FLORIDA

Office of the County Auditor 115 S Andrews Avenue Room 520 bull Fort Lauderdale Florida 33301 bull 954-357-7590 bull FAX 954-357-7592

May 12 2016

To

From

Subject

Mayor and Members Board of County Commissioners

Evan A Lukic County Auditor ~Yv-~ ePr-

Review of Overhead and Fringe Benefit Factors - Consultant Services for Port Everglades Wetland EnhancementSouthport Turning Notch Expansion - Engineering Design

In May 2015 we initiated a desk review of overhead and fringe benefit factors used to calculate the hourly billing rates under the contract between Broward County and DeRose Design Consultants Inc (DeRose) for the Port Everglades Wetlands Enhancement Southport Turning Notch Expansion Project The purpose of the review is to determine whether the overhead and fringe b~nefit factors are consistent with the Federal Acquisition Regulation (FAR) guidelines for Cost amp Pricing Data as required by the contract

Overhead and fringe benefit factors are elements of the hourly billing rates along with actual hourly salary rate and a negotiated profit According to County contracts Consultants are required to certify that their overhead and fringe benefit cost elements reflect actual costs The breakdown of overhead and fringe benefit factors shall be certified by a Certified Public Accountant The certified overhead and fringe benefit factors along with the negotiated profit are utilized to develop the contract multiplier

The purpose of this memorandum is to inform the Board of the following

DeRose submitted a summary of revised invoices through December 2014 correcting an error in their overhead rates based upon our review of the information $201918 is owed to the County

On August 21 2015 DeRose presented to the County a summary of revised invoices for the period from April 2012 to December 2014 showing $163537 owed to the County (see attachment) The revisions were necessary due to the correction of an error in their overhead rate used to develop the contract multiplier The error was discovered by DeRoses independent certified public accountant During our review of the revised invoices we noted DeRose corrected the overhead rate but then erroneously applied a

Broward County Board of County Commissioners Mark Bogen bull Beam Furr bull Dale VC Holness bull Marty Kiar bull Chip LaMarca bull Stacy Ritter bull Tim Ryan bull Barbara Sharief bull Lois Wexler

wwwbrowardorg

Exhibit 1

Mayor and Members Board of County Commissioners Consultant Services for Port Everglades Turning Notch Expansion May 12 2016

CPI adjustment1bull After correction of the CPI adjustment error we found that the amount owed to the County is actually $201918 as shown on the following table

Period

Labor billed using the

multiplier of 287

Labor corrected using a

multiplier of 262

Amount Overpaid to

De Rose Apr 2012 to Apr 2014 $1088258 $993462 $94796 May 2014 to Sep 2014 $721719 $658851 $62868 Oct 2014 to Dec 2014 $508037 $463783 $44254 Total $2318014 $2116096 $201918

County staff informed us that effective January 2015 DeRose is using the corrected multiplier of 262 for all invoices

Recommendation

We recommend that the Board direct the County Administrator to recover the overpaid amount of $201918 from DeRose As of May 10 2016 the total contract retainage is $500822

EAUdhbesa

cc Bertha Henry County Administrator Joni Armstrong Coffey County Attorney Rob Hernandez Deputy County Administrator Thomas Hutka Director Public Works Steven Cernak Chief Executive and Port Director Port Everglades Glenn Wiltshire Deputy Port Director Port Everglades

1 According to contract the CPI adjustment is applied to the maximum raw salary rates and the multiplier remains the same The CPI increase is only realized if the raw salary rates of the employees actually increase To apply a CPI adjustment to the multiplier incorrectly increases the profit percentage which was set by negotiation and the overhead and fringe benefit reimbursement rate which is based on actual past costs

2

DeRose Design Consultants Inc An AnunaM Whltne7SubsUllaiy

470SGllth Andt8I$Averlw Suite 206 ftompa110 8aadt Fl 33069 954 942 1703(Q954 942 7933(f)

wwwderoseconsultsn1ampCCm wwwaftUMIUMftlltne)ccm

August 21 2015

MrJohn Foglesona PE Director Seaport Ensfneering amp Construction Division PubtlcWorks Departmentat Port EYetaladeS 1850 ERer Drive

-co

FortLauderdale Florida 33316

Re Pott Evefllades Wedand EnhancementSouthportTurning Notch Expansion Engineering Design RU flft088460SR1

Dear Mr Fogelsonamp

We aresubmttnglerein the summary and correctlon to Invokes that were submitted between AptiJ 20Uand December 104 Exltlblt 4covers the time period Aprft 2012 through 5eptember 2014 1h1s Exhibit has two components to the eorteetlons Exhibitn covers the time period October 2014 through December 2014 This Exhibit Is for the post acquisitfon period

ftbjlJltlj

bull OUr office ls In receipt ofour revised 2011 audit (attached) on whlch our multlpller Is based This audit was prepared by an Independent audltor It Is based on our accounting records which were dlsdosed and reviewed by the auditor Inspections were conducted ofour ledgers checks~ and supporting documents based on random samplings specified by the auditors The orfafnal auditwas completed and submltted to the county back In 2012 Since that time Itwas discovered that our auditor hadmade an enor The revised audit corrects that error Thls results In the 2011 multlpfter dropping from a value of 287 down to 262 for the years 2012 and 2013 For the year 2014 we have escalated the multfpUer by the 3permitted In ourcontract The CPI durtna this period was 34 yet we are Umlted to no more than 3by contract

bull We originally started with methodsof involdna that were vls1ble to the county in the bffls and vetted by the County Theywete paid Later we reamed that our Invoices were approved ln error subsequently (as of January 1 2014) we corrected our Invoice methodology Prior Invoices were prepared based an hourtv rates Indicated In Exhibit 8 of our contract rather than utillzlna raw salaty times the multiplier So you wfll find th1s correction In the attached Elthlblt I

Eltlli

bull Our office Is In receipt of our revised 2011 audit (attached) on whlch our multiplier Is based This audit was prepared by an Independent auditor It Is based on our accounting records which were disclosed and reviewed by the audJtor Inspections were conducted of our ledgefs chedcs and supportlna documents based on random samplJnasspedfled by theauditors The orfglnal audit was completedand submitted to the Countyback In 2012 Sincethat time Itwasdiscovered that our audltorhad made an error lbe revised audit corrects that error This results In the 2011 multiplier dropping from a value of 287 down to 262 for the year 2014 For the year 2014 we have escalated the muhfpller by the 3 permitted In our contract The CPI durina this period was 34 s yet we are limited to no more than 3f by contract

