What started as the detection by internal auditors of accounting irregularities in health benefit expenses and reserves apparently has blossomed into a full-blown investigation and attempt to recover lost funds. As many as two additional former staff members are connected to the irregularities, company officials say.

Financial reports and net income for the previous three years may need to be restated, based on the outcome of the investigation, the company reported March 23 and 30. PBS&J reports its financial condition to the U.S. Securities and Exchange Commission because of its large number of employee shareholders. The firm reported $450.7 million in 2004 revenue, up from $389.1 million in the prior year. It is ranked 21 among ENR’s Top 500 Design Firms (ENR 4/18 p. 42).

CEO John B. Zumwalt III declines to discuss the amount allegedly misappropriated or to characterize the situation as suspected embezzlement or theft. Auditing procedures put in place to comply with the federal Sarbanes-Oxley Act uncovered the discrepancies and "we are recovering assets," he says.

In an April 4 letter to employees, Zumwalt says, "All of us have a lot of questions…including me."

According to the company’s federal filings to the SEC, the funds in question relate to its expenses for employee medical benefits, cash accounts and reserves for incurred, but not yet reported, medical claims. Medical insurance costs have been climbing rapidly and could have been used to mask irregularities, says one financial consultant. "This is extremely unusual and does not happen in our profession," he adds.

Based on the results of the internal investigation, DeLoach, a 20-year employee, resigned on March 28. He had served as PBS&J’s chief financial officer since January 2004 and previously held the positions of corporate controller, national service director of administration and executive vice president. In an interview, Zumwalt stressed that much still remains to be learned from the work of the investigating accountants and attorneys.

DeLoach could not be reached for comment. Says Zumwalt: "He was supposed to get his 20-year plaque."

BS&J, the big Miami-based designer, says auditors have discovered missing funds and that the company’s chief financial officer and treasurer, W. Scott DeLoach, has resigned.