KPMG Pulls Out of Running To Advise Contracting Panel

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KPMG Pulls Out of Running To Advise Contracting Panel

By AMANDA BRONSTAD

Staff Reporter

L.A. Mayor James Hahn’s effort to establish consistent, improved contracting procedures at the city’s three revenue-generating departments has been delayed at least a month following the abrupt withdrawal of the consultant tapped to advise his “best practices” panel.

Eight days after Los Angeles City Controller Laura Chick sent a letter to KPMG LLP questioning its objectivity, the firm withdrew from consideration. The auditor has a $150,000 auditing contract with the Port of Los Angeles.

The Business Journal reported Chick’s April 22 letter last week.

Citing a need to have the contract proceed “without any distractions or controversy,” KPMG said in a statement that, “we believe it would be in the best interest of the city for us to withdraw our proposal.”

The firm said it made the decision while continuing “to believe that KPMG could perform this work consistent with all of its professional obligations.”

Erwin Chemerinsky, chairman of the so-called Blue Ribbon Commission, said that KPMG’s decision would “undoubtedly” delay the group’s work. Its final recommendations were due to be submitted to the mayor 90 days after the consultant’s contract was signed.

“We may not finish as quickly as we hoped but hopefully we’ll be able to come up with a product that is really useful,” said Chemerinsky, a professor at the University of Southern California’s Law School.

“Laura Chick raised some very important considerations, and I understand why KPMG would decide it’s better to avoid any problems and just withdraw,” he said. “I played no part in any of these decisions, but I think everybody did what they were supposed to. Those who selected them did the best job, the controller did her job, and the consultant got out of this.”

Hahn created the Blue Ribbon Commission in February after the U.S. Attorney’s Office and the L.A. County District Attorney’s Office widened an investigation into pay-to-play allegations at the city’s three proprietary departments. Since then, investigators have subpoenaed large numbers of documents from the departments and several city officials, including the port’s executive director, Larry Keller, and its director of business development, Al Fierstine.

Starting over

Asked to comment on KPMG’s withdrawal, Chick said in a statement: “As city controller, I asked KPMG some very specific and important questions regarding their ability to advise the Blue Ribbon Commission and remain independent. Unfortunately, they chose not to address those questions.”

Deputy Mayor Carmel Sella said KPMG was selected for its depth of resources and ability to simultaneously and quickly review all departments.

The review panel that recommended entering into the contract with KPMG included Hahn, Chief Administrative Officer William Fujioka and Chief Legislative Analyst Ronald F. Deaton, according to Sella. (Deaton said he was not a part of that panel, but that a member of his staff may have been.)

Hahn spokeswoman Shannon Murphy said that despite the consultant’s pullout, “Mayor Hahn is taking every step he can to ensure that whatever contractor is selected has the confidence of the city.”

In her letter addressed to KPMG Partner Tom Snow, Chick had questioned the firm’s independence in recommending new contracting procedures to the commission while auditing the Port of L.A.

Further clouding the contract was word that Snow and partner Margaret Jean McBride would oversee the work for the panel.

McBride led KPMG’s audit of Orange County in 1994 and was about to sign off on its books for that year when, in 1995, the county filed for bankruptcy protection. The firm was sanctioned by the state Board of Accountancy for signing off on the county’s books for 1992 and 1993, placed on one year’s probation and ordered to pay $1.8 million in fines. McBride was also sentenced by the board to three years’ probation and ordered to serve 100 hours of community service.

KPMG withdrew from consideration on Friday, April 30, and a second request for proposals was issued the following Monday, according to June Gibson, chief administrative analyst for the Chief Administrative Office. Responses are due May 13.

“We had expected that the contract with KPMG would have been executed by now, and they would have started working,” said Gibson, whose office issued the original RFP. “Now that we have to go through another RFP process, it’s not likely a new firm selected will be able to begin until the early part of June.”

She said the same criteria apply in the RFP, which requires a consultant to “review and report on the contracting practices, procedures and written policies of the departments of airports, harbor and water and power” and develop “comprehensive recommendations for ‘best practices.'”

This time, however, those companies that received the RFP do not have current contracts with the city, she said.

