EY agrees to record $100mn fine over cheating by employees in ethics exam

EY agrees to record $100mn fine over cheating by employees in ethics examSTEFANIA PALMA — WASHINGTONMICHAEL O’DWYER — LONDONBig Four auditing firm EY has agreed to a record $100mn settlement with the US securities regulator to resolve claims that dozens of its employees cheated on an ethics exam and that it misled investigators.The fine is the highest imposed by the US Securities and Exchange Commission on an auditor, twice the penalty paid by KPMG in 2019 for exam cheating and illegal tip-offs.“This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our nation’s public companies,” said Gurbir Grewal, director of the SEC’s enforcement division. “It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams, of all things.” The investigation is continuing, and an SEC official said the regulator could also bring cases against individuals.Between 2017 and 2021, 49 EY staff shared answers to the ethics portion of the Certified Public Accountant exam, with hundreds more cheating on tests required to maintain the certification, according to the SEC order. A “significant” number of employees also failed to report the violations, the agency said.EY acknowledged the SEC’s findings and said it was complying with the order into “this unacceptable past behaviour”.The penalty comes as EY weighs plans to split its audit and advisory practices globally, a move that would liberate consultants from liability for future regulatory fines and legal awards for misconduct or negligence by auditors.Shortly after the KPMG case in 2019, EY formally denied any issues with its employees’ cheating on exams, according to the SEC order. The previous day, however, EY received a tip that an employee had shared answers to a CPA ethics exam. It did not modify its SEC submission even after launching an internal probe, confirming instances of cheating and discussing the matter among senior managers and lawyers.EY said nothing to the SEC or the Public Company Accounting Oversight Board for almost nine months, according to an SEC official.According to the SEC order, 91 EY staff requested, used or shared answers with colleagues after the US chair and managing partner sent a note to US staff in 2019 warning against cheating in light of the KPMG case. It is “shocking that Ernst & Young hindered our investigation of this misconduct”, Grewal said.