Ernst & Young Auditors Caught Cheating on Ethics Exam
The Securities and Exchange Commission found out that hundreds of Ernst & Young auditors cheated on the ethics exams they had to pass to obtain their professional licenses. Though the firm was aware of the situation, it chose to neglect it. As a result, the S.E.C imposed a USD 100 mln. fine, which the firm agreed to pay.
The Commission accused Ernst & Young of misleading the regulators, withholding the evidence and acting inconsistently with the public accounting rules. The firm received various reports from whistleblowers about its employees cheating on exams. But it chose to conceal the information from the investigators. As the regulator’s and internal investigation proceeded, it unearthed much greater proportions of the misconduct than expected.
The Commission discovered that 49 Ernst & Young auditors somehow obtained an answer key to their ethics exams, which they had to pass to get certified as a public accountant. Many others were found cheating on the ethics exams they take under their continuing education programs. According to S.E.C. the reasons for the staff to perpetrate such misconduct were high workload or multiple failed attempts to pass the exams. All these occasions took place from 2017 to 2021 and were not handled properly by EY.
Ernst & Young admitted the misconduct actually took place and voiced its commitment to integrity and ethics. As part of its response it undertakes to enforce compliance. In line with its agreement with S.E.C. besides paying the fine it will hire two independent consultants – one to inspect its ethics policies and the other to deal with its non-disclosure of the misconduct.
According to S.E.C., this situation has certain background. Cheating on ethics exams had taken place already in the period from 2012 to 2015. At that time, it was handled internally. EY responded with warnings to its employees demanding the cheating practice to be ceased. However, no adequate controls were imposed at that time.
Nowadays, the fine on EY is historically the largest one that the Securities and Exchange Commission has imposed on an audit firm. Gurbir S. Grewal, who is the S.E.C. director of enforcement, called the event “outrageous”, because of the firm’s ethical standing in the financial sphere and the audit functions it performs.
For now, the Commission continues its investigation and says it might lead to enforcement actions against certain individuals involved to demonstrate that no tolerance can be expected from the regulator pertaining to integrity failures.