Q3-4 2023 Integrity Advocate

Cheaters Never Win

On June 28, 2022, big four accounting firm, Ernst & Young (EY), was fined $100 million by the U.S. Securities and Exchange Commission (SEC), the largest penalty ever for an audit firm. This penalty came after a significant number of EY’s audit personnel were exposed for cheating on the ethics portion of the CPA exam, as well as other required trainings, despite knowing full well their actions were in violation of the company’s Code of Conduct. Not only did employees choose to cheat by sharing and using answer keys they had received from colleagues to pass exams, but EY chose to mislead regulators who were probing into the misconduct by “creating the impression that EY did not have current issues with cheating – either on training programs and assessments or CPA ethics exams.” EY’s statement to the SEC that, “nothing is more important than our integrity and our ethics” came just days after an EY employee had blown the whistle internally on the cheating scandal, yet EY never corrected its submission to the SEC’s Enforcement Division in light of this information. ^[1]

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

Gurbir S. Grewal, Director of the SEC’s Enforcement Division

In addition to the fine, the SEC ordered EY to retain two independent consultants to help remediate its deficiencies, with one firm reviewing the company’s procedures on ethics and another on its disclosure failures.

Lessons Learned

The cheating at EY was well known amongst employees and management, and despite concerns having been reported to leadership, they did nothing about it. By ignoring critical feedback from employees and failing to address ethical concerns, the leadership at EY normalized misconduct and promoted an unethical culture.

When leaders model ethical behavior and take steps to ensure employees feel “their concerns are heard and factored into decision-making” they help eliminate the grey area that often leads to poor ethical conduct (Schweller, 2022). Alternately, by allowing ethical missteps to go uncorrected, it creates a pattern of unethical behavior and fosters an environment in which employees are willing to take shortcuts they would not otherwise take.

The EY scandal is a harsh reminder of the devasting consequences that engaging in unethical activities can have on a company and its stakeholders. This incident highlights the importance of companies listening to their employee base and taking ethical concerns seriously.

So remember, “how” a company does business truly matters and here at MPC we remain committed to conducting company business with the highest level of ethics and integrity.

_{[1] Schweller, G. (2022, June 29). Internal Ernst & Young Whistleblower First Disclosed Cheating Scandal. Whistleblower Network News. Retrieved October 10, 2023. https://whistleblowersblog.org/corporate-whistleblowers/sec-whistleblowers/internal-ernst-young-whistleblower-first-disclosed-cheating-scandal/}