SEC Charges Fluor Corp. for Accounting Improprieties

The Securities and Exchange Commission (SEC) has announced that Fluor Corporation, based in Irving, Texas, will pay $14.5 million to settle charges related to improper accounting practices on two major fixed-price construction projects. Additionally, five former and current officers and employees of Fluor have agreed to settle related charges for their role in causing these violations.

The individuals settling charges for causing Fluor’s violations are Bradley R. Scott (current Fluor business-line CFO), Robin K. Chopra (former Chief Accounting Officer and Controller at Fluor), James F. Brittain (former Fluor business-line president), Jon Eric Best (former Fluor business-line CFO), and Kent N. Smith (former Fluor business-line senior vice president).

The SEC’s investigation found that Fluor bid on the two projects with overly optimistic cost and timing estimates and faced cost overruns that escalated over time. Furthermore, Fluor failed to maintain adequate internal controls to account for the projects in line with the percentage of completion accounting method under U.S. generally accepted accounting principles (GAAP). The SEC’s order revealed that Fluor omitted some expected costs from each project’s forecasts, thereby delaying the recognition of losses. Additionally, Fluor improperly included revenue from unapproved change orders in the forecasts of one of the projects, including change orders not yet submitted or already rejected by the customer.

These accounting errors caused Fluor to materially overstate its net earnings by as much as 37% from fiscal year 2016 through the first quarter of fiscal year 2019 for one project and by 22% in the second quarter of 2018 for the other project. Consequently, Fluor materially misrepresented its financial statements in its periodic filings with the SEC during these periods.

The SEC stressed the importance of accurate estimates and internal accounting controls for percentage of completion accounting and reiterated its commitment to holding companies and individuals accountable for control failures and resulting recordkeeping and reporting violations.

In 2020, Fluor restated its financial statements for fiscal years 2016 through 2018 and several quarters ending in September 2019, correcting the overstated net earnings due to accounting errors on the two projects. Fluor also disclosed material weaknesses in its internal control over financial reporting and errors in its financial statements linked to these projects.

Without admitting or denying the SEC’s findings, Fluor consented to a cease-and-desist order and agreed to pay a $14.5 million civil penalty. Similarly, without admitting or denying the SEC’s findings, Scott, Chopra, Brittain, Best, and Smith consented to cease and desist orders and agreed to pay penalties ranging from $15,000 to $25,000.