KPMG defines the public sector or Government LOB in the U.S. as comprising Federal, State & Local Government (SLG) plus Higher Education/ Research/Not-for-Profit (HERON) institutions. This differs from the global LOB structure in that Healthcare is excluded (i.e., Healthcare is its own LOB in KPMG LLP). The combined spending by the U.S. Government and state and local governments account for nearly four in every 10 dollars of the GNP and since 1960, state and local spending has increased at a faster rate. With annual spending of approximately $3 trillion, the U.S. Government is larger than the combined revenues of the top 20 companies in the 2007 Fortune 500®.
For over 100 years, KPMG's nationwide Government practice of partners and professionals has focused on serving clients in the public sectors, higher education and not-for-profit categories, and is dedicated to providing professional services to meet the evolving business needs of its clients through a range of audit, advisory and tax services. Our industry leaders also have earned the respect of our clients and peers by working with regulatory and oversight organizations to help set standards for government auditing and accounting.
Industry Segments within Government:
Federal
As mentioned, the federal government's annual budget is in excess of $3 trillion per year. The Department of Defense, the Department of Health & Human Services and the Social Security Administration would easily displace Wal-Mart as # 1 on the list. Typically, federal contracts range in the multi-millions and span several years. Annually, approximately $82B is spent by this sector on audit and advisory services in the areas of business management, IT-related, and Program Support initiatives. And, approximately one of every 25 workers is employed by the federal government.
KPMG's Federal practice is a growth sector comprised of people and services focused on the federal government's 15 Cabinet level agencies as well as other legislative, executive, and judicial entities. Organized around "clusters," groups of agencies or large standalone agencies, the practice's approach to the federal government's complexity allows for better account management and go-to-market activity. The five federal clusters are: Department of Defense, The Department of Homeland Security, Intelligence Agencies, and Civilian Advisory Agencies and Civilian Audit Agencies. Each cluster is headed by a lead partner, as are component agencies within the clusters.
Industry activity in the federal space largely mirrors that found in the commercial sector. Although certain industry experience can be leveraged within the federal market, a governmental understanding of policy, applicable regulations, accounting and IT standards and government business challenges is expected of our professionals.
Below is a representative list of service offerings through the Federal practice:
List of Services — Federal practice |
| Financial Statement Audit |
Business Continuity |
| Enterprise-wide risk identification and assessment |
Risk mitigation planning |
| Accounting support and process improvement |
Data cleansing |
| Financial statement preparation |
Financial process and procedure modernization |
| Auditability assessment and remediation |
IT governance, program effectiveness, and security |
| Property, plant, and equipment valuation |
Program and project management |
| Accounting systems development support |
Organization evaluation |
| Testing strategies for financial reporting |
Supply chain and inventory optimization |
While the Federal Audit practice, as expected, specializes in financial statement audits, the Advisory practice offers a full suite of financial management and business controls services, including: CFO Advisory, Information Risk Management, Operations Risk Management, Internal Audit and Regulatory and Compliance, Forensic and Financial Risk Management Business Process Improvement, Performance Management, and Enterprise Architecture.
Required Skills
It is generally considered helpful, although not necessarily required, for all practitioners to have experience with the core precepts of government accounting as well as an appreciation for the principles of the Federal Accounting Standards Advisory Board (FASAB).
In addition, Federal Audit practitioners should have knowledge of government auditing (e.g., federal financial statements and transaction flow), internal controls over financial reporting (as spelled out in OMB Circular - A123), plus an understanding of government audit processes. Also considered important is experience auditing in accordance with the standards applicable to financial audits contained in the Government Auditing Standards - Bulletin No. 01-02, Audit Requirements for Federal Financial Statements. Advisory partners and professionals are expected to possess knowledge of federally driven IT and related matters/accounting processes/protocols.
Clients
Federal clients are 3 of the top 15 clients. Civilians audit is in the top 10 for audit accounts and overall.*
State & Local Governments
The aggregate of state budgets is in excess of $2 trillion annually and nearly one hundred state and local entities have revenues in excess of $1 billion annually. Of total State & Local Governments (SLG) spending, IT and program support represent a substantial portion, at approximately $30 billion per year. Approximately one of every nine workers is employed by an SLG entity.
KPMG defines the SLG segment as comprised of (a) U.S. states territories and commonwealths as well as their respective agencies, (b) state counties/agencies, and (c) cities/local municipalities and their agencies. There are an estimated 83,000 agencies in all, many of which have long been served by KPMG. The segment represents a significant and growing opportunity for the firm because of its current volume, and its high likelihood of continued growth.
