Nearly two years after Tampa-based engineer The PBSJ Corp. uncovered a high-level internal embezzling ring that inflated overhead on public-sector projects, the firm is repaying clients, elevating fiscal and ethical controls and reappraising its numbers. Industry firms are taking note, particularly as the U.S. Transportation Dept. studies contractor billing methods.

The U.S. Justice Dept. announced a Jan. 24 settlement with PBSJ in which the firm pays $6.4 million to reimburse federal clients, including the transportation, defense and homeland security agencies. It resolves “false claims” allegations stemming from the 13-year embezzlement scheme the company itself only discovered in 2005. The $36.6-million scheme’s key perpetrators, PBSJ’s former chief financial officer W. Scott DeLoach and two subordinates, pleaded guilty to federal conspiracy and fraud charges and are to be sentenced Feb. 16 in Miami.

Zumwalt

PBSJ seeks to recover funds from some of the ex-employees’ friends and relatives, but a federal probe related to employee political contributions continues, says Chairman John B. Zumwalt. “We expect a favorable conclusion to that,” he says.

The firm is repaying other public clients, settling with transportation departments in Texas and Florida for $5.5 million and $12.5 million, respectively. TexDOT suspended PBSJ last year, but Zumwalt says the firm has won new work.

“They were very up front with us when they knew they had that issue,” says Kevin Thibault, Florida DOT assistant secretary for engineering and operations. “We never had any issues with their performance in the engineering realm. It was always a behind-the-scenes thing.”  

The firm has a record $480-million backlog, Zumwalt says. But in a Jan. 29 U.S. Securities and Exchange Commission filing, it restated financials for past fiscal years. The filing was required because of privately held PBSJ’s employee shareholder size. Restated firm revenue totaled $448.3 million in fiscal 2004, down $3 million from before. New net income is $14.7 million, down about $3.6 million. Fiscal 2006 revisions are due out shortly. “Our books are probably the most cleansed in the nation,” Zumwalt says.

PBSJ’s rapid growth in the late 1990s and early 2000s was a factor in oversight lapses. “Controls didn’t keep up,” Zumwalt says. PBSJ is tightening business procedures, moving key financial executives to its new Tampa headquarters and expanding ethics oversight. It has hired Ernst & Young to implement Sarbanes-Oxley Act controls. New accounting and management controls will be in place by this summer, he adds.

“Whenever you have a case like this, it’s a wake-up call,” says John Horseley, executive director of the American Association of State Highway and Transportation Officials. “DOTs and executives are taking this seriously.”

A review by the federal Transportation Dept.’s inspector general of federal contractor overhead could be ready by May. An AASHTO official says early drafts “indicate states and DOT need to step up the degree of oversight, but nothing suggests a massive problem out there.”

Other firms are paying attention. Kleinfelder Inc. created an independent auditor position that does not report to its CFO, says CEO Gerald Salontai. “This could happen to any firm in any industry,” he says.