Professional services firm Ernst & Young (EY) agreed to pay a $100 million fine on Tuesday after admitting that dozens of its accountants cheated on ethics exams, and that the firm misled federal regulators for months about its knowledge of the practice.
The Securities and Exchange Commission (SEC) found that 49 EY audit professionals sent or received answer keys to ethics exams required to become a Certified Public Accountant (CPA), while others cheated on various continuing professional education courses required to maintain their licenses.
“This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our nation’s public companies,” Gurbir Grewal, the director of the SEC’s enforcement division, said in a statement.
“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,“ he added.
Beyond the fine, the SEC said it will require EY to undergo “extensive undertakings” to remedy its actions, including retaining two independent consultants.
Tuesday’s settlement comes almost exactly three years after the SEC sent a request to EY asking about any complaints the firm had received about cheating on training exams.
Two days earlier, the SEC fined another of the Big Four accounting firms, KPMG, $50 million in part for cheating.
The same day EY began reviewing federal regulators’ request, the firm’s human resources group became aware of an employee complaint saying they had received answers to a CPA ethics exam. But when the accounting firm responded to the SEC on June 20, they made no mention of the tip.
As part of Tuesday’s settlement, EY admitted that senior attorneys who submitted the response were apprised of the employee complaint no later than the following day.
Yet the firm did not inform regulators until nine months later, even as it conducted an internal investigation and found additional instances of cheating.
“It’s equally shocking that Ernst & Young hindered our investigation of this misconduct,” said Grewal. “This action should serve as a clear message that the SEC will not tolerate integrity failures by independent auditors who choose the easier wrong over the harder right.”
EY said in a statement that sharing exam answers is a violation of the firm’s code of conduct, calling the cheating “unacceptable” but adding EY had responded in a “thorough, extensive and effective” manner.
“We have repeatedly and consistently taken steps to reinforce our culture of compliance, ethics and integrity in the past,” the company said.
“We will continue to take extensive actions, including disciplinary steps, training, monitoring and communications that will further strengthen our commitment in the future. We are confident that the outcomes of the undertakings will reinforce steps we have already taken in the years since these situations occurred.”