|Todd J. Kenner has been president of PBS&J since Feb., 2005, about the time the alleged fraud was disclosed. (Photo courtesy PBS&J)|
Tampa-based PBS&J is engaged in a costly effort to repay about 12 to 15 state departments of transportation for reimbursed overhead costs that were inflated as part of an alleged embezzlement scheme run by the company’s former chief financial officer.
The amount allegedly embezzled by the former CFO, W. Scott DeLoach, and two subordinates from 2000 to 20005 came to $36 million in PBS&J funds, the company has said. The amount that eventually will be returned to state DOTs may be in the millions but has not yet been finalized, says Todd J. Kenner, PBS&J president.
The three employees allegedly inflated many different types of expenses at the company’s former corporate office in Miami.
DeLoach and two other PBS&J employees resigned last year when questions about employee health expenses and company reserves surfaced (ENR 4/25/05). Auditing procedures in place to comply with the federal Sarbanes-Oxley Act uncovered the discrepancies. PBS&J, though privately held, files financial reports with the Securities and Exchange Commission due to the high number of company shareholders.
The three ex-employees are currently negotiating a plea deal with Justice Department officials over criminal charges, say sources. PBS&J, meanwhile, recently vowed to repay clients the overstated costs, including Nevada, Georgia, Florida, and Texas. The allocations will be made in lump-sum payouts as soon as possible, Kenner says. PBS&J had $520 million in revenue in the fiscal year ending Sept. 30, 2005, a 15% gain from the prior fiscal year. The Miami-based firm will also restate its financial statements from 2000-06.
PBS&J has made several internal business changes since last March when accounting irregularities prompted a 15-month internal investigation. The 3,900-employee company has since implemented a new enterprise system, named C. Lee Essrig as chief ethics and compliance officer, and hired Donald J. Vrana as its new CFO.
But the damage may be already done.
“It has put some of our clients in a position they would rather not be in,” says Kenner, a registered civil engineer, who became company president a few weeks before the embezzlement was discovered.
On May 25, 2006, TxDOT suspended the company from performing new services. PBS&J is the general engineer for the $2.5-billion, 66-mile Central Texas Turnpike Project in Austin. TxDOT work accounted for $43-million or 8% of the company's total revenue in 2005. And while it won't impact 40 current TxDOT jobs, a “prolonged suspension would have a material adverse effect on the company,” PBS&J said in an SEC filing.
In Nevada, PBS&J is serving as co-designer of the $94.8 million, 2-mile widening of U.S. Highway 95 in northwest Las Vegas. It’s the state's largest road project to date. PBS&J recorded $40-million in Nevada revenue since 2001. ‘They have been responsive,” says NDOT Director Jeff Fontaine. “They've said they would make us whole.”
PBS&J has one overhead rate covering all direct project and indirect related services, says Kenner. When the company’s expenses were inflated and some unallowable expenses were built into its overhead, PBS&J’s overhead rate dropped, so the amount we should have been billing was overstated, he says. “So we started going over every invoice and contract performed with [state DOTs] and working with their staff and determining the amount of overpayment,” Kenner says.
ENR was unable to reach DeLoach for comment. PBS&J has not identified the two alleged subordinates involved.
According to Kenner, PBS&J has identified assets in the form of homes, jewelry, bank accounts and automobiles that will be claimed as restitution for the stolen funds.
Although the amount allegedly stolen is large, Kenner notes that the company had revenues of over $1 billion during the five-year period of the fraud, so that it is a comparatively small amount overall.
Of great concern is the expense and effort involved in determining what is owed to the various DOTs, a painstaking process involving review of every invoice, says Kenner.
Several longtime employees of the company have said that they have deep feelings of shock and betrayal over such a trusted colleague’s alleged fraud. 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.
“I knew Scott,” says one. “It’s astounding.”
Says Kenner: “We are facing a misappropriation of funds by … three ‘morally bankrupt’ individuals.”
Several PBS&J employees also say that competitors are doing all that they can to publicize the trouble.