Public Private Partnerships
The U.S. infrastructure is aging and in need of additional capacity. Increasingly, SLG government entities increasingly looking toward private funding for infrastructure assets. Many governors and state legislators are interested in Public Private Partnerships (PPPs) to generate funds for other infrastructure and government improvements to state-owned assets. Most of the focus on PPPs has been in the highway area, but there are early signs that airport, courthouses, lotteries and port PPPs may become more commonplace. The market potential for services is in excess of $2 billion annually. While this opportunity is predominantly in SLG Advisory services, there are also opportunities for Transaction Services and Tax, and in the Federal and Construction practices.
Just over half of all states now have legislation in place to allow them to enter into PPPs, and that number is growing. States such as Virginia, Texas, Indiana, California, and Illinois (Chicago) have completed PPP transactions, with more on the way KPMG was involved in all three of the major PPP transactions in 2006. Given our learning's to date, we are focusing on three market segments: state Departments of Transportation, bidders on PPP projects, and pension systems that are likely investors in PPP infrastructure projects.
Required Skills
It is helpful, although not required, for all SLG practitioners to have experience with the core precepts of Government accounting as well as an appreciation for the principles of GASB, the Government Accounting Standards Board.
In addition, SLG Audit practitioners should have knowledge of Government auditing (e.g., financial statements and transaction flow, internal controls) plus an understanding of government audit processes. Advisory partners and professionals are expected to possess knowledge of SLG driven IT and related matters/accounting processes/protocols.
Clients
KPMG provides audit and/or advisory services to 21 of the top 35. We also provide audit and/or advisory services to 4 of the top 10 counties in the country in terms of government expenditures. We audit 5 of the 12 state governments whose financial statements are audited by an independent CPA firm.
KPMG audits 32 percent of the federal expenditures captured in the Single Audit database for 2005 (Note: 2005 is the most recent complete filing year), more than six times our nearest competitor.
Of the 170 SLG governments whose expenditures are $1.0 billion or greater, KPMG audits 35. KPMG is the single auditor for 5 of the 12 states that use an independent CPA firm to conduct their annual single audit: Illinois, New Jersey, Delaware, New Hampshire & Vermont.
HERON
In Higher Education, there are almost 1,700 public accredited institutions offering 12.8 million degrees, and 2,441 private accredited institutions offering 4.4 million degrees each year. This amounts to 14.5 million undergraduate, 2.1 million graduate and .3 million professional degrees. Collectively, their endowment coffers exceed $100B. State spending behind these institutions adds another $173B annually.
In the nonprofit sector, there are some 1.5 million organizations, whose various missions are facilitated through donors, foundations, businesses, and governing agencies via a nationwide community of giving. The 10 largest of these account for approximately $28B in total income.
KPMG has long been a leader in providing audit services to both public and private institutions of Higher Education. In fact, KPMG was the first major professional services firm to develop a practice serving organizations in Higher Education and the other not for profit sectors. KPMG continues to be committed to this segment, and it remains one of the LOB's core businesses, with audit and tax professionals educated and trained in the issues and challenges facing our clients.
To help our clients address risks and help them leverage the benefit that accompany tax-exempt status, KPMG formed the Exempt Organizations Tax (EXOTax) practice (part of the Healthcare and Pharmaceuticals LOB). These professionals are backed by a Washington, D.C.-based core team that includes professionals with experience at the highest levels of the IRS. To the best of our knowledge, no other firm maintains a single, national practice of full-time exempt organization tax professionals.
Our HERON practice is largely audit and ExoTax driven. However, the practice is in the process of expanding, to provide services that include Internal Audit Regulatory Compliance Services, Enterprise Risk Management and IT Advisory Services. KPMG actively shapes/interprets issues that impact higher education accounting and financial administrations through our commitment to and service of professional and standard-setting bodies. In addition, we maintain a vigilant eye over matters that may affect Higher Education nationally, such as issuance of proposed regulations, judicial interpretation of existing regulations, and Internal Revenue Service positions on key topics. In particular, we focus on White House proposals regarding funding higher education, unrelated business income, Title IV reauthorization, employee benefits, and other matters of concern to our Higher Education clients.
Required Skills
It is helpful, although not required, for all HERON practitioners to have experience with the core precepts of accounting as well as an appreciation for the principles of GAAP (Generally Accepted Accounting Principles). Professionals should also be familiar with the requirements of the Sarbanes Oxley Act of 2002.
In addition, HERON audit practitioners should have knowledge of financial statement auditing, internal controls, plus an understanding of related processes. Exposure to A-133 audits of large national not-for-profit organizations is also highly valued. Advisory partners and professionals are expected to possess knowledge of HERON driven IT and related matters/accounting processes/protocols.
Clients
KPMG audits over 225+ colleges and universities throughout the U.S. KPMG performs A-133 audits for virtually all of our Higher Education clients, as well as NFP and state and local government clients. We conduct more A-133 audits than any other professional services firm, and are surpassed by only governmental agency auditors in auditing the total grant money distributed by the federal government.
Academic medical centers are frequently a significant component of the major public and private institutions we serve, and often support a strong link to Healthcare.
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