October 22, 2014

Engineering

Culture of Trust

Rocked by a $36-million embezzlement scheme, PBS&J finds the same corporate culture that got it into trouble may help it weather the storm.

Cynthia Barnett | 3/1/2007


When internal auditor Melissa Eubanks couldn't get a satisfactory answer about a bank reconciliation of $804,223, she notified the company's audit committee.
Photo:
Gregg Matthews

Fessing up

The generosity ended after the employee-owned company began a voluntary effort to comply with the 2002 Sarbanes-Oxley Act, the federal law passed in response to major corporate and accounting scandals such as Enron and WorldCom. The act, which only public companies must follow, requires among other measures a corporate audit committee with independent members and internal audit personnel.

PBS&J's internal auditor was 35-year-old Melissa Eubanks. In January 2005, she couldn't get a satisfactory answer about a bank reconciliation of $804,223. The reconciliation noted, "less check voided to wrong bank code."

Eubanks went to the audit committee, which hired a team of securities lawyers from Holland & Knight. They in turn brought in forensic auditors, who found significant differences between original bank statements and the statements that DeLoach and the others had put in PBS&J's files.

Part of the fraud was decidedly low-tech: Using white correction fluid, someone had wiped thousands of dollars off statements with a few brushstrokes -- in one instance, $52,362.86 became $362.86. "This was not a complicated scheme at all," says Bragg.

As soon as he knew a forensic audit was under way, a remorseful DeLoach fessed up. He brought his lawyer, Jane Moscowitz, to work, admitted everything and turned over all his assets, including his homestead residence, 401(k) and marital assets. "It's the most extraordinary remorse I've seen in 30 years of practice," says Moscowitz. "He was in way, way over his head for his job." DeLoach, Garcia and Licata pleaded guilty to mail fraud in a deal with prosecutors and were to be sentenced last month.

Zumwalt decided to immediately disclose everything -- to the SEC, PBS&J's employee-shareholders and clients, including the two largest, the Florida and Texas transportation departments. "From day one, I made the decision that we would be totally transparent with everyone," says Zumwalt. PBS&J retained Holland & Knight and two top accounting firms for an internal investigation that took nearly two years. Financial sleuths pored over company records, investigated employees and scoured hard drives to determine the extent of the fraud and make sure it was limited to three people. Rod Bell, head of H&K's securities group in south Florida, says he's confident the scheme stopped with DeLoach, Garcia and Licata.

The cost to figure out the fraud and to calculate how much PBS&J owes its clients has reached $20 million, Zumwalt says.

The scandal also cost PBS&J a significant amount of business. The company was suspended by the Texas transportation department and voluntarily stopped pursuing Florida DOT jobs as the agencies conducted their own investigations. Lowell R. Clary, assistant secretary for finance and administration at Florida's DOT, says the agency pegged its loss at $12 million. PBS&J has repaid in full and is back in business with DOT, where it is program manager to five of the eight districts.

Other Florida governments overbilled included the Orlando-Orange County Expressway Authority and Orange and Polk counties. The company has either repaid or is in the process of repaying those agencies. In January, it paid $6.4 million to the U.S. Department of Justice to resolve overstated overhead rates on hundreds of contracts with more than a dozen federal agencies.

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