KPMG is a Terrible but Inevitable Idea - Corporations Running Governments Openly

I read a terrible article in Forbes this weekend by Eric Werker of Harvard Business School, titled KPMG for Mayor!

Mr. Werker writes that auditors know how the complex accounting rules work for local governments and small national governments, and therefore they should be put in charge of those governments.  It's a new twist on an old theme.  At one time much of the world was defined by city states, this is akin to a corporate city state.

It's not a new idea I first heard about it almost 16 years ago as I read a novel by futurist Neal Stephenson.  In his novels you, much of the planet is now subdivided into corporations and special interest groups that control specific pieces of the country.

The problem with the idea of putting KPMG and control of a city or in a country that KPMG on a bad day is as corrupt as most governments can be.  He cites that auditors might be a will to keep a handle on the rides and corruption that take place in local and second and third world national governments.  Unfortunately he's also blind to the fact that many auditing firms have been complicit in many of the same fiascoes over the last few years only to be pardoned after the demise of Arthur Anderson.

It was just a few weeks ago the Wall Street Journal ran an article about how KPMG itself was able to navigate through a legal quagmire of its own (see How a Chastened KPMG Got By Tax-Shelter Crisis)  almost as bad as Arthur Anderson's if not worse.  The primary reason why KPMG is still in business today is because politicians thought it would do more harm to shut down the company than to let it keep going.  Fortunately there was a time when the US government took a different view with criminals such as Al Capone, another income tax invader.

Mr. Werker seems to be ignorant to the fact that audit firms are often central to the crimes that are created or run by corporations or by individuals.  All too often auditors turned a blind eye to issues or just don't dig deep enough to ensure that the bribery and corruption is taking place.  As an accountant and former auditor I've seen it directly myself with one of the other big four accounting firms, and I've seen hints that KPMG itself has had similar issues.

Disclaimer: I turn the other accounting firm in to the government, but I didn't have enough evidence for KPMG.

The most obvious flaw in this potential solution, is that an auditor is supposed to be unbiased.  As soon as you put the auditor into a position of power they inherently receive a bias.  Giving them the control over the books and the control over the power bias will inherently provide even greater level of corruption in what we see today.  In the meantime this concept should remain in science fiction.