KPMG Pulls AI Report Riddled With Fabricated Citations and Hallucinations

Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! David Leary: [00:00:04] State Farm this week announced that they're forcing all 19,000 plus agents to sign new contracts by 2027. So they're just ripping the band aid off, and they're going to tie their pay to AI outcomes, or they have to quit you either you either get on board or you have to quit coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:30] Hey everyone, and welcome back to the show. This is your weekly roundup of news in the profession. I'm Blake Oliver. David Leary: [00:00:37] And I'm David Leary. Blake Oliver: [00:00:38] And we've got our lead story today about KPMG's AI report that is full of vibe citations. That's a new phrase for me. We'll dig into that and more in this episode. But David, first, let's thank our sponsors. David Leary: [00:00:53] Here, our sponsors this week, we have Canopy Value Builder systems on pay and star search. Blake Oliver: [00:01:00] Let me ask you something. How much of your day is actually spent doing accounting? If you're like most firm owners, 30 to 40% of your time is eaten alive by the work around the work. We're talking, chasing client documents, drafting the exact same emails over and over again, manual filing, and trying to remember what a client said on a call last Tuesday. It's an administrative tax and it's killing your profitability. That's where canopy comes in. Canopy actually delivers on the all in one practice management promise. It handles everything from proposal to payment and all the steps in between smart client intake, tax workflows, month end, close automation and billing are all in one unified platform. No more duct taping ten different apps together. Plus, they have Canopy Coworker. It's a secure AI assistant that lives right inside the platform and actually does real work. It drafts context to where emails, summarizes client histories, take some eating notes and turns them into tasks automatically. Early access firms are already seeing what's possible when AI works inside your workflow instead of alongside it. To see what a truly modern automated practice looks like, head over to The Accounting Podcast dot promo slash canopy. That is The Accounting Podcast dot promo forward slash CANOPY, and that's a great lead in to our lead story about this KPMG report, David. We both spotted this and, uh, it's like another one, another, another Big Four report that is is full of citations that just are not real or are uh, uh, misidentified or all sorts of stuff. So what's going on here? David Leary: [00:02:43] And this has happened now so many times that I asked you if we already talked about this story, but no, it's another new story. It's another new incident. So KPMG just had to pull a major AI report after getting caught with completely fabricated case studies, all the victim of AI hallucinations. So big name organizations like UBS, NHS, Greater Manchester, Transport of London all claim that all the claims about their AI usage were completely false or misleading. Blake Oliver: [00:03:10] This is a 2025 report titled Total Experience Redefining Excellence in the Age of Agentic AI. David Leary: [00:03:19] And this is, you know, a month after we had this happen with E. And then I think Deloitte had some stuff maybe a month ago. It's just we have to create a database and just track these because the big four just keeps doing it over and over and over again. Um, and the ironic part of this whole thing is, you know, KPMG, just like Deloitte has an AI marketing page with an article on it that says essential elements of responsible AI, how solid guardrails can help you scale AI faster. Like they're, they're marketing themselves as the AI experts. The only way I could think this could work is now Big Four can go to fortune 500 and be like, look, we know all the mistakes that can be made. Now listen to us. Hire us because we keep screwing up so we know what to do or not to do. Blake Oliver: [00:04:01] This was detected by a platform called GPT zero, which is designed to detect whether text was written by a human or generated by an AI model, such as ChatGPT or Claude or Gemini, and it was originally developed to help educators maintain academic integrity. But it's grown into a broader toolkit used by journalists and enterprise teams and investigators to audit content for authenticity and factual accuracy. And they put out a report on their website about this KPMG report, and they found 45 citations that only five of which were accurate. 28 of the citations pointed loosely to real sources, but included altered or fabricated components. 