Ernst & Young, one of the world’s largest accounting firms, agreed to pay a record $100m to US regulators on Tuesday amid charges that dozens of its audit staff cheated on an ethics exam and misled investigators.
The Securities and Exchange Commission (SEC) charged that “over multiple years” EY’s audit professionals cheated on exams required to obtain and maintain Certified Public Accountant (CPA) licenses, and withheld evidence of this misconduct from the SEC’s enforcement division during an investigation of the matter.
“This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our nation’s public companies,” said the SEC enforcement director, Gurbir Grewal.
“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things. And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct,” he said.
The investigation is ongoing and SEC officials said that they could bring charges against individuals.
According to the SEC’s investigation between 2017 and 2019, 49 EY audit professionals cheated on exams by using answer keys and sharing them with their colleagues. In addition, “hundreds of other audit professionals” cheated on courses, including those addressing ethical obligations.
“And a significant number of EY professionals who did not cheat themselves, but knew their colleagues were cheating and facilitating cheating, violated the firm’s code of conduct by failing to report this misconduct,” according to the SEC.
According to the SEC, EY was aware of a similar wave of cheating on ethics exams among staff between 2012 and 2015. Those issues were dealt with internally but the SEC said EY had failed to put in sufficient controls to stop the issue from reoccurring.
In a statement, EY said “nothing is more important than our integrity and our ethics.” The firm said it was complying with the SEC’s order and had taken steps to address compliance issues.
“We are confident that the outcomes of the undertakings will reinforce steps we have already taken in the years since these situations occurred,” EY said.
“Sharing answers on any assessment or exam is a violation of our Code of Conduct and is not tolerated at EY. Our response to this unacceptable past behavior has been thorough, extensive, and effective.”
The fine is the highest imposed by the SEC on an auditor and twice as large as the $50m rival KPMG paid to settle charges that staff had altered audits, used data stolen from regulators and cheated on internal exams.
In addition to the record penalty, the SEC ordered EY to hire two separate consultants to examine its ethics policies and another to review disclosure failures.
Grewal said the settlement “should serve as a clear message that the SEC will not tolerate integrity failures by independent auditors.”
