EY fined record $100 million over employee cheating scandal | Article

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EY admitted to hiding information about its own whistleblowers and an internal investigation into the employee’s cheating, hampering the SEC’s investigation into the misconduct.

The $100 million fine is the largest the agency has ever imposed on an auditing firm.

“This action involves breaches of trust by gatekeepers to the gatekeeper responsible for auditing many of our nation’s state-owned companies. It is simply outrageous that the professionals tasked with catching cheating by clients have cheated on ethics reviews of all things,” Gurbir Grewal, director of the SEC’s enforcement division, said in a statement on Tuesday. Press. “And it is equally shocking that Ernst & Young has obstructed our investigation into this misconduct. This action should serve as a clear message that the SEC will not tolerate breaches of integrity by independent auditors who choose the easier wrong over the harder right.

By allowing the cheating to continue and for obstructing the SEC’s investigation into the scandal, EY violated a Public Company Accounting Oversight Board (PCAOB) rule requiring the company to maintain integrity in the execution of a professional service; committed acts dishonoring to the accountancy profession; and failed to maintain an appropriate system of quality control, the SEC said.

In a statement, EY said it “acknowledges the conclusions determined by the SEC and complies with the requirements of the order.”

From 2017-21, 49 EY accounting professionals cheated on state ethics exams administered by state accounting boards, according to the SEC order. The exams are part of the necessary requirements for accounting professionals to remain CPAs in the states where they work. The cheating happened when EY employees used answer keys to help them pass exams and shared those answer keys with their colleagues.

“Hundreds” of other EY professionals have cheated in continuing professional education (CPE) courses, “including those dealing with the ethical obligations of CPAs,” the SEC added.

Although EY continually warned its employees not to cheat on exams and of the disciplinary action the company would face if cheating was discovered, “it did not implement any additional checks to detect this misconduct during the relevant period. “, indicates the ordinance.

In addition, “a significant number of EY professionals who did not cheat, but knew that their colleagues were cheating and facilitating cheating, violated the company’s code of conduct by failing to report this misconduct,” said the SEC.

EY obstructed the agency’s investigation into the cheating scandal by failing to turn over internal whistleblower reports regarding individual cases of cheating, as well as the company’s own investigation into the misconduct.

The SEC sent a formal request to EY in June 2019, asking for information “about complaints the company had received regarding cheating on educational exams.” On the same day, EY received a tip that one of its audit professionals shared an answer key with a colleague. But the company told the SEC it had no current cheating issues and never updated its disclosure to the agency regarding the state of cheating at the company.

EY conducted an internal investigation that confirmed cheating but never shared the results of that investigation with the SEC.

In addition to paying the fine, EY will hire two separate consultants to address deficiencies in its ethics policies and procedures. “A consultant will review the firm’s policies and procedures relating to ethics and integrity. The other will examine EY’s conduct regarding its disclosure failures, including whether any EY employees contributed to the company’s failure to correct its misleading submission,” the SEC said in its press release.

EY will also conduct its own review of its “quality controls, policies and procedures” relating to ethics and integrity; respond to requests for information from the SEC and other government agencies; and submit a report to the SEC within 120 days of the order.

This isn’t EY’s first infidelity scandal.

“From 2012 to 2015, more than 200 EY audit professionals across the country exploited a software flaw in EY’s CPE testing platform to pass exams while only correctly answering one low percentage of questions,” the SEC noted. “Following EY’s discovery of this prior cheating scheme, the firm took disciplinary action and repeatedly warned its audit professionals not to cheat on exams. Yet the cheating continued.

Fellow Big Four accounting firm KPMG paid a $50 million fine to the SEC in 2019 to settle charges over its infamous PCAOB cheating scandal in addition to cheating its auditors by sharing answers to internal training exams and manipulating test results. Earlier this year, PwC’s Canadian subsidiary agreed to pay $950,000 in penalties between two audit regulators after uncovering widespread cheating among employees taking internal exams.

In an emailed statement, EY said: “We have repeatedly and consistently taken steps to strengthen our culture of compliance, ethics and integrity in the past. We will continue to take important steps, including disciplinary action, training, testing and communications, which will further strengthen our commitment in the future. We are confident that the results of the engagements will reinforce the actions we have already taken in the years since these situations occurred.

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