TL;DR: After getting fined by the SEC for cheating on CPE and ethics exams in June 2022, an independent consultant review into EY’s testing procedures was supposed to be completed by March. It was not and the SEC has granted the consultants more time to get it done.
As you may recall, last June the SEC levied its largest fine against an audit firm ever — $100 million — and the lucky recipient of this record-breaking punishment was EY. The crime? Cheating. Specifically, a significant number of EY audit professionals cheated on the ethics exams one takes to become a CPA and various CPE courses required to maintain CPA licenses. (Related: here’s someone who says they were fired for sharing answers to a module entitled “Introduction: Microsoft Word” so it wasn’t just critical ethics learning but also stupid and pointless elective WBLs caught up in EY’s sweep of answer sharing prior to completion of the SEC investigation)
Additionally, EY essentially told the SEC they didn’t have a cheating problem knowing full well they did. Because of course they did, everyone does if we’re counting sharing answers to WBLs as cheating. “EY further admits that during the Enforcement Division’s investigation of potential cheating at the firm, EY made a submission conveying to the Division that EY did not have current issues with cheating when, in fact, the firm had been informed of potential cheating on a CPA ethics exam,” read the SEC order. “EY also admits that it did not correct its submission even after it launched an internal investigation into cheating on CPA ethics and other exams and confirmed there had been cheating, and even after its senior lawyers discussed the matter with members of the firm’s senior management. And as the Order finds, EY did not cooperate in the SEC’s investigation regarding its materially misleading submission.” If you care, here’s a more detailed explanation of the EY cheating scandal timeline.
In its June 28, 2022 news release, Director of the SEC Enforcement Division Gurbir S. Grewal expressed shock that a protector of capital markets would engage in such unethical behavior. “This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our Nation’s public companies. It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” he said. “And 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.”
Although we didn’t know it at the time, it seems obvious in hindsight that an April 2021 all-hands call in which then-EY US Chair Kelly Grier informed staff they would be required to sign a pledge that “reinforces the commitment” to EY values may have been related to the digging around to get to the bottom of the widespread cheating at EY. The firm even produced a video that literally spells out in simple language: “We don’t cheat. On anything. Ever.” Notice how the “ever” is in bigger text, that’s how you know it’s serious.
In its order [PDF], the SEC required EY to “engage in extensive undertakings, including retaining two separate independent consultants to help remediate its deficiencies. One consultant will review the firm’s policies and procedures relating to ethics and integrity. The other will review EY’s conduct regarding its disclosure failures, including whether any EY employees contributed to the firm’s failure to correct its misleading submission.” The order is embedded at the bottom of this post if you would like to see all actions EY was supposed to undertake, the mammoth list begins on page 9.
Anyway, it seems EY missed the deadline. Reports FT:
[The SEC] originally set a January deadline for the completion of the investigation and for EY to begin implementing any recommendations, such as disciplinary action against those involved.
The SEC settlement also ordered an independent consultants’ review of EY’s testing procedures, to be submitted by the end of March.
But the work has not been concluded, and the SEC has given the independent consultants more time to complete their review, according to people familiar with the matter.
Props to people familiar with the matter for feeding FT that information because honestly everyone totally forgot about that cheating thing.
The independent consultants are supposed to review EY’s policies and procedures to make sure cheating doesn’t happen in the future and examine “whether any members of EY’s executive team, general counsel’s office, compliance staff or other EY employees contributed to the firm’s failure to correct its misleading submission.”
“We have met every deadline required of us, with the agreement of the SEC staff, and extensions are not uncommon,” EY told FT.
EY has been understandably focused on Project Everest this past year, currently bickering amongst themselves about how to fund $7.5 billion in pensions and allocate tax professionals among the separated audit and consulting businesses. Last we heard, leadership is “making progress on the key elements needed to move forward on Project Everest” per a statement sent to the firm’s 13,000 partners a week ago.
So now you’re caught up on where we’re at with the cheating thing. Some say the spirit of answer sheets haunts overwhelmed EYers who ain’t got time for WBLs to this day.