The Securities and Exchange Commission is cracking down on ethics—and it’s costing one of the biggest auditing firms in the world millions.
EY was charged by the SEC for a significant number of audit professionals cheating on the ethics component of the Certified Public Accountant (CPA) license exams and for withholding from the agency evidence of misconduct. The penalty price—$100 million. This is the largest penalty ever imposed against an audit firm by the SEC, the agency announced on Tuesday. In 2019, the SEC fined KPMG $50 million for cheating that occurred on internal training tests.
From 2017 to 2021, 49 EY audit professionals sent or received answer keys to CPA ethics exams, according to SEC filings. “In addition, hundreds of other audit professionals cheated on CPE courses, including those addressing CPAs’ ethical obligations,” the report stated. “And a significant number of EY professionals who did not cheat themselves, but knew their colleagues were cheating and facilitating cheating, violated the firm’s Code of Conduct by failing to report this misconduct.”
EY admits there was cheating on CPA exams and various continuing professional education courses required to maintain CPA licenses, the SEC said in its announcement on Tuesday.
“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 statement. In addition to the penalty price, EY is required to obtain two consultants—one to review the firm’s policies and procedures relating to ethics and integrity, and the other to review EY’s conduct regarding disclosure failures.
How did cheating become acceptable? Shane Goodwin, associate dean for Executive Education and Graduate Programs at the Cox School of Business at Southern Methodist University, teaches an MBA corporate ethics course. I asked his opinion of the case.
Based on the SEC filings and reports, these issues at EY “largely stem from a ‘culture of tolerance,’” Goodwin says. It’s the responsibility of the board and the CEO to “set the tone of integrity,” he says. “An issue like this happens easily” when there’s room for the “classic ‘fraud triangle’— motive/pressure, opportunity, and rationalization,” Goodwin explains. “This is how you had a huge issue at Wells Fargo and others,” he says.
The motive/pressure was to get and stay certified, combined with an easy opportunity to cheat and “a simple rationalization that others do it, and ‘it’s not really a big deal,’” Goodwin says. “It’s just a check the box process.”
When it comes to CPAs, the talent pool is dwindling. In 2010, there were almost 50,000 CPA new exam candidates, but that number of new candidates fell to just over 32,000 in 2021, according to an American Institute of Certified Public Accountants report.
See you tomorrow.
The third edition of McKinsey & Company's American Opportunity Survey released on June 23 reveals how flexible work fits into the lives of a cross-section of workers in the U.S. The findings are based on an Ipsos poll of a sample of 25,062 U.S. adults conducted on behalf of McKinsey. About 58% of Americans reported they can work remotely at least part of the time—about 92 million people, according to McKinsey. And 35% of respondents said they could work from home full-time. The respondents work in all kinds of jobs across the country, including “blue-collar” jobs that typically require on-site labor and “white-collar” jobs. The most common rationale for a job hunt was a desire for greater pay or more hours, followed by a search for better career opportunities. The third-most-popular reason was looking for a flexible working arrangement. "Given workers’ desire for flexibility, employers may have to explore ways to offer the flexibility employees want to compete for talent effectively," according to McKinsey.
The U.S. Department of Energy released the 2022 U.S. Energy and Employment Report on June 28. Despite economic uncertainty in 2021, the analysis shows the energy sector "experienced positive job growth, increasing 4.0% from 2020 to 2021, outpacing overall U.S. employment, which climbed 2.8% in the same period," according to the report.
Kevin Wampler will step down from his role as CFO at Dollar Tree, Inc. (Nasdaq: DLTR), upon the appointment of a successor. Wampler will remain with the company as an advisor until April 2023 to assist in the transition. In addition, William Old, the chief legal officer and corporate secretary, along with Chief Operating Officer Thomas O’Boyle, Chief Strategy Officer David Jacobs and Chief Information Officer Andy Paisley, are no longer with the company. Dollar Tree is conducting searches for successors, and the "company is in advanced discussions with several candidates for certain positions," according to the announcement. “As we look to the future, I believe these changes within our leadership team will bring new perspectives and experiences that will help accelerate our continued growth and deliver even greater value for our shareholders, customers, employees and suppliers,” Mike Witynski, Dollar Tree president and CEO, said in a statement. The changes follow Dollar Tree's announcement in March that it planned to revamp the board of directors.
Tralisa Maraj was named CFO at LiveWire, an electric motorcycle division of Harley-Davidson, Inc. (NYSE:HOG). Maraj joins LiveWire with experience in leadership, corporate governance, accounting and finance. She formerly served as both CFO and corporate secretary for CGX Energy Inc. and as chief accounting officer. Before CGX, Maraj served as corporate controller at Remora Energy Management. Maraj started her career at PwC.
"I just want to go sit at the beach and do nothing. I’m not thinking about anything else."
—Andrew Formica, CEO of the London-based investment firm Jupiter Fund Management, is retiring after three years at the company's helm. Formica's departure was due to personal reasons, and he plans to relocate back to his native Australia, as told to Bloomberg.
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