12 citations were too vague or flawed to verify confidently, and at least 16 of those citations qualify as hallucinations under GPT Zero's methodology. It's hallucination check tool rated the report 89% flawed. The company also said that many of the report's underlying claims appear false, exaggerated or misattributed, especially where the report describes companies using Agentic AI and customer experience settings. So these are examples of Agentic AI that were hallucinated, and some of the examples are interesting. Kpmg described an Austrian utility, Verbund, as using AI agents for real time household energy optimization, including smart appliances and EV charging. But the cited source is a press release about Verbund venture arm, investing in a startup working on energy optimization. And so the report conflates the investor and the startup while adding unsupported details about agentic, AI and household level use cases. And there's just many, many more of these examples. The report incorrectly claimed that the airline Emirates, had a mobile chatbot named Sarah that could converse with passengers and change flights, but Sarah was actually introduced as a robot assistant in 2023 and did not have the flight change capability described. Another example is the report says that East Japan Railway was using AI agents for travel recommendations and disruption prediction back in 2019. But that's impossible, because this press release that was cited predates the commercial emergence of Agentic AI and doesn't mention Covid. David Leary: [00:06:30] I mean, that's before Covid even. Yeah. Blake Oliver: [00:06:31] Yeah. So, uh, another great case study. Another example of why you need a human in the loop and you need to verify, uh, what the AI is generating for you and not just push it out to clients or to the world. David Leary: [00:06:46] Well, especially if you're going to claim to be the expert on AI and train people. One of the things kind of related to this, I noticed, you know, how we, we, we shifted our spend on AI to cloud and we kind of shut down our subscription to open AI. Well, I've still been using open AI, but now I'm getting ads. Guess who my ads are from. Pwc offering me like AI expertise to implement AI. Like the these big firms are just like, you can't play off. You're the expert and then make mistakes like this. It's not going to work long term. Blake Oliver: [00:07:18] Since we're talking about AI, let's do a follow up to a previous story we've discussed that now includes AI. And this is the Pentagon's inability to pass an audit. Well, the Pentagon is turning to AI to help it do so ahead of the 2028 deadline that the government has set. They've awarded a nearly $49 million contract to Groundswell Corp. for an artificial intelligence based platform called Agentic Auditor. It runs through 2023. No. 2031. And it's going to help the Army, Navy, Air Force and other Defense Department agencies with data collection and audit preparation. The Defense Department is the only federal agency that has never received an unmodified financial audit, according to the Government Accountability Office. David Leary: [00:08:09] Did it say how much they're paying for this? Blake Oliver: [00:08:11] $49 million. David Leary: [00:08:13] 40 million. So basically, they went and signed another contract for $50 million to track their other millions and millions and millions of dollars of contracts. Blake Oliver: [00:08:21] Billions and billions and. David Leary: [00:08:22] Billions of. Blake Oliver: [00:08:22] Contracts. What is it? The Defense Department budget is now like a trillion. David Leary: [00:08:26] I think it's somewhere in there. Blake Oliver: [00:08:27] Yeah, something like that. So let's hope that it works. More AI news. Copilot co work is now generally available from Microsoft. This is well I haven't seen it myself but it appears to be Microsoft's version of cloud Co-work. So more than a chatbot, it can run complex, multi-step tasks from start to finish and give you the finished result, not just a draft. More than half of the fortune 500 have now used it since it was in a three month preview. And so if you have not yet used cloud Co-work because you're limited in what you can use in your firm or in your company, check out copilot Co-work. David Leary: [00:09:12] They're saying probably most accounting firms are in the office, 365 stack in the Microsoft stack. You probably have people in your firm using it right now. If you or you probably have it installed in your computer right now. Blake Oliver: [00:09:24] They also say it's cheaper than cloud Co-work. 30 to 40% cheaper on average per prompt. And that's based on Microsoft's own internal analysis of 125 test runs across 12 prompts. It's available in Microsoft 365 copilot user subscription license. So if you've got that, you should now have access to it. It's billed based on usage and the the price is going to depend for each task on the model, the context amount, the tool calls the runtime, that sort of thing. So this is great news because cloud has blown away the finance community, as we've talked about on previous episodes. And I've actually got an example that I'd love to share with you about some write