The Treasury Department is simultaneously investigating KPMG’s tax shelter practice while hiring the firm to audit its own consolidated financial statements.

Senate Finance Committee Chairman Charles E. Grassley, R-Iowa, was angered at the news, according to the Washington Post. He said Treasury is undercutting its own tax probe by awarding KPMG the contract to examine the books of Treasury’s 12 bureaus, which account for $6.9 trillion in assets and would be KPMG’s biggest audit ever.

"What signal does it send when the government is hauling one of the big accounting firms into the grand jury room over tax fraud while handing that same company millions of dollars in taxpayer-funded contracts?" Grassley asked.

Treasury Department spokesman Robert S. Nichols said the agency's independent inspector general picked KPMG. With 70 percent of the inspector general’s resources moved to the Department of Homeland Security, the office decided to seek private bids for the work.

"On the issue of tax shelters, let me affirm that the Bush administration has taken aggressive action to address the abusive tax shelter problem, more so than in any period in recent memory," he said.

KPMG said that it would not be auditing the books of the IRS, which has repeatedly demanded that the firm release the names of clients who use its tax shelters. The General Accounting Office, by statute, must conduct the IRS audit. Also, KPMG spokesman George Ledwith said that none of the firm’s employees involved in the federal investigation will be working on the Treasury audit.

The Senate Finance Committee pointed to the KPMG contract as one example of federal agencies overlooking tax abuses. The committee claims the Transportation Department has encouraged abusive leasing arrangements, the Patent and Trademark Office has issued patents for tax shelters and the Interior Department has engaged in inflating land swaps. The committee has set hearings for Wednesday on federal efforts to collect taxes owed.

"If we could just get federal agencies not to work at cross purposes, it would go a long way toward ensuring everybody pays their fair share of taxes," Grassley said. "The IRS's job would be a lot easier if other government agencies were part of the solution, not part of the problem."