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Hundreds of auditors at accounting giant Ernst & Young cheated on ethical tests they had to pass to obtain or maintain their professional licenses, and the company withheld evidence of misconduct by federal authorities investigating the issue, according to the Securities and Exchange Commission.
In response, the SEC imposed a $ 100 million fine on the company, the largest ever audit firm, the agency said on Tuesday.
“This action involves breaches of trust on the part of goalkeepers within the porter, who is entrusted with auditing many of the public companies in our country,” GEC law enforcement director Gurbir Greval said in a statement. “It’s just outrageous that the professionals themselves responsible for catching customer fraud have cheated on the ethics exams of all things.”
In a statement, Ernst & Young acknowledged the SEC’s allegations and said it respected the agency’s punishment.
“We have repeatedly and consistently taken steps to strengthen our culture of compliance, ethics and integrity in the past,” said Susanne Buhia, a company spokeswoman. “We will continue to take extensive action, including disciplinary action, training, monitoring and communication, which will further strengthen our commitment in the future.
The agency found that in early 2017, 49 Ernst & Young professionals shared or received answers to the ethics exams they had to pass in order to obtain a license as certified public accountants. Hundreds of others cheated on courses they had to take to maintain their position on state supervisory boards, while others who did not participate on their own helped facilitate the behavior, the SEC said.
The company’s executives then covered up the business by failing to report it to the SEC after the agency asked Ernst & Young about the complaints and the company launched an internal investigation, which confirmed the misconduct, according to the SEC. The record fine – twice as much as $ 50 million paid by rival KPMG to the agency in 2019 for its own fraud scandal – partly reflects the weight of the company’s decision not to cooperate in the investigation, an SEC official told reporters.
Greval said in a statement that it was “equally shocking that Ernst & Young obstructed our investigation into this misconduct.” This action should serve as a clear message that the SEC will not tolerate breaches of integrity by independent auditors who choose the easier wrong over the harder right. “
In addition to the fine, the SEC forced Ernst & Young to hire two independent consultants, one to review the company’s ethics and integrity policies, and the other to investigate the failure to disclose its own findings.
The episode is not the first time Ernst and Young’s auditors have been caught cheating. From 2012 to 2015, an internal company investigation found that more than 200 employees of the company used a software bug in the company’s test platform to cheat on exams, the SEC said.
At that time, the company took disciplinary action against these employees and warned its workforce not to take such shortcuts. “Our response to this unacceptable behavior in the past has been profound, comprehensive and effective,” Buhia said.
She said that the new requirements that the SEC imposes on the company “will strengthen the steps we have already taken in the years since these situations arose.”
Ernst & Young is the third largest accounting firm in the world and reported global revenue of $ 40 billion in its last fiscal year, which ended in June 2021.
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