For this discussion I wanted to bring up the company that I’ve been
researching and writing on for a while, Granite Construction, from
California. More specifically, a subdivision of the company, Heavy
Civil Group which was headed by the company’s senior vice president
Dale Swanberg. Starting in 2017, Swanberg was under pressure from
the board of Granite to turn around Heavy Civil’s lagging financial
performance, and his solution to that was manipulate Heavy’s profit
margins and improperly defer the recording of expected costs so that
he could hide the group’s deteriorating performance margins. He
improperly deferred the increased costs of labor and materials on
projects including highways, bridges, and mass transit centers that
Heavy Civil was working on to make it seem that they were bringing
in more revenues than they were. This went on until 2019 when
according to the SEC press release, “The scheme allegedly unraveled
in mid-2019 when several construction projects neared completion
and Swanberg could no longer defer recognition of the cost
increases.” (SEC, 2022). Once the fraud was brought to light, the
company’s stocks fell from almost $35.00 to $12.00 a share, and
Granite agreed to pay out around $12 million to the SEC to settle the
charges.
From everything that the press release had to say about how
Swanberg was manipulating Heavy’s profit margins I think this falls
under more than one technique. I think there was clearly delays in
recording vendor invoices so that he could continue to defer the
increased costs of operating and construction / materials. There
might also have been some use of “scrap” cost burying where he may
have lumped certain expenses together, and he might also have been
continuously asking for deferred billing from the company’s suppliers.
Resources:
Mintz, S., & Morris, R. (2020). Chapter 7: Earnings Management . In
Ethical obligations and decision-making in accounting text and cases.
essay, McGraw Hill Education.
SEC Charges Infrastructure Company Granite Construction and Former
Executive with Financial Reporting Fraud. SEC Emblem. (2022, August
25). Retrieved October 11, 2022, from
https://www.sec.gov/news/press-release/2022-150
Staff, T. B. J. (2022, August 26). SEC charges Granite Construction, ex
VP with reporting fraud. The Business Journal. Retrieved October 12,
2022, from https://thebusinessjournal.com/sec-charges-granite-
construction-ex-vp-with-reporting-fraud/