Mayor and Members Board of County Commissioners Consultant Services for Port Everglades Turning Notch Expansion May 12 2016

CPI adjustment1bull After correction of the CPI adjustment error we found that the amount owed to the County is actually $201918 as shown on the following table

Period

Labor billed using the

multiplier of 287

Labor corrected using a

multiplier of 262

Amount Overpaid to

De Rose Apr 2012 to Apr 2014 $1088258 $993462 $94796 May 2014 to Sep 2014 $721719 $658851 $62868 Oct 2014 to Dec 2014 $508037 $463783 $44254 Total $2318014 $2116096 $201918

County staff informed us that effective January 2015 DeRose is using the corrected multiplier of 262 for all invoices

Recommendation

We recommend that the Board direct the County Administrator to recover the overpaid amount of $201918 from DeRose As of May 10 2016 the total contract retainage is $500822

EAUdhbesa

cc Bertha Henry County Administrator Joni Armstrong Coffey County Attorney Rob Hernandez Deputy County Administrator Thomas Hutka Director Public Works Steven Cernak Chief Executive and Port Director Port Everglades Glenn Wiltshire Deputy Port Director Port Everglades

1 According to contract the CPI adjustment is applied to the maximum raw salary rates and the multiplier remains the same The CPI increase is only realized if the raw salary rates of the employees actually increase To apply a CPI adjustment to the multiplier incorrectly increases the profit percentage which was set by negotiation and the overhead and fringe benefit reimbursement rate which is based on actual past costs

2

DeRose Design Consultants Inc An AnunaM Whltne7SubsUllaiy

470SGllth Andt8I$Averlw Suite 206 ftompa110 8aadt Fl 33069 954 942 1703(Q954 942 7933(f)

wwwderoseconsultsn1ampCCm wwwaftUMIUMftlltne)ccm

August 21 2015

MrJohn Foglesona PE Director Seaport Ensfneering amp Construction Division PubtlcWorks Departmentat Port EYetaladeS 1850 ERer Drive

-co

FortLauderdale Florida 33316

Re Pott Evefllades Wedand EnhancementSouthportTurning Notch Expansion Engineering Design RU flft088460SR1

Dear Mr Fogelsonamp

We aresubmttnglerein the summary and correctlon to Invokes that were submitted between AptiJ 20Uand December 104 Exltlblt 4covers the time period Aprft 2012 through 5eptember 2014 1h1s Exhibit has two components to the eorteetlons Exhibitn covers the time period October 2014 through December 2014 This Exhibit Is for the post acquisitfon period

ftbjlJltlj

bull OUr office ls In receipt ofour revised 2011 audit (attached) on whlch our multlpller Is based This audit was prepared by an Independent audltor It Is based on our accounting records which were dlsdosed and reviewed by the auditor Inspections were conducted ofour ledgers checks~ and supporting documents based on random samplings specified by the auditors The orfafnal auditwas completed and submltted to the county back In 2012 Since that time Itwas discovered that our auditor hadmade an enor The revised audit corrects that error Thls results In the 2011 multlpfter dropping from a value of 287 down to 262 for the years 2012 and 2013 For the year 2014 we have escalated the multfpUer by the 3permitted In ourcontract The CPI durtna this period was 34 yet we are Umlted to no more than 3by contract

bull We originally started with methodsof involdna that were vls1ble to the county in the bffls and vetted by the County Theywete paid Later we reamed that our Invoices were approved ln error subsequently (as of January 1 2014) we corrected our Invoice methodology Prior Invoices were prepared based an hourtv rates Indicated In Exhibit 8 of our contract rather than utillzlna raw salaty times the multiplier So you wfll find th1s correction In the attached Elthlblt I

Eltlli

bull Our office Is In receipt of our revised 2011 audit (attached) on whlch our multiplier Is based This audit was prepared by an Independent auditor It Is based on our accounting records which were disclosed and reviewed by the audJtor Inspections were conducted of our ledgefs chedcs and supportlna documents based on random samplJnasspedfled by theauditors The orfglnal audit was completedand submitted to the Countyback In 2012 Sincethat time Itwasdiscovered that our audltorhad made an error lbe revised audit corrects that error This results In the 2011 multiplier dropping from a value of 287 down to 262 for the year 2014 For the year 2014 we have escalated the muhfpller by the 3 permitted In our contract The CPI durina this period was 34 s yet we are limited to no more than 3f by contract

DeRose Design Consultants Inc An AnunaM Whltne7SubsUllaiy

470SGllth Andt8I$Averlw Suite 206 ftompa110 8aadt Fl 33069 954 942 1703(Q954 942 7933(f)

wwwderoseconsultsn1ampCCm wwwaftUMIUMftlltne)ccm

August 21 2015

MrJohn Foglesona PE Director Seaport Ensfneering amp Construction Division PubtlcWorks Departmentat Port EYetaladeS 1850 ERer Drive

-co

FortLauderdale Florida 33316

Re Pott Evefllades Wedand EnhancementSouthportTurning Notch Expansion Engineering Design RU flft088460SR1

Dear Mr Fogelsonamp

We aresubmttnglerein the summary and correctlon to Invokes that were submitted between AptiJ 20Uand December 104 Exltlblt 4covers the time period Aprft 2012 through 5eptember 2014 1h1s Exhibit has two components to the eorteetlons Exhibitn covers the time period October 2014 through December 2014 This Exhibit Is for the post acquisitfon period

ftbjlJltlj

bull OUr office ls In receipt ofour revised 2011 audit (attached) on whlch our multlpller Is based This audit was prepared by an Independent audltor It Is based on our accounting records which were dlsdosed and reviewed by the auditor Inspections were conducted ofour ledgers checks~ and supporting documents based on random samplings specified by the auditors The orfafnal auditwas completed and submltted to the county back In 2012 Since that time Itwas discovered that our auditor hadmade an enor The revised audit corrects that error Thls results In the 2011 multlpfter dropping from a value of 287 down to 262 for the years 2012 and 2013 For the year 2014 we have escalated the multfpUer by the 3permitted In ourcontract The CPI durtna this period was 34 yet we are Umlted to no more than 3by contract

bull We originally started with methodsof involdna that were vls1ble to the county in the bffls and vetted by the County Theywete paid Later we reamed that our Invoices were approved ln error subsequently (as of January 1 2014) we corrected our Invoice methodology Prior Invoices were prepared based an hourtv rates Indicated In Exhibit 8 of our contract rather than utillzlna raw salaty times the multiplier So you wfll find th1s correction In the attached Elthlblt I

