Accounting giant Ernst & Young will pay $100 million to settle charges with the Securities and Exchange Commission that hundreds of its employees cheated on the ethics components of the Certified Public Accountant examination and continuing education courses and for withholding information about the misconduct to regulators.
“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” Gurbir Grewal, the SEC’s enforcement chief said in a press release. “And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct.”
The SEC’s order states that between 2017 and 2019, 49 audit professionals at the firm sent or received answer keys to the CPA ethics exams, while hundreds more cheated on continuing professional education courses required by state accountancy boards for accountants to maintain their licenses.
The $100 million fine is twice that levied against competitor KPMG back in 2019 for similar violations, and the severity of the fine against Ernst & Young is due in part to its obstruction of regulators investigation, according to senior SEC officials.
Ernst & Young admitted that during the SEC’s investigation, the company misled the regulator by declining to share information about potential cheating on the CPA exam that had been shared with it.
“EY also admits that it did not correct its submission even after it launched an internal investigation into cheating on CPA ethics and other exams and confirmed there had been cheating, and even after its senior lawyers discussed the matter with members of the firm’s senior management,” the SEC said in a press release.
In addition to the monetary penalty, the SEC order requires the company to hire two separate independent consultants to review its policies and procedures related to ethics and integrity and to review the company’s failure to disclose the misconduct during the regulatory investigation.
The fines come as major global accountancy firms reexamine their business models, with both Ernst and Young and a competitor, Deloitte, reportedly considering spinning of their consultancy businesses into separate entities.
The Wall Street Journal reported in March that the SEC is probing the industry to understand how conglomerates with accounting and consultancy arms manage conflicts of interest between those lines of business.