Auditing the Auditors

The expensive tastes of KPMG

Even as the folks at KPMG turned blind eyes to the auditor independence rules, they also had trouble telling the difference between personal pleasures and business expenses. Many KPMG Consulting and KPMG LLP staff members commute several times a month between San Francisco and company headquarters in Virginia. In addition to paying them wages as high as $350 an hour, the controller picks up the tab for their travel and living expenses.

Since KPMG adds 25 percent (sometimes 50 percent) in expenses to its San Francisco consulting fees, its expense reimbursements from 1996 to the present can be estimated at, at least, $5 million. The city's expense reimbursement guidelines, to which the KPMG companies are bound to adhere, allow $114 a night for a hotel room in San Francisco and $42 a day for meals. Airfare must be "the lowest published routine fare." Receipts are required, and all expenses are limited to those that "a reasonable and prudent person would incur."

Yet a review of two dozen randomly selected expense reports from the past two years shows that KPMG's employees largely ignored these expense guidelines -- with the controller's blessing.

The consultants regularly paid $100 or more per trip for limousine service from their homes to Washington-area airports. Low-ranking employees booked flights to San Francisco for $400 to $600 round-trip. Senior managers and partners, however, often spent as much as $2,500 for "upgraded" seats. Typically, their expense reports carried no receipts or any other proof of payment for the airfares.

Consultants who made under $200 an hour usually stayed in downtown hotels for about $200 a night. Important managers were put up in "executive" apartments rented for $3,335 a month. Some people took cabs from the airport to their hotels, others rented cars for $300 a week, plus hotel parking fees. Only one consultant bought a Muni Fast Pass. The rest rode cabs twice a day between City Hall and their hotels, which are only a short walk, bus, or BART ride apart. Many charged the city for cab rides between nightspots after working hours.

On July 19, 2000, consultant Scott Baker (who was working on Muni's computers) popped over to the tony Stars restaurant for a $98 lunch. All things considered, that was a light meal. On July 24, Baker dropped $165.47 for a late-afternoon nosh at Scott's Seafood Grill & Bar; he then scurried over to John's Grill, where he ate a $279.20 dinner. (Hopefully, he had eating companions.) The next morning he bought $22 worth of yogurt and rice cakes and diet Coke at Safeway. The following evening, the taxpayers of San Francisco treated him to a $240.73 spread at Postrio. The next night it was back to Stars, this time for a $321.52 bust-out meal.

A few months later, Baker stayed at an exclusive downtown hotel, which is frequented by KPMG folks, for $302 a night. He drained the honor bar three times and gobbled down $189 in takeout from Postrio.

His colleague, Courtney Kirschbaum, as of last July had billed $243,221 in hourly wages plus $149,379 in travel and living expenses while working on FAMIS. Kirschbaum regularly had groceries delivered to her hotel room by Webvan. The city picked up the weekly bill for her dry cleaning, too.

In July 2001, senior manager Steve Brozinick, who pulls in $255 an hour, submitted a $3 receipt for crossing the Golden Gate Bridge at 1:18 p.m. The only problem is that his time sheet shows him in a meeting at City Hall starting at 1 p.m. It must have been a productive meeting -- later that night, he sat down with his colleagues to a $479.81 dinner at Harris' Restaurant.

Controller Harrington's office approved payment of these expenses, which, apparently, went unaudited.

 
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