Eltlli

bull Our office Is In receipt of our revised 2011 audit (attached) on whlch our multiplier Is based This audit was prepared by an Independent auditor It Is based on our accounting records which were disclosed and reviewed by the audJtor Inspections were conducted of our ledgefs chedcs and supportlna documents based on random samplJnasspedfled by theauditors The orfglnal audit was completedand submitted to the Countyback In 2012 Sincethat time Itwasdiscovered that our audltorhad made an error lbe revised audit corrects that error This results In the 2011 multiplier dropping from a value of 287 down to 262 for the year 2014 For the year 2014 we have escalated the muhfpller by the 3 permitted In our contract The CPI durina this period was 34 s yet we are limited to no more than 3f by contract

Port Invoice Corrections a2111s

Based now on the corrected auditmultiplier plus using raw salary actual rates we have submitted In the attachments the corrected Invoice total amounts This will add up to the credit indicated which we are prepared to apply to presently outstanding balances to correct any prior errors through to the end of year 2014

We also report that we have charged raw salary actual rates for the work done Job description may appear to exceed the Exhibit Brate limitations but we contend we are invoicing in aocordance with our contract terms Most importantly these charges do represent actual costs which Is the hallmark of our contract terms

I would Uke to add that we have In no way Intentionally overblll1d the County at any time and followed procedures as lnstruced The corrections are the consequen of t audit enor and misguidance on the application of the contract paymts terms 1

I ~ e ose PE enlor Vice President

eRose Design Consultants Inc An Ammann ampWhitney Subsidiary

cc Mr Evan luklc CPA Karl Stoaner laura Roaers Fay Francis van Jiang

DeRose Design Consultants Inc 1111 Ammann amp Whitney Subsidiary Page2

DeRose Design Consultants Inc An Ammann amp Whitney SubSidiary

4 70 South Andrews Avenue Suite 206 Pompano Beach Fl 33009 954 942 7703(l) 954 942 793311)

vwwderoseconsultantscom wwwammannmiddotwhitneycnm

Exhibit I

Invoicing for the Seaport project commenced on 4142012 At that time all were provided with a copy of the 201 J FAR Audit performed by Mayer Hoffman McCann PC An Independent CPA Finn Based on the audit invoicing began using multiplier of 287 Per the contract there is a COL multiplier escalation of 3 after the initial 2 years The increased multiplier should have been used beginning 51 14

When the County notified DcRosc Design of the accounting error the accounting firm Mayer Hoffman McCann PC bull was notified and all began working to correct the mistake We arc now in receipt of the rcmiddotised 201 I audit See below for the r0cvised corrected multipliers

Multiplier Calculations

Overhead 14015per Rebullised 2011 Audit 9 Fee per Co111ract

24015 x l09 ( 9) =2618262

3 COL adjustment per Contract

2618 x 103 (3) =26962 70

Below you will find information regarding the invoicing that was done by DeRose Design Consultants for 41420 I 2 through 43020J4 and 5l 20 J4 through 9302014 Also included below you will find the necessary adjustments to the amounts collected by DcRose Design Consultants The breakdo11s below show the aUowable 3 escalation for the period 512014 through 9302014

Accounting Period

Initial 2 Years

Eligible Rate

Increase

Dates

Start Finish

41412 43014 Oates

5114 93014

Total Multiplier bullsalary Corrected

DeRose 287 Correction 262

$108825837 $1041167 99 $95047391 ($9069408) $4922911 Total

$72171881 NA $67896892 ($4274989) $6725758 TOTALS ($13344397) $11648669

DeRose Design Consultants Inc An Ammann amp Whitney SubSidiary

4 70 South Andrews Avenue Suite 206 Pompano Beach Fl 33009 954 942 7703(l) 954 942 793311)

vwwderoseconsultantscom wwwammannmiddotwhitneycnm

Exhibit I

Invoicing for the Seaport project commenced on 4142012 At that time all were provided with a copy of the 201 J FAR Audit performed by Mayer Hoffman McCann PC An Independent CPA Finn Based on the audit invoicing began using multiplier of 287 Per the contract there is a COL multiplier escalation of 3 after the initial 2 years The increased multiplier should have been used beginning 51 14

When the County notified DcRosc Design of the accounting error the accounting firm Mayer Hoffman McCann PC bull was notified and all began working to correct the mistake We arc now in receipt of the rcmiddotised 201 I audit See below for the r0cvised corrected multipliers

Multiplier Calculations

Overhead 14015per Rebullised 2011 Audit 9 Fee per Co111ract

24015 x l09 ( 9) =2618262

3 COL adjustment per Contract

2618 x 103 (3) =26962 70

Below you will find information regarding the invoicing that was done by DeRose Design Consultants for 41420 I 2 through 43020J4 and 5l 20 J4 through 9302014 Also included below you will find the necessary adjustments to the amounts collected by DcRose Design Consultants The breakdo11s below show the aUowable 3 escalation for the period 512014 through 9302014

Accounting Period

Initial 2 Years

Eligible Rate

Increase

Dates

Start Finish

41412 43014 Oates

5114 93014

Total Multiplier bullsalary Corrected

DeRose 287 Correction 262

$108825837 $1041167 99 $95047391 ($9069408) $4922911 Total

$72171881 NA $67896892 ($4274989) $6725758 TOTALS ($13344397) $11648669

DDC submitted Invoices using a fommt and methodology established with the client and those invoices were approved and paid A self-audit was requested and done at the end of 2013 After the self-audit DcRose Design was told that the exhibit rates as listed in the contract were not to be used for billing purposes and rather moving forward DcRose Design was to use raw salary rates times the multiplier As soon as the instructions were changed beginning 112014 DeRosc Design implernenred the changed rates

