Sleeping With the Auditor

"I can give you hundreds of examples where PUC, DPW, and DPT engineers charge jobs which have been completed for months," Guetersloh wrote. "Project Managers never catch these errors. It is left to the accountants to clean the messes up. I do, however, realize that online updating of salaries is sexy and highly desirable to the engineers."

The computer system's troubles left plenty of room for financial shenanigans. Last year, KPMG Consulting's Dwayne McKinley sent a long list of FAMIS glitches to the Controller's Office. He said FAMIS has difficulty correlating revenue and expense data; the system is clogged with duplicate data; it is unable to process some contract payments and cost overruns; some information must be transferred by hand within the system's databases, instead of by automated processes; and FAMIS cannot track cash payments by contract number or vendor name. In other words, city officials cannot use the general ledger software to determine how much money has been paid out over any period of time for a particular contract, or to a particular person, company, or nonprofit organization.

(McKinley did not propose a solution; he did recommend that the controller pump up his firm's consulting budget.)

Accounting expert Hildreth says FAMIS was a state-of-the-art system in the mid-1980s, but that it is missing modern "bells and whistles." Other experts say that any decent accounting software should automatically track payments by vendor name and contract number.

"I am surprised that San Francisco has that old system," says Steve Balsam, one of the federal government's leading experts in computer accounting systems. He says FAMIS is a "legacy system"; he compares it to an old car, which will run past its prime if it is well maintained, even though it might not drive very efficiently.

Balsam tests accounting software for the Joint Financial Management Improvement Program, which is chaired by the secretary of the treasury and the comptroller general of the United States. In 1998, KPMG stopped submitting FAMIS to Balsam's agency for testing because, he says, it had become outmoded. Consequently, FAMIS is no longer approved by the federal government for use by federal agencies.

Rowan Miranda, director of research and consulting for the Government Finance Officers Association, says that FAMIS, which runs on mainframe computers, is not Internet friendly, although it can be "buttressed" with more advanced software. He also points out that Santa Clara County is scrapping FAMIS for a more modern system. (Santa Clara decided to junk FAMIS on the recommendation of KPMG Consulting, according to the county's controller-treasurer, Dave Elledge. San Francisco has yet to receive the same advice.)

In July 2001, long after FAMIS was buttressed with millions of dollars' worth of more modern software, including Oracle and Microsoft products, KPMG Consulting's Jerry Palombi wrote that FAMIS still generates "incorrect reports," and that there are "problems with the payroll system" due to the existence of "out of date information in FAMIS."

"It is not readily clear that ... a solution can be designed, but [a] 'long-term' approach is probably worth pursuing," Palombi concluded as he submitted his monthly bill.

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KPMG has also chosen to overlook another overarching principle of accounting: that auditors should not be involved in making management decisions, creating budgets, and setting policies for their clients. KPMG partners chair two committees composed of high-ranking city officials charged with monitoring San Francisco's financial accounting system and making information technology policy.

Controller Harrington says there are no minutes of these committees' meetings, only agendas; nor does he have any correspondence or written records of conversations with anyone from KPMG LLP or KPMG Consulting from 1998 to the present. The record shows, however, that the controller personally approved most of KPMG LLP's and KPMG Consulting's contracts. He appears to have otherwise insulated himself from KPMG by requiring Evangeline Bruce, the director of his Accounting Operations and Systems Division, to sign off on KPMG LLP's and KPMG Consulting's contract amendments, invoices, expense reports, and, curiously, their draft reports.

"I would also like to receive copies of your draft reports before actual circulation," Bruce told KPMG. "Our interest is to ensure that no recommendations are made that conflict with any of the city's strategic directions or policies."

KPMG LLP partner Denise Price agreed to abide by this apparent restriction on her firm's ability to independently critique the city. She was hardly out of the loop, though. She often traded e-mail messages with Bruce in a joint effort to find extra money in the controller's budget to pay for KPMG's chronic cost overruns. In 2000, Bruce started paying for consulting work with money budgeted for auditing work. Then she tapped into hundreds of thousands of dollars in city money appropriated by the Board of Supervisors to pay city employees. By this point in the long relationship, the audit firm and the Controller's Office had, in many ways, merged into a single entity.