Ernst & Young fined $9.3m for auditors’ improper relationships with clients
The Telegraph
Marion Dakers, financial services editor
19 September 2016

The accountancy firm Ernst & Young has agreed to pay $9.3m to settle charges that two of its auditors formed “inappropriately close” relationships with staff at the companies whose books they were checking.

The US Securities & Exchange Commission said one audit partner was romantically involved with the chief accounting officer of a client firm for more than two years, while her supervisor picked up on signs of the relationship and did not raise concerns.

Pamela Hartford and her supervisor Michael Kamienski no longer work for EY, while the accounting head of the real estate firm Ventas, Robert Brehl, left his post in 2014.

Meanwhile, a third EY partner started a friendship with a chief financial officer whose employer was considered a “troubled account”. The partner, Gregory Bednar, was tasked with mending EY’s relationship with the firm, and ended up taking family holidays with the CFO, accompanying his children to a Green Bay Packers football game, and swapping hundreds of personal text messages.

entertainment expenses totalling $100,000

None of this was made clear in the independent audits of the company, the SEC said, and EY failed to act on several red flags about the relationships including entertainment expenses totalling $100,000.

“These are the first SEC enforcement actions for auditor independence failures due to close personal relationships between auditors and client personnel,” said Andrew J Ceresney, director of the SEC’s division of enforcement.  “Ernst & Young did not do enough to detect or prevent these partners from getting too close to their clients and compromising their roles as independent auditors.”

EY agreed to pay the penalty without admitting or denying the findings. The partners involved no longer work for the company and also settled with the SEC.

“The individuals at the centre of these matters violated multiple EY policies, hid their conduct and behaved in a way that was antithetical to EY’s global code of conduct, culture, values, policies, and training,” said an EY spokeswoman.

“All have been separated from our organisation. We regret these matters arose and are pleased to put them behind us.”

The SEC did not name the clients involved. Ventas, the New York-listed real estate company, parted ways with its chief accounting officer in 2014 after finding out about his relationship with the EY auditor. The firm said at the time that the behaviour had not made any difference to its financial results.


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