Defalcation, Misappropriation and Similar Irregularities (Fraud)

KBR, Inc. and Subsidiary Companies
Corporate Policy

Date: November 10, 2006
Index No.: 3-0015

Purpose:

This Policy establishes and communicates the Company's policy regarding the prohibition, recognition, reporting and investigation of suspected fraud, defalcation, misappropriation and other similar irregularities.

Definitions:

The term "Fraud" as used in this Policy includes, but is not limited to, defalcation, misappropriation and other irregularities including such things as any:

  • dishonest or fraudulent act;

  • defalcation;

  • embezzlement;

  • forgery or alteration of negotiable instruments such as Company checks and drafts;

  • misappropriation of Company, Employee, customer, partner or supplier assets;

  • conversion to personal use of cash, securities, supplies or any other Company asset;

  • unauthorized handling or reporting of Company transactions; and

  • falsification of Company records or financial statements for personal or other reasons.

The above list is not all-inclusive but is intended to be representative of situations involving fraud. Fraud may be perpetrated not only by Company Employees, but by agents and other outside parties as well. All such situations require specific action by the Company.

Policy:

  1. The Company prohibits all Fraud.

  2. Directors and Employees are obligated to protect the Company's assets and ensure their efficient use. The theft, carelessness and waste of Company assets by Employees and Directors are prohibited since such actions and conduct have a direct and negative impact on the Company's profitability. All Company assets shall only be used for the legitimate business purposes of the Company.

  3. The responsibility for detecting Fraud in the Company is that of management. The Chief Financial Officer bears the primary responsibility.

  4. Situations involving suspected Fraud shall be reported to the Audit Services Department, the Security Department, the Chief Financial Officer or the Law Department. All Fraud investigations will be conducted under the authorization and direction of the Law Department.

  5. The Company's Director-Audit Services shall be notified of suspected significant Fraud (more than $50,000 of estimated loss), and any Fraud, whether material or not, that involves management or other employees who have a significant role in the Company's internal controls. The Company's Director-Audit Services shall notify the Chief Executive Officer, the Chief Financial Officer and Audit Committee of any suspected Fraud involving management or other employees who have a significant role in the Company's internal controls and shall also notify the Audit Committee if it appears that there is any substance to the alleged Fraud.

  6. Fraud involving more than $50,000 of estimated loss, and any Fraud, whether material or not, that involves management or other employees who have a significant role in the Company's internal controls, will be reported to the Audit Committee of the Board of Directors, the Chief Executive Officer and the Chief Financial Officer.

  7. The Company's Director-Audit Services, the General Counsel, the Chief Financial Officer and the Director of Business Conduct will maintain close liaison with each other and will participate in joint investigations as deemed appropriate under the circumstances.

Other References:

1. Corporate Policy No. 3-0001 (General Policy Regarding Laws and Business Conduct) should be consulted.

Approved: Board of Directors
November 10, 2006