Front-end discounts and back-end rebates in travel billing are at the heart of a previously undisclosed lawsuit pending against three of the nation's largest accounting firms.
A lawsuit filed in Arkansas in October 2001 has just now been made public, and was reported in the September 18 edition of the Wall Street Journal. The suit claims that PricewaterhouseCoopers, KPMG and Ernst & Young have charged thousands of clients much more than the actual price paid for travel expenses dating back as far as 1991.
The crux of the Arkansas suit, brought by shopping mall company Warmack-Muskogee Limited Partnership, accuses the firms of arranging for quantity discounts and rebates with airlines, rental car firms and other travel-related organizations and then not disclosing those rebates while charging their clients full price for the expenses. The suit further claims the three firms were in collusion with each other to strike even better deals with the travel industry. The defendants deny all the charges.
"The claim that anyone was defrauded is false," David Nestor, a PricewaterhouseCoopers spokesman, told the Wall Street Journal. "Clients have substantially benefited from PwC's travel program throughout the period," benefiting from PwC's buying power. He added, "the allegations of conspiracy are totally incorrect."
In separate statements, KPMG and Ernst & Young denied any wrongdoing. The defendants include Bearing Point, KPMG's former consulting practice, and Cap Gemini Ernst & Young. Several defendants stated they have taken steps to change their billing practices since the Arkansas lawsuit was filed, eliminating, for instance, end-of-year rebate programs, which made it impossible to estimate an individual client's actual savings.
The firms have already spent a significant amount of time and money defending themselves against the suit. Court papers filed last month show that PwC staff has spent 125,000 hours worth $10.3 million at stated billing rates, and KPMG estimates its costs at nearly $26 million, the Journal reported.