Below you will find information regarding invoicing that was done by DcRose Design Consultants for the period 4142012 through 12312013 Also included below you 111 find the necessary adjustments to the amount collected hy DeRose Design Consultants as a result of the clients new instructions

DeRose DeRose Invoiced Corrected

Calendar (Exhibit (Raw Salary Invoiced Vear Start Finish Rates) X 287) Difference

~~~~~~~~~~ ~~~~

I2012 4142012 12312012 $24950369 $23261776 $1688593

2013 112013 12312013 $59892241 $56871795 $3020445

Totals $84842610 $80133571 $4709038

Please note that thismiddotamountwas deducted from the calculations in the previousmiddotchart

DeRose Design Consultants Inc An Ammann amp Whitney Subsidiary Exhibit I Page 2

(Formerly OeRose Design Consultants)

470 South AJCJrews Avenue Suite 206 Pompano Bcacn FL 33069 954 942 7703(1) 954 942 7933(1)

W1vwderosccons111tantscom WlIWam111annmiddotwl1itneycon1

Exhibit II

Ammann amp Whitney (A amp W) acquired DeRose Design Consultants September 28 2014 Beginning 1012014 A amp W submitted invoices to the County using raw salary rates and a multiplier rate of287 (accounting finns error was nol yet discovered)

Below you will find infonnation regarding invoices that were submitted by Ammann amp Whitney These invoices were approved and paid for by the County Also included below you will find the necessary adjustments to the amount collected by Ammann amp Whitney using the revised multiplier rate which is derived by using the corrected multiplier of270

Dates Total Accounting Period Start Finish AampW287

2014 10114 123114 $50803712

2015 1115 current $000

bullsalary Correction

Muitiplier Corrected

270 Invoiced

Difference

$000 $47794433 ($3009279) $4301048

$000 $000 $000 $000 TOTALS ($3009279) $4301048

Ammann amp Whitney has submitted invoices in 2015 however none of the invoices have been approved for payment Therefore there have been no payments made for work perfonned by our finn (or our subconsultants) from 112015 to date

uMultiplier Calculations

Overhead 14015per Revised 2011 Audit 9 Fee per Contract

24015 + 9 = 2618262

3 COL adjustment per Contract

2618 x 3 =26961270

(Formerly OeRose Design Consultants)

470 South AJCJrews Avenue Suite 206 Pompano Bcacn FL 33069 954 942 7703(1) 954 942 7933(1)

W1vwderosccons111tantscom WlIWam111annmiddotwl1itneycon1

Exhibit II

Ammann amp Whitney (A amp W) acquired DeRose Design Consultants September 28 2014 Beginning 1012014 A amp W submitted invoices to the County using raw salary rates and a multiplier rate of287 (accounting finns error was nol yet discovered)

Below you will find infonnation regarding invoices that were submitted by Ammann amp Whitney These invoices were approved and paid for by the County Also included below you will find the necessary adjustments to the amount collected by Ammann amp Whitney using the revised multiplier rate which is derived by using the corrected multiplier of270

Dates Total Accounting Period Start Finish AampW287

2014 10114 123114 $50803712

2015 1115 current $000

bullsalary Correction

Muitiplier Corrected

270 Invoiced

Difference

$000 $47794433 ($3009279) $4301048

$000 $000 $000 $000 TOTALS ($3009279) $4301048

Ammann amp Whitney has submitted invoices in 2015 however none of the invoices have been approved for payment Therefore there have been no payments made for work perfonned by our finn (or our subconsultants) from 112015 to date

uMultiplier Calculations

Overhead 14015per Revised 2011 Audit 9 Fee per Contract

24015 + 9 = 2618262

3 COL adjustment per Contract

2618 x 3 =26961270

~

DEROSEDESIGN CONSULTANTS iNC

STA~ENTOF ()lfECr LABOR FRING-= BENEFITS ANDG~N~lo~middotmiddot

bull Year middotended-December31 2011

I IVl ayer Hoffman Mccann PC An Independent CPA Finn

16751 tlr11tar irai F11lh Floor a Boca Raton FL 33186 r- n 561 ~94 5050 bull f middot 5131 10 0071 a lllWIV mhmcpa corn

INDEPENDENT AUDITORS REPORT

To the Board of Directors DeRose Design Consultants Inc Pompano Beach Florida

We have audited the Statement of Direct Labor Fringe Benefits and General Overhead the middot statement) of DeRose Design Consultants Inc (the middotcompany) for the year ended December 31 2011 The Statement is the responsibility of the Companys management Our responsibility is to express an opinion on the Statement based on our audit

We conducted our audit in accordance with US generally accepted auditing standards Those standards require that we plan and perform the audit to obtain reasonable assuran~ about whether the Statement is free of material misstatemenl An audit includes examining on a test basis evidence supporting the amounts and disclosures in the Statement An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall Statement presentation We believe that our audit provides a reasonable basis for our opinion

The accompanying Statement was prepared on a basis of accounting practices prescribed by Subpart 31 2 of the Federal Acquisition Regulations (FAR) and applicable sections of the Florida Statutes and is not intended to be a presentation in conformity with US generally accepted accounting principles

The Statement is subject to examination by the applicable government authorities and is subject to final determination by them Since many types of expenditures are susceptible to varying interpretation of the cost principles contained In the FAR described In Note 2 the amounts reported In the accompanying Statement may be subject to adjustment at a later date upon final determination by the respective government authorities

As discussed in Note 3 to the Statement certain expenses incurred during the year ended December 31 2011 had been misclassified as general overhead expenses Accordingly the Statement has been restated to correct this error

In our opinion the Statement referred to above presents fairly in all material respects the direct labor fringe benefits and general overhead of the Company for the year ended December 31 2011 on the basis of accounting described in Note 2

This report is intended solely for the Companys management governmental agencies and other customers with contracts employing the cost principles of the FAR and is not Intended to be and should not be used by anyone other than those specified parties

Boca Raton Florida July 31 2015

- 1 shy

DEROSE DESIGN CONSULTANTS INC

STATEMENT OF DIRECT LABOR FRINGE BENEFITS ANO GENERAL OVERHEAD

Year Ended December 31 2011

FARSection Refer8nce for Unallowabla Toti I UnaUowablo Allowable

D111e9tlon C08ta Co8ta Cotltl Costa

DIRECTLABOR $ 9811121 $ $ 991121

FRINGE BENEFRS Paldteaw PayrvQlams Nurampnce 401(k) plancontrlbampdlona

$ 84833 109870 1190l1

101462

$ $ 84633 109870 1190S1

10452

lOTALFRINGE BENEFITS $ 3231736 $ $ 323736

