Fluor Corp. to Pay $14.5 Million Settlement to SEC for Accounting Improprieties

The U.S. Securities and Exchange Commission (SEC) has announced that Fluor Corporation, headquartered in Irving, Texas, will pay a substantial settlement of $14.5 million to resolve charges stemming from alleged improper accounting practices related to two significant fixed-price construction projects. Additionally, five former and current officers and employees of Fluor have agreed to settle related charges for their roles in causing the company's accounting violations.

The individuals who have agreed to settle charges related to the accounting improprieties at Fluor are Bradley R. Scott, currently serving as Fluor's business-line Chief Financial Officer (CFO); Robin K. Chopra, former Chief Accounting Officer and Controller at Fluor; James F. Brittain, a former president of a Fluor business-line; Jon Eric Best, a former business-line CFO at Fluor; and Kent N. Smith, a former senior vice president of a Fluor business-line.

The SEC's investigation revealed that Fluor, a global leader in engineering, procurement, and construction, had submitted bids for the two construction projects based on overly optimistic cost and timing estimates. Subsequently, the company faced significant cost overruns on these projects, which continued to escalate over time. Crucially, Fluor was found to have inadequately maintained internal controls necessary for accurate accounting of the projects, specifically under the percentage of completion accounting method as per U.S. generally accepted accounting principles (GAAP).

According to the SEC's findings, Fluor failed to include all foreseeable costs in the forecasts for each project, thereby delaying the recognition of losses. Furthermore, the company improperly incorporated revenue from unapproved change orders into one of the project's forecasts, including change orders that had either not been submitted to or had been rejected by the customer.

The accounting errors on one of the projects led to a material overstatement of Fluor's net earnings, with the overstatement reaching as high as 37 percent from fiscal year 2016 through the first quarter of fiscal year 2019. Similarly, delayed recognition of losses on the second project resulted in an overstatement of net earnings by 22 percent in the second quarter of 2018. These inaccuracies in financial reporting led to substantial misstatements in Fluor's periodic filings with the SEC 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," noted Carolyn Welshhans, Associate Director in the Division of Enforcement at the SEC. "We will continue to hold companies and individuals accountable for serious controls failures and resulting recordkeeping and reporting violations."

In 2020, Fluor undertook corrective measures by restating its financial statements for fiscal years 2016 through 2018 and for the quarters ending March 31, 2018, through September 30, 2019. This corrected the materially overstated net earnings resulting from the accounting irregularities in the two projects. Fluor also disclosed the identification of material weaknesses in its internal control over financial reporting and material errors in its financial statements associated with these projects.

Fluor, without admitting or denying the SEC's findings, has consented to cease and desist from committing or causing future violations and to pay a civil money penalty of $14.5 million as part of the settlement. In a similar manner, the five individuals—Scott, Chopra, Brittain, Best, and Smith—have consented, without admitting or denying the SEC's findings, to cease and desist from committing or causing relevant violations and to pay penalties ranging from $15,000 to $25,000.

This settlement underscores the SEC's commitment to upholding the integrity of financial reporting and ensuring that companies adhere to accounting standards and internal controls. It serves as a reminder to companies and their executives of the importance of maintaining transparent and accurate financial reporting practices.