E&Y fined $100m over US ethics exam cheating

Accounting giant Ernst & Young has been fined a record $100m by US regulators after its audit staff cheated on an ethics exam and misled investigators.

The Securities and Exchange Commission (SEC) said EY’s audit professionals cheated on exams required to obtain and maintain Certified Public Accountant (CPA) licenses over many years and then hid evidence of the misconduct during an SEC investigation.

“This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our nation’s public companies,” said SEC enforcement director Gurbir Grewal.

“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things. And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct."

Individual staff could still face charges, the SEC added. Between 2017 and 2019, 49 EY audit professionals cheated on exams by using answer keys and sharing them with their colleagues. In addition, “hundreds of other audit professionals” cheated on courses, including those addressing ethical obligations.

“And a significant number of EY professionals who did not cheat themselves, but knew their colleagues were cheating and facilitating cheating, violated the firm’s code of conduct by failing to report this misconduct,” the SEC said.

According to the SEC, EY was aware of a similar wave of cheating on ethics exams among staff between 2012 and 2015. Those issues were dealt with internally but the SEC said EY had failed to put in sufficient controls to stop the issue from reoccurring.

The fine is the highest imposed by the SEC on an auditor and twice as large as the $50m rival KPMG paid to settle charges that staff had altered audits, used data stolen from regulators and cheated on internal exams.

In addition to the record penalty, the SEC ordered EY to hire two separate consultants to examine its ethics policies and another to review disclosure failures.