Washington D.C., Sept. 6, 2023 —
The Securities and Exchange Commission today announced that Irving, Texas-based Fluor Corporation will pay $14.5 million to settle charges stemming from the company’s improper accounting on two large-scale, fixed-price construction projects. Five former and current officers and employees also agreed to settle related charges for causing Fluor’s violations.
The five former and current Fluor officers and employees who agreed to settle charges for causing Fluor’s violations are: Bradley R. Scott, a current Fluor business-line CFO, Robin K. Chopra, Fluor’s former Chief Accounting Officer and Controller; James F. Brittain, a former Fluor business-line president; Jon Eric Best, a former Fluor business-line CFO; and Kent N. Smith, a former Fluor business-line senior vice president.
The SEC’s order found that Fluor, a global engineering, procurement, and construction company, bid on the two projects relying on overly optimistic cost and timing estimates and subsequently experienced cost overruns that worsened over time. Fluor then failed to sufficiently maintain internal controls to account for the projects in accordance with the percentage of completion accounting method under U.S. generally accepted accounting principles (GAAP). According to the SEC’s order, Fluor failed to include all anticipated costs that were known or should have been known in each project’s respective forecasts—thereby delaying loss recognition on each. Additionally, Fluor improperly incorporated revenue from unapproved change orders in the forecasts of one of the projects, including change orders that had not yet been submitted to, or had already been rejected by, the customer.
According to the SEC’s order, the accounting errors on one project caused Fluor to materially overstate its net earnings by as much as 37 percent from the company’s fiscal year 2016 through the first quarter of its fiscal year 2019. In addition, the delayed loss recognition on the second project caused Fluor to overstate its net earnings by 22 percent in the second quarter of 2018. As a result, Fluor materially misstated the financial statements included in its periodic filings with the Commission for the corresponding reporting periods.
“Dependable estimates and the internal accounting controls that facilitate them are the backbone of percentage of completion accounting and are critical to the accuracy of the financial statements that investors rely on,” said Carolyn Welshhans, Associate Director in the Division of Enforcement. “We will continue to hold companies and individuals accountable for serious controls failures and resulting recordkeeping and reporting violations.”
In 2020, Fluor restated its financial statements for fiscal years 2016 through 2018 and the quarters ending March 31, 2018, through Sept. 30, 2019, correcting the materially overstated net earnings as a result of the accounting errors on the two projects. Fluor also disclosed that it had identified material weaknesses in its internal control over financial reporting and material errors in its financial statements related to the projects.
Without admitting or denying the SEC’s findings, Fluor consented to cease and desist from committing or causing future violations and to pay a civil money penalty of $14.5 million. Per the order, Fluor’s remedial acts and cooperation factored into the SEC’s settlement decision. Similarly, without admitting or denying the SEC’s findings, Scott, Chopra, Brittain, Best, and Smith consented to cease and desist from committing or causing the relevant violations and to pay penalties ranging from $15,000 to $25,000.
The SEC’s investigation was conducted by Sarah Hall, Benjamin Perlman, Margaret W. Smith, and accountants Michael J. Hoess and Jamie Wohlert, with assistance from analyst Yongping Zheng, under the supervision of Nina B. Finston and Ms. Welshhans. The Trial Unit’s Matthew Scarlato also assisted in the investigation, under the supervision of James Carlson and James Connor.