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Council President Scott Peters today mulled the damages caused to the city of San Diego by the continued withholding of its long-delayed fiscal 2003 audit by KPMG, openly questioning whether the audit firm was acting in good faith.

Two key phrases used by Peters — “damages” and “good faith” — would no doubt be the centerpieces of legal action against KPMG if the city ever did sue the firm. While no official has openly advocated suing the firm, Peters’ questions reveal that such a move is at least being contemplated by some top officials.

The comments came during a budget committee hearing in which council members were briefed by Assistant Comptroller Greg Levin on the status of the audits. Levin portrayed KPMG as “uncertain and vague” in its responses to the city’s requests for more information on the status of the audit. The financial statements are now in their 15th draft, he said, and KPMG has an entirely different team working on them than they did at the beginning of its engagement in April 2004. (Click here for Levin’s complete comments.)

“Do we have other alternatives that we that we haven’t wanted to discuss because we thought we were almost there,” Councilwoman Toni Atkins asked rhetorically. City officials have believed to be on the brink of releasing the audits for more than two years.

Peters said there seemed to be a pattern of delays by KPMG that was costing the city money. He noted that the only reason the council had paid $20.3 million to the Kroll Inc. consultants for their investigation, completed in August, was to get the KPMG audit. He also noted the continued costs of having to borrow money privately and impending deadlines for mandatory health upgrades to the water and wastewater systems — which will require the borrowing of hundreds of millions of dollars.

ANDREW DONOHUE

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