GENERAL OVERHEAD AulDmoblla ~nse Bank~ chargea Boob and pamplbBcdons ~ ContractleMcea Courterdlales- delwry Depntciafon-ensa Donations Duas and sWacriptons Equlpmerd renial tnawum-buslnass Interestupense ~aland accounti~ Ucenses and tall88 OIBce evppUn Payroll-office PllJIOllbull~lG Pofi11caJcontrlbldGn$ Postage 8nd deBwiy Promotion Refmtluraable permit raea Rent Prlnllno and 191tmductlon Telephone Trawland enf81181nmen UtUllea

312Q56 $ 47850 31205-20 5122

6911 37816 8291 1910 2785

31205a 23225 11492 2319

31205-6 195712 312~20 zeee 3120547 97509

9800 23168

129622 185255

31205-22 3100 2630

3120gt1 15231 1622

277010 10603 15101

31205-1446 34164 20871

$ 9570 6122

23225

1545 2666

55oae

3100

15231

12295

$ 38280

5911 37815 8291 1910 2785

11492 25319

194167

42423 9600

23156 129622 185255

2530

1522 217010

10593 15101 21859 20871

TOTAL GENERAL OVEAHEAD s 1183152 $ 127840 s 1G65312

lOTALINDIRECTCOSTS s 1389048

TOTAL INDIRECTCOST AAlE AS A PERCENTOF DIRECT LABOR 14015

See Notes to Statement of Direct Labor Frtnge Benefits and General Overhead

-2shy

DEROSE DESIGN CONSULTANTS INC

NOTES TO FINANCIAL STATEMENT

( 1 ) Nature of operations

DeRose Design Consultants Inc (the Company) commenced operations and was Incorporated In the State of Florida In 1979 The Company provides structural and civil engineering services as wen as electrical plumbing and various other professional services to clients primarily located In South Florida

( 2 ) Basta of accoyntlna and description of accounting systems

The Company prepares Its overhead schedules which support the Statementof Direct Labor Fringe Benefits and General Overhead (the bullstatemenf) on the basis of accounting practices prescribed by Subpart 312 of the Federal Acquisition Regulations and applicable sections of the Florida Statutes Accordingly the Statement Is not intended to present the results of operations of the Company in conformity with US generally accepted accounting principles

The Companys accounting system records transactions on the accrual basis of accounting Under the accrual basls of accounting revenues are recognized when earned and expenses are recognized when incurred

The Company maintains a job-order cost accounting system for the ntcotding and accumulation of costs Incurred under its contracts Each project is assfgned a job number so that costs may be segregated and accumulated

The Companys method of estimating costs for pricing purposes during the proposal process is consistent with the accumulation and reporting of costs under its job-order cost accounting system

The Company uses the Effective Rate method to account for hours worked in excess of 40 hours per week by employees who are exempt from the Falr Labor Standards Act and who are not paid for such overtime Hours worked in excess of 40 hours per week are prorated to a standard 40 hour pay period

Certain employees are eligible for overtime pay at the rate of time and one-half (premium portion) The premium portion of paid overtime is included In the General Overhead cost pool

Legal coats reported as allowable on the Statement include costs associated with claims for which the final resolution of the underlying matters had not been resolved at December 31 2011

-3shy

DEROSE DESIGN CONSULTANTS INC

NOTES TO F1NANCIAL STATEMENT

( 3 ) Restatement of previously IBBued financial atatement

The Company has restated its previously Issued Statement for the year ended December 31 2011 to reflect the correction of an error related to contract services In accordance with the basis of accounting described above Specifically the Companys management has determined that $469914 of costs previously recorded as contract services on the Statement had been misclassified and has b$en eliminated on the accompanying restated Statement Contract services as restated amounts to $8291 for the year ended December 31 2011 The effect of this restatement Is that the total Indirect cost rate as a percent of direct labor has been reduced from 18756 to 14015

( 4 ) Related partv transactions

The Company leases office space In Pompano Beach Florida from a related party under common ownership Under the terms of this lease agreement the Company pad approximately $257000 to this related party during the year ended December 31 2011 which Is Included in allowable costs In the Statement

The Company receives infonnation technology services from a related party The Company paid approximately $29000 to this related party during the year ended December 31 2011 which Is Included as allowable computer expense in the Statement

( 6 ) Conttnqancles

The Company is from time to time involved In various legal matters arising in the ordinary course of business Management beUeves that the ultimate outcome of such matters will not have a material adverse effect on the Companys operations AdditfonaOy management believes that any expenses associated with these ongoing legal matters in eXcess of Its Insurance poUcy deductible would be covered by the Companys insurance carrier Management also believes that any such out of pocket legal expenses would be classified as allowable

( 6 ) Su_bsgy~nt9e9ts

In September 2014 the stock of the Company was sold to an unrelated party

The Companys 2011 Statement Is currently being reviewed by a government agency The ultimate outcome of the review has not yet been determlned

The Company has evaluated subsequent events through July 31 2015 the date on which the restated Statement was available to be Issued other than as disclosed above management Is not aware of any events that have occurred subsequent to the statement date that would require adjustment to the Statement as resta1ed andor disclosure In the notes to the Statement

-4shy

I IVl ayer Hoffman Mccann PC An Independent CPA Finn

16751 tlr11tar irai F11lh Floor a Boca Raton FL 33186 r- n 561 ~94 5050 bull f middot 5131 10 0071 a lllWIV mhmcpa corn

INDEPENDENT AUDITORS REPORT

To the Board of Directors DeRose Design Consultants Inc Pompano Beach Florida

We have audited the Statement of Direct Labor Fringe Benefits and General Overhead the middot statement) of DeRose Design Consultants Inc (the middotcompany) for the year ended December 31 2011 The Statement is the responsibility of the Companys management Our responsibility is to express an opinion on the Statement based on our audit

We conducted our audit in accordance with US generally accepted auditing standards Those standards require that we plan and perform the audit to obtain reasonable assuran~ about whether the Statement is free of material misstatemenl An audit includes examining on a test basis evidence supporting the amounts and disclosures in the Statement An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall Statement presentation We believe that our audit provides a reasonable basis for our opinion

The accompanying Statement was prepared on a basis of accounting practices prescribed by Subpart 31 2 of the Federal Acquisition Regulations (FAR) and applicable sections of the Florida Statutes and is not intended to be a presentation in conformity with US generally accepted accounting principles

