KPMG says that a lack of controls and ineffective oversight are to blame for the problems that have haunted San Diego’s financial statements.

According to the San Diego Union-Tribune, a draft version of KPMG’s final audit report said that the firm found that the city “had inadequate policies, procedures, internal controls and personnel to ensure that an accurate and reliable Comprehensive Annual Financial Report was prepared and reviewed on a timely basis.”

KPMG completed its audit of the city's 2003 financial statements last month. KPMG was engaged in April 2004, after the original firm hired to complete the 2003 audit was fired. The Big Four’s review of the 2003 financial statements was held up while an internal investigation was conducted by risk management firm Kroll Inc., which found several fraudulent reporting practices tied to San Diego’s pension system.

Among the internal control deficiencies outlined by KPMG were errors in the preparation of the annual report, and poor accounting due to outdated IT systems.

The City Council is scheduled to adopt the 2003 audit and hold a hearing on KPMG's internal controls report on April 30.

In November, the Securities and Exchange Commission ordered San Diego to hire an independent financial consultant for the next three years, but didn’t levy fines for the cover-up of the city’s financial obligations to its retirees.

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