Among the firms sent the RFP are Accenture Ltd., McKinsey & Co., Booz Allen Hamilton Inc. and Reese McMahon. Two other companies that received the RFP, Mercer Inc. and Maximus Inc., have contracts with the city’s personnel department but not with the three proprietary departments, she said.

City Councilwoman Wendy Greuel, who attended a recent Blue Ribbon meeting, said she was “disappointed we don’t have an auditor in place to start the process of cleaning up city contracts.”

But, she added, “it’s a Catch-22. We’re asking an RFP for those with experience with the city but questioning whether or not they have contracts with them. It was my hope this will be one report that will come up with strong recommendations on how to improve contracting.”

the group’s work. Its final recommendations were due to be submitted to the mayor 90 days after the consultant’s contract was signed.

“We may not finish as quickly as we hoped but hopefully we’ll be able to come up with a product that is really useful,” said Chemerinsky, a professor at the University of Southern California’s Law School.

“Laura Chick raised some very important considerations, and I understand why KPMG would decide it’s better to avoid any problems and just withdraw,” he said. “I played no part in any of these decisions, but I think everybody did what they were supposed to. Those who selected them did the best job, the controller did her job, and the consultant got out of this.”

Hahn created the Blue Ribbon Commission in February after the U.S. Attorney’s Office and the L.A. County District Attorney’s Office widened an investigation into pay-to-play allegations at the city’s three proprietary departments. Since then, investigators have subpoenaed large numbers of documents from the departments and several city officials, including the port’s executive director, Larry Keller, and its director of business development, Al Fierstine.

Starting over

Asked to comment on KPMG’s withdrawal, Chick said in a statement: “As city controller, I asked KPMG some very specific and important questions regarding their ability to advise the Blue Ribbon Commission and remain independent. Unfortunately, they chose not to address those questions.”

Deputy Mayor Carmel Sella said KPMG was selected for its depth of resources and ability to simultaneously and quickly review all departments.

The review panel that recommended entering into the contract with KPMG included Hahn, Chief Administrative Officer William Fujioka and Chief Legislative Analyst Ronald F. Deaton, according to Sella. (Deaton said he was not a part of that panel, but that a member of his staff may have been.)

Hahn spokeswoman Shannon Murphy said that despite the consultant’s pullout, “Mayor Hahn is taking every step he can to ensure that whatever contractor is selected has the confidence of the city.”

In her letter addressed to KPMG Partner Tom Snow, Chick had questioned the firm’s independence in recommending new contracting procedures to the commission while auditing the Port of L.A.

Further clouding the contract was word that Snow and partner Margaret Jean McBride would oversee the work for the panel.

McBride led KPMG’s audit of Orange County in 1994 and was about to sign off on its books for that year when, in 1995, the county filed for bankruptcy protection. The firm was sanctioned by the state Board of Accountancy for signing off on the county’s books for 1992 and 1993, placed on one year’s probation and ordered to pay $1.8 million in fines. McBride was also sentenced by the board to three years’ probation and ordered to serve 100 hours of community service.

KPMG withdrew from consideration on Friday, April 30, and a second request for proposals was issued the following Monday, according to June Gibson, chief administrative analyst for the Chief Administrative Office. Responses are due May 13.

“We had expected that the contract with KPMG would have been executed by now, and they would have started working,” said Gibson, whose office issued the original RFP. “Now that we have to go through another RFP process, it’s not likely a new firm selected will be able to begin until the early part of June.”

She said the same criteria apply in the RFP, which requires a consultant to “review and report on the contracting practices, procedures and written policies of the departments of airports, harbor and water and power” and develop “comprehensive recommendations for ‘best practices.'”

This time, however, those companies that received the RFP do not have current contracts with the city, she said.

Among the firms sent the RFP are Accenture Ltd., McKinsey & Co., Booz Allen Hamilton Inc. and Reese McMahon. Two other companies that received the RFP, Mercer Inc. and Maximus Inc., have contracts with the city’s personnel department but not with the three proprietary departments, she said.

City Councilwoman Wendy Greuel, who attended a recent Blue Ribbon meeting, said she was “disappointed we don’t have an auditor in place to start the process of cleaning up city contracts.”

But, she added, “it’s a Catch-22. We’re asking an RFP for those with experience with the city but questioning whether or not they have contracts with them. It was my hope this will be one report that will come up with strong recommendations on how to improve contracting.”

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