The Statement is subject to examination by the applicable government authorities and is subject to final determination by them Since many types of expenditures are susceptible to varying interpretation of the cost principles contained In the FAR described In Note 2 the amounts reported In the accompanying Statement may be subject to adjustment at a later date upon final determination by the respective government authorities

As discussed in Note 3 to the Statement certain expenses incurred during the year ended December 31 2011 had been misclassified as general overhead expenses Accordingly the Statement has been restated to correct this error

In our opinion the Statement referred to above presents fairly in all material respects the direct labor fringe benefits and general overhead of the Company for the year ended December 31 2011 on the basis of accounting described in Note 2

This report is intended solely for the Companys management governmental agencies and other customers with contracts employing the cost principles of the FAR and is not Intended to be and should not be used by anyone other than those specified parties

Boca Raton Florida July 31 2015

- 1 shy

DEROSE DESIGN CONSULTANTS INC

STATEMENT OF DIRECT LABOR FRINGE BENEFITS ANO GENERAL OVERHEAD

Year Ended December 31 2011

FARSection Refer8nce for Unallowabla Toti I UnaUowablo Allowable

D111e9tlon C08ta Co8ta Cotltl Costa

DIRECTLABOR $ 9811121 $ $ 991121

FRINGE BENEFRS Paldteaw PayrvQlams Nurampnce 401(k) plancontrlbampdlona

$ 84833 109870 1190l1

101462

$ $ 84633 109870 1190S1

10452

lOTALFRINGE BENEFITS $ 3231736 $ $ 323736

GENERAL OVERHEAD AulDmoblla ~nse Bank~ chargea Boob and pamplbBcdons ~ ContractleMcea Courterdlales- delwry Depntciafon-ensa Donations Duas and sWacriptons Equlpmerd renial tnawum-buslnass Interestupense ~aland accounti~ Ucenses and tall88 OIBce evppUn Payroll-office PllJIOllbull~lG Pofi11caJcontrlbldGn$ Postage 8nd deBwiy Promotion Refmtluraable permit raea Rent Prlnllno and 191tmductlon Telephone Trawland enf81181nmen UtUllea

312Q56 $ 47850 31205-20 5122

6911 37816 8291 1910 2785

31205a 23225 11492 2319

31205-6 195712 312~20 zeee 3120547 97509

9800 23168

129622 185255

31205-22 3100 2630

3120gt1 15231 1622

277010 10603 15101

31205-1446 34164 20871

$ 9570 6122

23225

1545 2666

55oae

3100

15231

12295

$ 38280

5911 37815 8291 1910 2785

11492 25319

194167

42423 9600

23156 129622 185255

2530

1522 217010

10593 15101 21859 20871

TOTAL GENERAL OVEAHEAD s 1183152 $ 127840 s 1G65312

lOTALINDIRECTCOSTS s 1389048

TOTAL INDIRECTCOST AAlE AS A PERCENTOF DIRECT LABOR 14015

See Notes to Statement of Direct Labor Frtnge Benefits and General Overhead

-2shy

DEROSE DESIGN CONSULTANTS INC

NOTES TO FINANCIAL STATEMENT

( 1 ) Nature of operations

DeRose Design Consultants Inc (the Company) commenced operations and was Incorporated In the State of Florida In 1979 The Company provides structural and civil engineering services as wen as electrical plumbing and various other professional services to clients primarily located In South Florida

( 2 ) Basta of accoyntlna and description of accounting systems

The Company prepares Its overhead schedules which support the Statementof Direct Labor Fringe Benefits and General Overhead (the bullstatemenf) on the basis of accounting practices prescribed by Subpart 312 of the Federal Acquisition Regulations and applicable sections of the Florida Statutes Accordingly the Statement Is not intended to present the results of operations of the Company in conformity with US generally accepted accounting principles

The Companys accounting system records transactions on the accrual basis of accounting Under the accrual basls of accounting revenues are recognized when earned and expenses are recognized when incurred

The Company maintains a job-order cost accounting system for the ntcotding and accumulation of costs Incurred under its contracts Each project is assfgned a job number so that costs may be segregated and accumulated

The Companys method of estimating costs for pricing purposes during the proposal process is consistent with the accumulation and reporting of costs under its job-order cost accounting system

The Company uses the Effective Rate method to account for hours worked in excess of 40 hours per week by employees who are exempt from the Falr Labor Standards Act and who are not paid for such overtime Hours worked in excess of 40 hours per week are prorated to a standard 40 hour pay period

Certain employees are eligible for overtime pay at the rate of time and one-half (premium portion) The premium portion of paid overtime is included In the General Overhead cost pool

Legal coats reported as allowable on the Statement include costs associated with claims for which the final resolution of the underlying matters had not been resolved at December 31 2011

-3shy

DEROSE DESIGN CONSULTANTS INC

NOTES TO F1NANCIAL STATEMENT

( 3 ) Restatement of previously IBBued financial atatement

The Company has restated its previously Issued Statement for the year ended December 31 2011 to reflect the correction of an error related to contract services In accordance with the basis of accounting described above Specifically the Companys management has determined that $469914 of costs previously recorded as contract services on the Statement had been misclassified and has b$en eliminated on the accompanying restated Statement Contract services as restated amounts to $8291 for the year ended December 31 2011 The effect of this restatement Is that the total Indirect cost rate as a percent of direct labor has been reduced from 18756 to 14015

( 4 ) Related partv transactions

The Company leases office space In Pompano Beach Florida from a related party under common ownership Under the terms of this lease agreement the Company pad approximately $257000 to this related party during the year ended December 31 2011 which Is Included in allowable costs In the Statement

The Company receives infonnation technology services from a related party The Company paid approximately $29000 to this related party during the year ended December 31 2011 which Is Included as allowable computer expense in the Statement

( 6 ) Conttnqancles

The Company is from time to time involved In various legal matters arising in the ordinary course of business Management beUeves that the ultimate outcome of such matters will not have a material adverse effect on the Companys operations AdditfonaOy management believes that any expenses associated with these ongoing legal matters in eXcess of Its Insurance poUcy deductible would be covered by the Companys insurance carrier Management also believes that any such out of pocket legal expenses would be classified as allowable

( 6 ) Su_bsgy~nt9e9ts

In September 2014 the stock of the Company was sold to an unrelated party

