The Saudi Electricity Company, Ernst & Young, was fined $100 million for cheating auditors

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Hundreds of auditors at accounting giant Ernst & Young cheated on ethics tests they were required to take to obtain or maintain their professional licenses, and the company withheld evidence of misconduct from federal authorities investigating the matter, according to the Securities and Exchange Commission.

In response, the Securities and Exchange Commission (SEC) imposed a $100 million fine on the company, the largest fine ever imposed on an audit firm, the agency announced Tuesday.

“This action includes a breach of trust by gatekeepers tasked with auditing several public companies in our country,” Gurbert Grewal, director of law enforcement at the Securities and Exchange Commission, said in a statement. “It is simply disgraceful that the professionals responsible for detecting fraud by customers cheat ethics tests on everything.”

In a statement, Ernst & Young admitted the SEC charges and said it was complying with the agency’s sanction.

“Time and again, we have taken steps to strengthen our culture of compliance, ethics and integrity in the past,” Susan Bohia, a company spokeswoman, said in an email. “We will continue to take extensive action, including disciplinary steps, training, monitoring and communications that will further our commitment in the future.”

The agency found that as of 2017, 49 Ernst & Young professionals have participated in or received answers to the ethics tests they need to pass to be licensed as certified public accountants. The SEC said hundreds of others were cheated on courses they needed to take to maintain their standing with government oversight boards, while others who did not participate themselves helped facilitate the behavior.

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The company’s leaders then covered up the activity, failing to report to the Securities and Exchange Commission after the agency asked Ernst & Young about the complaints it had received and the company launched an internal investigation that confirmed the misconduct, according to the Securities and Exchange Commission. A Securities and Exchange Commission official told reporters that the record-breaking fine — double the tab of the $50 million that rival KPMG paid the agency in 2019 over its fraud scandal — partly reflects the seriousness of the company’s decision not to cooperate with the investigation.

Grewal, in his statement, said that “it is also shocking that EY has obstructed our investigation of this misconduct. This action should serve as a clear message that the Securities and Exchange Commission (SEC) will not tolerate failures of integrity by independent auditors who choose wrongly.” The easiest to the right is the hardest.”

Besides the fine, the SEC forces Ernst & Young to hire independent consultants, one to review the company’s ethical and integrity policies and the other to investigate its failure to disclose its findings.

This isn’t the first time Ernst & Young auditors have been caught cheating. The Securities and Exchange Commission said that from 2012 to 2015, an internal company investigation found that more than 200 company employees had exploited a software flaw in the company’s testing platform to cheat exams.

At the time, the company took disciplinary action against these employees and warned its workforce against taking such shortcuts. “Our response to this unacceptable past behavior has been comprehensive, wide-ranging and effective,” Bouhiya said.

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She said the SEC’s new requirements for the company “will reinforce the steps we’ve already taken in the years since these situations occurred.”

Ernst & Young is the world’s third largest accounting firm, and it posted global revenues of $40 billion in its last fiscal year, which ended in June 2021.

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