Ernst & Young, one of the world’s largest audit firms, has agreed to pay a $ 100 million fine after U.S. securities regulators found that some of its auditors had cheated on ethics exams – and that the firm had not. did enough to stop the practice.
The sanction is the largest ever imposed by the Securities and Exchange Commission against an audit firm. An administrative civil order filed by the regulators states that Ernst – also known as EY – misled investigators, withheld evidence and violated public accounting rules designed to maintain the integrity of the profession.
“It’s just outrageous that the professionals responsible for catching customer fraud themselves cheated on the ethics exams of all things,” Gurbir S. Greval, the commission’s law enforcement director, said at the announcement of the agreement on Tuesday.
The sanction is twice the amount that KPMG, another major audit firm, paid in 2019 to allow the investigation of similar allegations of fraud by auditors in internal training exams.
Ernst, who admitted in the order that his behavior was wrong, said in a statement that “nothing is more important than our integrity and our ethics.” The company also said that “sharing answers to any grade or exam is a violation of our code of conduct and is not tolerated” and said it would make efforts to enforce ethical rules.
The ethics exams that Ernst’s auditors failed were part of a continuing education program offered by most states for accountants to maintain their professional licenses, according to the committee. The SEC said the fraud involved hundreds of the company’s auditors from 2017 to 2021.
Forty-nine auditors at Ernst received the “answer key” to the ethics exam, which was part of the initial process of becoming a chartered accountant under an SEC administrative order.
Regulators said this was not the first time there had been widespread fraud in ethics exams by Ernst employees. The SEC said a similar fraud scandal, which the company manages internally, occurred from 2012 to 2015.
The SEC noted in the order that Ernst had sent warnings in the past to employees not to cheat on exams, but had not introduced sufficient controls until recently.
As part of the agreement, the SEC asked Ernst to hire two independent consultants. One will review the company’s policies on ethical procedures, and the other will review its failure to properly detect fraud.
Mr Greval said the agreement “should serve as a clear message that the SEC will not tolerate failures of integrity by independent auditors”.
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