The Securities and Exchange Commission has charged two former executives at the government contractor L3 Technologies with accounting-related violations.
The SEC’s Enforcement Division alleged that David Pruitt, a former vice president of finance at L3’s Army Sustainment Division, bypassed the company’s internal accounting controls, causing L3 to improperly recognize $17.9 million in revenue from a contract it had with the army by creating invoices that weren’t actually delivered at the time the revenue was recorded. The additional revenue allegedly allowed employees in the division to just barely satisfy an internal target at the company for management incentive bonus payments.
The SEC also alleged that Pruitt, who is a CPA, took steps on a number of occasions to hide the fact that the invoices hadn’t been delivered from L3’s corporate office and outside auditor.
A business manager at L3 emailed concerns about the procedure to a contract manager in December 2013, according to the
The email was originally reported on the blog
Pruitt’s attorney, John Carney of Baker Hostetler, disputed the SEC’s allegations. “It is highly unusual for the SEC to bring a revenue recognition case where there is no allegation of fraud and it is undisputed that the work was fully performed, the amounts were immaterial and the Company fully collected on the receivables at issue,” he said in an email to Accounting Today. “We are confident that Mr. Pruitt, a highly decorated career Army officer, will be fully vindicated at a hearing.”
The SEC has scheduled a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate in the case.
The SEC also issued a
“Executives must be held accountable when they’re actively involved in corporate wrongdoing or look the other way,” said Andrew M. Calamari, director of the SEC’s New York Regional Office, in a statement. “We allege that Pruitt circumvented critical accounting safeguards so improper revenue could be recorded to reach an internal target that enabled management to receive bonuses, and it was unreasonable for Wentlent to rely solely on Pruitt under the circumstances.”
In January, L3 paid a $1.6 million penalty to settle SEC charges against the company for the accounting failures.