger Viadero, inspector general of the U.S. Department of Agriculture. The USDA should “suspend the operations” of the board until financial controls are in place, he said.

Kurt Graetzer, an executive director of the milk board, called the claims groundless. Government investigators, he said, are engaged in procedural nit-picking because the USDA’s Agricultural Marketing Service, which oversees the nationwide ad program, didn’t formally approve contracts before they were executed, as required by law.

“As a result, they [investigators] say we misappropriated, misspent $127 million in media fees,” Graetzer said.

A USDA official said the government wouldn’t suspend the dairy group’s operations, saying the contracts the board signed were legitimate and there was no evidence of unauthorized use of funds.

Still, changes are underway to ensure that contracts for advertising, research and education programs are signed by the USDA agency before they take effect, Graetzer said.

At stake is the money contributed to the campaign by such companies as Dean Foods Co., Suiza Foods Corp., Kroger Co. and Publix Super Markets and whether they are getting their money’s worth.

The companies, about 200 in all, contribute a mandatory 20 cents for each 100 pounds of milk processed, as a result of a referendum. About $105 million is collected annually, Graetzer said.

Under a 1990 law, the USDA’s Agricultural Marketing Service is supposed to review and approve the board’s budget, contracts, advertising and investment plans and evaluate program effectiveness.

The investigation, from December 1993 to June 30, 1997, found that the milk board delegated day-to-day operations to subcontractors and that the USDA agency failed “to provide proper oversight and direction,” according to the report.

As a result, the milk promotion board paid $127 million in advertising-related expenses during an unspecified period without USDA approval. Of that, $123 million went to a single contractor--the Bozell Sawyer Miller Group, a New York advertising agency that developed the milk mustache campaign.