Ernst & Young pays $100 million to settle US ethics review fraud allegations EY

Ernst & Young, one of the world’s largest accounting firms, on Tuesday agreed to pay US regulators a record $100 million amid allegations that dozens of its audit staff cheated on an ethics review and misled investigators.

The Securities and Exchange Commission (SEC) accused EY’s auditors of cheating on exams required to obtain and maintain Certified Public Accountant (CPA) licenses “for a number of years” and presented evidence of this misconduct by the EY’s Enforcement Division SEC during an investigation into the matter.

“This action involves breaches of trust by gatekeepers within the gatekeeper charged with auditing many of our nation’s public companies,” said SEC Enforcement Director Gurbir Grewal.

“It’s just outrageous that the very professionals responsible for uncovering customer fraud cheated on ethics reviews of all things. And it is equally shocking that Ernst & Young has obstructed our investigation into this wrongdoing,” he said.

The investigation is ongoing, and SEC officials said they may file charges against individuals.

According to the SEC investigation, between 2017 and 2019, 49 EY exam professionals cheated on exams by using solution keys and sharing them with their peers. In addition, “hundreds of other exam professionals” cheated on courses, including those dealing with ethical obligations.

“And a significant number of EY professionals who did not defraud themselves, but knew that their colleagues were cheating and facilitating fraud, violated the firm’s code of conduct by failing to report this wrongdoing,” the SEC said.

According to the SEC, EY was aware of a similar wave of employee ethics review fraud between 2012 and 2015. Those issues have been addressed internally, but the SEC said EY failed to put in place sufficient controls to prevent the issue from reoccurring.

In a statement, EY said, “Nothing is more important than our integrity and our ethics.” The firm said it has followed the SEC’s order and taken steps to address compliance issues.

“We are confident that the outcomes of the commitments will reinforce the steps we have already taken over the years since these situations arose,” EY said.

“Sharing responses to an assessment or test is a violation of our Code of Conduct and will not be tolerated at EY. Our response to this past unacceptable behavior has been thorough, comprehensive and effective.”

The fine is the largest the SEC has imposed on an auditor and double that of $50 million rival KPMG, which was paid to settle allegations alleging employees altered audits using data stolen from regulators and had cheated in internal audits.

In addition to the record fine, the SEC ordered EY to hire two separate consultants to review its ethics policies and another to review disclosure errors.

Grewal said the settlement “should serve as a clear message that the SEC will not tolerate flaws in integrity by independent auditors.”