The feds said “Big Four” accounting firm Ernst & Young will pay a record $100 million penalty after admitting that a “significant number” of its audit professionals cheated on their Certified Public Account exams – and that the company withheld key evidence from regulators.
The $100 million fine is the largest ever levied against an audit firm, according to the US Securities and Exchange Commission. Aside from paying the penalty, Ernst & Young agreed to “undertake extensive remedial measures” to address ethics concerns in the future.
“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said Gurbir Grewal, director of the SEC’s Enforcement Division.
“And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct,” Grewal added.
The SEC’s investigation determined Ernst & Young’s audit pros cheated on the ethics component of their CPA exam, as well as other mandatory exams required to maintain their CPA licenses.
The feds found that 49 Ernst & Young workers sent or received answer keys related to the CPA ethics exam over a four-year period stretching from 2017 to 2021. Meanwhile, “hundreds” of other audit employees cheated on their “continuing professional education” courses.
“In addition, hundreds of other audit professionals cheated on CPE courses, including those addressing CPAs’ ethical obligations,” the SEC said in a filing. “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.”
Ernst & Young did not disclose its knowledge of the cheating incidents despite receiving a formal request. Instead, the firm submitted a “materially misleading” document in which is denied a widespread cheating problem existed, according to the SEC.
An EY spokesperson said the company acknowledged the SEC’s findings and would comply with its directives.
“We have repeatedly and consistently taken steps to reinforce our culture of compliance, ethics, and integrity in the past,” the spokesperson said. “We will continue to take extensive actions, including disciplinary steps, training, monitoring, and communications that will further strengthen our commitment in the future.”
“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 spokesperson added.
The SEC said the firm has agreed to retain two separate independent consultants as part of its agreement. The consultants will advise on Ernst & Young’s ethics policies as well as its past failures to disclose instances of cheating.
Ernst & Young’s $100 million penalty is twice as large as the $50 million that rival firm KPMG agreed to pay in 2019 to settle federal allegations that some of its former employees cheated on their training exams, among other purported misdeeds.