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Sleeping With the Auditor 

Why San Francisco and its outside accountants are a little too close for comfort -- and how it could threaten the city's financial integrity

Wednesday, Jun 26 2002

Page 5 of 5

KPMG Consulting issued the final report on the HRC, concluding that the commission's authority over city contracting should be transferred to the "independent" Controller's Office, because the commission habitually violated public contracting laws and was, also, subject to "political influence." (The recommendation was ignored by the mayor and the Board of Supervisors.) The report did not come cheap. It went a quarter-million dollars over budget, costing the city $525,241.

There are many other instances of KPMG and the city controller simply ignoring the essential principles of auditor independence.

- In 1999, Harrington directed KPMG, his "external" auditor, to work with his internal auditors to study "risky" software systems used by the city -- despite the fact that a U.S. General Accounting Office rule states, "External audit organizations would violate the overarching principles if they provide internal audit services because such services are considered a management function."

- In 2000, KPMG LLP was paid a quarter-million dollars for consulting with Muni, including doing accounting work and selling software services, at the same time it was paid $195,000 to audit the department's accounting system.

- Two years ago, the auditors contracted to supervise the cleanup of an accounting disaster at the Health Services System, which runs the city's health plan, after the department's finance staff was summarily fired. Then KPMG audited its own work.

This is not to say that KPMG did not do a good job in these situations; it is to say that it does not make sense to pay the company for auditing its own work -- nor the work of KPMG Consulting, to which the auditors have financial ties.

Although the integrity of the city's accounting system is clearly imperiled by issues of nonindependence, there do not appear to be any plans afloat at City Hall to hire a new auditor, or a new software consulting firm.

So for now the questions of accounting independence will linger, and the city will continue to run up against situations like this: When SF Weekly asked the controller how much money KPMG LLP and KPMG Consulting were paid from 1996 to the present, the answer ($19 million) was three weeks in coming. The reason for the delay, according to the controller's spokesperson, was that the information had to be extracted manually from a variety of databases and correlated into a spreadsheet by hand. In other words, the city's FAMIS accounting system, designed, built, and audited by KPMG, is incapable of answering how much money the city has paid to its own accountants.

About The Author

Peter Byrne


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