A Big Four international accounting firm admitted that “a significant number” of its auditing professionals cheated on ethics examinations for CPA licensing, that it failed to act despite its internal investigations, and that it materially misled the SEC.
EY has agreed to pay $100 million to the SEC after the commission discovered that a cheating ring existed within the firm and that the firm failed to deter such actions, according to a June 28 administrative civil order.
“This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our Nation’s public companies. It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a release.
From 2017 to 2021, nearly 50 employees at EY shared answer keys to CPA ethics exams. Along with sharing answers, employees also cheated on continuing professional education courses. While the firm conducted its own internal investigation and several employees knew about the cheating, EY failed to report the misconduct and materially misled the SEC when it began investigating the firm.
“EY did not self-police, self-report, remediate, or cooperate in the Commission’s investigation,” the order says. “To the contrary, by withholding information about misconduct that EY knew SEC staff was investigating, EY’s continued misrepresentations to the SEC’s Division of Enforcement significantly hindered the SEC’s ability to take action that would protect investors from audit professionals who do not understand their ethical obligations, fail to act with appropriate professional integrity, and have not met — or needed to cheat in order to meet — minimum professional requirements to demonstrate their knowledge of important accounting principles.”
According to the SEC, EY has a history of its employees cheating on professional examinations. From 2012 to 2015, over 200 EY employees exploited a software flaw in EY’s software to pass exams despite answering a disproportionate number of questions incorrectly. EY took disciplinary actions and sent out warning notices to employees but never put in place any controls to stop the misconduct.
EY also is required to hire independent consultants to review the firm’s policies on ethics procedures and its failure to properly disclose misconduct. And the firm must provide its clients with a copy of the June 28 order.
The fine is the largest penalty imposed by the SEC against an auditing firm. In 2019 KPMG paid a $50 million penalty for altering past audit work after receiving stolen information about inspections that would be conducted on the firm by the Public Company Accounting Oversight Board and for cheating on training exams.