The Companys 2011 Statement Is currently being reviewed by a government agency The ultimate outcome of the review has not yet been determlned

The Company has evaluated subsequent events through July 31 2015 the date on which the restated Statement was available to be Issued other than as disclosed above management Is not aware of any events that have occurred subsequent to the statement date that would require adjustment to the Statement as resta1ed andor disclosure In the notes to the Statement

-4shy

DEROSE DESIGN CONSULTANTS INC

STATEMENT OF DIRECT LABOR FRINGE BENEFITS ANO GENERAL OVERHEAD

Year Ended December 31 2011

FARSection Refer8nce for Unallowabla Toti I UnaUowablo Allowable

D111e9tlon C08ta Co8ta Cotltl Costa

DIRECTLABOR $ 9811121 $ $ 991121

FRINGE BENEFRS Paldteaw PayrvQlams Nurampnce 401(k) plancontrlbampdlona

$ 84833 109870 1190l1

101462

$ $ 84633 109870 1190S1

10452

lOTALFRINGE BENEFITS $ 3231736 $ $ 323736

GENERAL OVERHEAD AulDmoblla ~nse Bank~ chargea Boob and pamplbBcdons ~ ContractleMcea Courterdlales- delwry Depntciafon-ensa Donations Duas and sWacriptons Equlpmerd renial tnawum-buslnass Interestupense ~aland accounti~ Ucenses and tall88 OIBce evppUn Payroll-office PllJIOllbull~lG Pofi11caJcontrlbldGn$ Postage 8nd deBwiy Promotion Refmtluraable permit raea Rent Prlnllno and 191tmductlon Telephone Trawland enf81181nmen UtUllea

312Q56 $ 47850 31205-20 5122

6911 37816 8291 1910 2785

31205a 23225 11492 2319

31205-6 195712 312~20 zeee 3120547 97509

9800 23168

129622 185255

31205-22 3100 2630

3120gt1 15231 1622

277010 10603 15101

31205-1446 34164 20871

$ 9570 6122

23225

1545 2666

55oae

3100

15231

12295

$ 38280

5911 37815 8291 1910 2785

11492 25319

194167

42423 9600

23156 129622 185255

2530

1522 217010

10593 15101 21859 20871

TOTAL GENERAL OVEAHEAD s 1183152 $ 127840 s 1G65312

lOTALINDIRECTCOSTS s 1389048

TOTAL INDIRECTCOST AAlE AS A PERCENTOF DIRECT LABOR 14015

See Notes to Statement of Direct Labor Frtnge Benefits and General Overhead

-2shy

DEROSE DESIGN CONSULTANTS INC

NOTES TO FINANCIAL STATEMENT

( 1 ) Nature of operations

DeRose Design Consultants Inc (the Company) commenced operations and was Incorporated In the State of Florida In 1979 The Company provides structural and civil engineering services as wen as electrical plumbing and various other professional services to clients primarily located In South Florida

( 2 ) Basta of accoyntlna and description of accounting systems

The Company prepares Its overhead schedules which support the Statementof Direct Labor Fringe Benefits and General Overhead (the bullstatemenf) on the basis of accounting practices prescribed by Subpart 312 of the Federal Acquisition Regulations and applicable sections of the Florida Statutes Accordingly the Statement Is not intended to present the results of operations of the Company in conformity with US generally accepted accounting principles

The Companys accounting system records transactions on the accrual basis of accounting Under the accrual basls of accounting revenues are recognized when earned and expenses are recognized when incurred

The Company maintains a job-order cost accounting system for the ntcotding and accumulation of costs Incurred under its contracts Each project is assfgned a job number so that costs may be segregated and accumulated

The Companys method of estimating costs for pricing purposes during the proposal process is consistent with the accumulation and reporting of costs under its job-order cost accounting system

The Company uses the Effective Rate method to account for hours worked in excess of 40 hours per week by employees who are exempt from the Falr Labor Standards Act and who are not paid for such overtime Hours worked in excess of 40 hours per week are prorated to a standard 40 hour pay period

Certain employees are eligible for overtime pay at the rate of time and one-half (premium portion) The premium portion of paid overtime is included In the General Overhead cost pool

Legal coats reported as allowable on the Statement include costs associated with claims for which the final resolution of the underlying matters had not been resolved at December 31 2011

-3shy

DEROSE DESIGN CONSULTANTS INC

NOTES TO F1NANCIAL STATEMENT

( 3 ) Restatement of previously IBBued financial atatement

The Company has restated its previously Issued Statement for the year ended December 31 2011 to reflect the correction of an error related to contract services In accordance with the basis of accounting described above Specifically the Companys management has determined that $469914 of costs previously recorded as contract services on the Statement had been misclassified and has b$en eliminated on the accompanying restated Statement Contract services as restated amounts to $8291 for the year ended December 31 2011 The effect of this restatement Is that the total Indirect cost rate as a percent of direct labor has been reduced from 18756 to 14015

( 4 ) Related partv transactions

The Company leases office space In Pompano Beach Florida from a related party under common ownership Under the terms of this lease agreement the Company pad approximately $257000 to this related party during the year ended December 31 2011 which Is Included in allowable costs In the Statement

The Company receives infonnation technology services from a related party The Company paid approximately $29000 to this related party during the year ended December 31 2011 which Is Included as allowable computer expense in the Statement

( 6 ) Conttnqancles

The Company is from time to time involved In various legal matters arising in the ordinary course of business Management beUeves that the ultimate outcome of such matters will not have a material adverse effect on the Companys operations AdditfonaOy management believes that any expenses associated with these ongoing legal matters in eXcess of Its Insurance poUcy deductible would be covered by the Companys insurance carrier Management also believes that any such out of pocket legal expenses would be classified as allowable

( 6 ) Su_bsgy~nt9e9ts

In September 2014 the stock of the Company was sold to an unrelated party

The Companys 2011 Statement Is currently being reviewed by a government agency The ultimate outcome of the review has not yet been determlned

The Company has evaluated subsequent events through July 31 2015 the date on which the restated Statement was available to be Issued other than as disclosed above management Is not aware of any events that have occurred subsequent to the statement date that would require adjustment to the Statement as resta1ed andor disclosure In the notes to the Statement

-4shy

DEROSE DESIGN CONSULTANTS INC

NOTES TO FINANCIAL STATEMENT

( 1 ) Nature of operations

