A Texas-based engineering and construction company agreed to pay $14.5 million to settle allegations by the Securities and Exchange Commission that accounting deficiencies led to restatements on nearly three years of financial statements filed with the SEC.
Fluor Corp. agreed to cease and desist from further violations in reaching settlement, the SEC announced in a press release Wednesday. Five former and current Fluor officers and employees also settled with the agency and will pay penalties ranging from $15,000 to $25,000.
The details: Between 2016 and 2019, Fluor failed to sufficiently maintain internal controls to account for two project bids that used “overly optimistic cost and timing estimates and subsequently experienced cost overruns that worsened over time,” the SEC alleged.
The company’s internal control over financial reporting (ICFR) was insufficient in accordance with the percentage of completion accounting method under generally accepted accounting principles, the SEC said.
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, according to the agency’s order.
“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,” the SEC said.
Prompted by an SEC investigation, Fluor launched an internal probe in 2020 that identified material weaknesses in its ICFR and material errors in its financial statements. As a result, the company restated its annual and quarterly financial statements for fiscal year 2016 through the third quarter of 2019. The restatements resolved overstatements of annual net earnings from 2016-18; understatement of net losses in the first quarter of 2019; and delayed recognition of losses for two quarters, resulting in an overstatement in the second quarter of 2018.
The five individuals fined by the SEC were found to have caused Fluor’s alleged violations. Those penalties included:
- James Brittain, a former Fluor business-line president, who will pay $25,000;
- Bradley Scott, a current Fluor business-line chief financial officer, who will pay $25,000;
- Kent Smith, a former Fluor business-line senior vice president, who will pay $20,000;
- Robin Chopra, Fluor’s former chief accounting officer and controller, who will pay $15,000; and
- Jon Eric Best, a former Fluor business-line CFO, who will pay $15,000.
Compliance considerations: The SEC acknowledged Fluor’s remedial acts and cooperation, which included agreeing to be interviewed by agency staff, among other undertakings.
Company response: Fluor in a statement noted it established a reserve to fund the settlement last year, expects no material earnings effect for this year, and that the Department of Justice ended its investigation into the company.
“The company and the board of directors are pleased to put the investigation behind us,” said David Constable, Fluor chairman and chief executive. “The SEC investigation concerned accounting errors on legacy risk projects and associated internal controls weaknesses that were remedied … in September 2020. Since that time, Fluor now has a refreshed board and a new management team that is driving a balanced risk profile and healthy backlog.”