Accounting giant Ernst & Young admits its employees cheated on ethics exams

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Ernst & Young, one of the "big four" accounting firms, was fined $100 million by the SEC. / AFP via Getty Images

Ernst & Young, one of the top accounting firms in the world, is being fined $100 million by federal regulators after admitting its employees cheated on their ethics exams.

For years, the firm's auditors had cheated to pass key exams that are needed for certified public accountant licenses, the Securities and Exchange Commission found. Ernst & Young also had internal reports about the cheating but didn't disclose the wrongdoing to regulators during the investigation.

"It's simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things," Gurbir S. Grewal, director of the SEC's Enforcement Division, said in a release.

The fine is the largest penalty ever imposed by the SEC on an audit firm.

The CPA, or certified public accountant, licenses are needed by auditors to evaluate the financial statements of companies and ensure they are complying with laws.

However, the SEC says that a "significant number" of Ernst & Young audit professionals specifically cheated on the ethics component of the CPA exams that were required for their accounting jobs.

Audit firms serve a critical gatekeeping role in the financial markets and it is their jobs to ensure integrity of the financial reporting done by companies. It's why the independence and integrity of these firms are paramount.

Because it's their job to hold others accountable, Ernst & Young — one of the "big four" accounting firms — says it holds itself to a high standard of ethics. In fact, the firm's entire global code of conduct is based on an "ethical" framework.

"At EY, nothing is more important than our integrity and our ethics. These core values are at the forefront of everything we do," Brendan Mullin, a spokesperson for Ernst & Young, said in an email to NPR. "Our response to this unacceptable past behavior has been thorough, extensive, and effective."

Many of the employees interviewed during the federal investigation said they knew cheating was a violation of the company's code of conduct but did it anyway because of work commitments or the fact that they couldn't pass training exams after multiple tries.

The SEC said that the cheating went on for many years, going back to 2012. Following the discovery of an earlier cheating scheme, the firm took disciplinary actions and repeatedly warned its audit professionals not to cheat on exams. Still, the cheating continued.

Along with paying the $100 million fine, Ernst & Young has to audit itself and report the findings to the SEC, including an assessment of its ethics and integrity training. It'll also be reviewed by independent consultants that the firm will have to pay for.

The cheating scandal comes just a couple of weeks after the Financial Times reported that Ernst & Young is planning to split its auditing and consulting arms, a huge shakeup in the accounting world that would award its partners up to $8 million in shares each.

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