Reports indicate that Ernst & Young will pay a $100 million fine to the Securities and Exchange Commission (SEC) as a result of their employees systematically cheating on CPA license exams and for the firm withholding information from the SEC during their investigation. The following information was reported in the Compliance Week article, “EY Fined Record $100M for Employee Cheating Scandal,” by Aaron Nicodemus.
Between 2017 and 2021, accounting professionals at Ernst & Young used answer keys to cheat on state ethics examinations, which are part of the requirements needed to maintain CPA licensure. Ernst & Young accounting professionals also used answer keys to cheat on continuing profession education (CPE) courses. This occurred even after a 2012-2015 situation in which employees allegedly took advantage of a software glitch that allowed them to pass CPE courses with very low scores.
Ernst & Young’s response to the systematic cheating had two main flaws. Although the firm warned employees not to cheat on exams, they did not follow through with controls to detect and prevent misconduct. Furthermore, the company withheld information from the SEC during the investigation. Specifically, Ernst & Young did not share internal whistleblower reports about the cheating, nor did they share their own investigation into the matter.
Gurbir Grewal, director of the SEC’s Enforcement Division, pointed out the irony of the situation stating, “It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things.” Speaking of the $100 million fine, Grewal stated, “This action should serve as a clear message that the SEC will not tolerate integrity failures by independent auditors who choose the easier wrong over the harder right.”
What can we learn from all this?
A Primary takeaway is that having a whistleblower hotline in place is not enough to avoid liability for employees’ actions. Neither is simply stating that misconduct will not be tolerated. A whistleblower hotline is a valuable tool because it empowers employees to speak up against unethical behavior so that it can be delt with properly. From the moment a report is filed, it is the responsibility of case managers to initiate a thorough investigation and to take concreate action to resolve the case and prevent further misconduct.
A secondary takeaway from the EY case is that it is best to comply with any external investigation. Ernst & Young’s failure to comply with the SEC only caused additional fines and reputational harm. Overall, an organization’s policies and actions must demonstrate a commitment to integrity both before and after employee misconduct occurs.
To understand the power of a effectively utilized hotline, see our article here.