DeRose Design Consultants Inc (the Company) commenced operations and was Incorporated In the State of Florida In 1979 The Company provides structural and civil engineering services as wen as electrical plumbing and various other professional services to clients primarily located In South Florida

( 2 ) Basta of accoyntlna and description of accounting systems

The Company prepares Its overhead schedules which support the Statementof Direct Labor Fringe Benefits and General Overhead (the bullstatemenf) on the basis of accounting practices prescribed by Subpart 312 of the Federal Acquisition Regulations and applicable sections of the Florida Statutes Accordingly the Statement Is not intended to present the results of operations of the Company in conformity with US generally accepted accounting principles

The Companys accounting system records transactions on the accrual basis of accounting Under the accrual basls of accounting revenues are recognized when earned and expenses are recognized when incurred

The Company maintains a job-order cost accounting system for the ntcotding and accumulation of costs Incurred under its contracts Each project is assfgned a job number so that costs may be segregated and accumulated

The Companys method of estimating costs for pricing purposes during the proposal process is consistent with the accumulation and reporting of costs under its job-order cost accounting system

The Company uses the Effective Rate method to account for hours worked in excess of 40 hours per week by employees who are exempt from the Falr Labor Standards Act and who are not paid for such overtime Hours worked in excess of 40 hours per week are prorated to a standard 40 hour pay period

Certain employees are eligible for overtime pay at the rate of time and one-half (premium portion) The premium portion of paid overtime is included In the General Overhead cost pool

Legal coats reported as allowable on the Statement include costs associated with claims for which the final resolution of the underlying matters had not been resolved at December 31 2011

-3shy

DEROSE DESIGN CONSULTANTS INC

NOTES TO F1NANCIAL STATEMENT

( 3 ) Restatement of previously IBBued financial atatement

The Company has restated its previously Issued Statement for the year ended December 31 2011 to reflect the correction of an error related to contract services In accordance with the basis of accounting described above Specifically the Companys management has determined that $469914 of costs previously recorded as contract services on the Statement had been misclassified and has b$en eliminated on the accompanying restated Statement Contract services as restated amounts to $8291 for the year ended December 31 2011 The effect of this restatement Is that the total Indirect cost rate as a percent of direct labor has been reduced from 18756 to 14015

( 4 ) Related partv transactions

The Company leases office space In Pompano Beach Florida from a related party under common ownership Under the terms of this lease agreement the Company pad approximately $257000 to this related party during the year ended December 31 2011 which Is Included in allowable costs In the Statement

The Company receives infonnation technology services from a related party The Company paid approximately $29000 to this related party during the year ended December 31 2011 which Is Included as allowable computer expense in the Statement

( 6 ) Conttnqancles

The Company is from time to time involved In various legal matters arising in the ordinary course of business Management beUeves that the ultimate outcome of such matters will not have a material adverse effect on the Companys operations AdditfonaOy management believes that any expenses associated with these ongoing legal matters in eXcess of Its Insurance poUcy deductible would be covered by the Companys insurance carrier Management also believes that any such out of pocket legal expenses would be classified as allowable

( 6 ) Su_bsgy~nt9e9ts

In September 2014 the stock of the Company was sold to an unrelated party

The Companys 2011 Statement Is currently being reviewed by a government agency The ultimate outcome of the review has not yet been determlned

The Company has evaluated subsequent events through July 31 2015 the date on which the restated Statement was available to be Issued other than as disclosed above management Is not aware of any events that have occurred subsequent to the statement date that would require adjustment to the Statement as resta1ed andor disclosure In the notes to the Statement

-4shy

DEROSE DESIGN CONSULTANTS INC

NOTES TO F1NANCIAL STATEMENT

( 3 ) Restatement of previously IBBued financial atatement

The Company has restated its previously Issued Statement for the year ended December 31 2011 to reflect the correction of an error related to contract services In accordance with the basis of accounting described above Specifically the Companys management has determined that $469914 of costs previously recorded as contract services on the Statement had been misclassified and has b$en eliminated on the accompanying restated Statement Contract services as restated amounts to $8291 for the year ended December 31 2011 The effect of this restatement Is that the total Indirect cost rate as a percent of direct labor has been reduced from 18756 to 14015

( 4 ) Related partv transactions

The Company leases office space In Pompano Beach Florida from a related party under common ownership Under the terms of this lease agreement the Company pad approximately $257000 to this related party during the year ended December 31 2011 which Is Included in allowable costs In the Statement

The Company receives infonnation technology services from a related party The Company paid approximately $29000 to this related party during the year ended December 31 2011 which Is Included as allowable computer expense in the Statement

( 6 ) Conttnqancles

The Company is from time to time involved In various legal matters arising in the ordinary course of business Management beUeves that the ultimate outcome of such matters will not have a material adverse effect on the Companys operations AdditfonaOy management believes that any expenses associated with these ongoing legal matters in eXcess of Its Insurance poUcy deductible would be covered by the Companys insurance carrier Management also believes that any such out of pocket legal expenses would be classified as allowable

( 6 ) Su_bsgy~nt9e9ts

In September 2014 the stock of the Company was sold to an unrelated party

The Companys 2011 Statement Is currently being reviewed by a government agency The ultimate outcome of the review has not yet been determlned

The Company has evaluated subsequent events through July 31 2015 the date on which the restated Statement was available to be Issued other than as disclosed above management Is not aware of any events that have occurred subsequent to the statement date that would require adjustment to the Statement as resta1ed andor disclosure In the notes to the Statement

-4shy