The agency, which first won the account in 1999, will not have its contract renewed and the account will be put up for pitch next year, according to reports.
Ogilvy & Mather ended up denying fraud, but admitted to billing errors relating to timesheets, and agreed to pay $1.8m to the US government to settle the dispute in 2002.
It was then reappointed to the account, but some politicians were unhappy that the agency was retained after admitting to overcharging. The contract became the subject of a Senate bill, as the agency became a pawn in political manoeuvrings to make changes in the department that runs the account, the White House Office of National Drug Control Policy.
Reports say that the office has been pleased with the work that Ogilvy has done, with campaigns including a series of ads directed by the maverick British director Tony Kaye, linking drug taking with terrorism, in the wake of the 9/11 attacks.
Currently, the drugs body is running a push against smoking marijuana, with television ads including a spot that shows a small child walking unsupervised towards a swimming pool and the voiceover saying: "Just tell her parents that you weren't watching her because you were getting stoned. They'll understand".
Another spot encourages parents to tackle drugs within their families. It shows a mother disciplining her son, telling him, "When I say no weed, I mean no weed," and tells parents "you're more powerful than you think".
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