The Securities and Exchange Commission announced that Ernst & Young, LLP has acknowledged that dozens of its audit personnel cheated when they took the ethics portion of the Certified Public Accountant exam. Furthermore, the company acknowledged trying to cover this up by misleading regulators probing the cheating.
Ernst & Young has agreed to pay a $100 million fine, the largest fine ever of its kind, for an audit firm. Ernst & Young also admits to violating accounting rules, and that it did not cooperate with a vital part of the regulator’s probe.
The SEC investigation revealed that almost 50 Ernst & Young employees acquired access to, and shared amongst themselves, answer keys to the ethics section of the CPA exam from 2017 to 2021. The investigation also revealed that hundreds more employees cheated on continuing professional education courses.
Ernst & Young said in a statement they are complying with a settlement order with the SEC, and will make sure they improve compliance through the use of additional steps.
In the statement, the firm said, “We are confident that the outcomes of the undertakings will reinforce steps we have already taken in the years since these situations occurred. 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.”
When first apprised of the discovery of possibly dishonest behavior, Ernst & Young reportedly told the SEC it did not have a problem with cheating. The company then failed to amend that statement as its internal investigation was launched.
The SEC said many employees knew that what they were doing was a violation of the company’s code of conduct, but they persisted in the behavior because they felt they could not pass the exam on their own. The SEC said that although their investigation is ongoing, Ernst & Young did discipline and fire some individuals for their acts.
Gurbir Grewal, the head of the SEC’s enforcement division, said, “It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams. It’s equally shocking that Ernst & Young hindered our investigation of this misconduct.”
As part of the settlement, Ernst & Young must also hire two separate consultants to review the company’s ethics policies, and a third who will review their work and disclose the company’s failures.
This is not the first time Ernst & Young has locked horns with the SEC. There have been other times more recently. Last August they paid a $10 million fine for violating auditor independence rules, and in 2016 there was a $9 million fine for having inappropriate relationships with clients.
Previously, KPMG LLP had been fined $50 million by the SEC for cheating on internal company training exams, and altering past audit work after receiving information that had been stolen from an industry watchdog.
