Ernst & Young to pay $4M over improper lobbying charges

Financial regulators announced a $4 million settlement Monday with Ernst & Young after the auditing giant was charged with violating lobbying rules.

The Securities and Exchange Commission charged a subsidiary of the firm, Washington Council EY (WCEY), with lobbying congressional staff on behalf of two audit clients — a violation of auditor independence rules in place to ensure objectivity.

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The action put Ernst & Young in the position of being an advocate for clients that it also audits, the SEC said.

“Auditor independence is critical to the integrity of the financial reporting process. When an auditor acts as an advocate for its audit client, that independence is compromised,” said Scott W. Friestad, associate director in the SEC’s Division of Enforcement.

According to the SEC, WCEY improperly sent letters to congressional staff that urged passage of certain legislation and were signed by a senior executive of an Ernst & Young audit client.

The subsidiary asked congressional staff to insert language favorable to an Ernst & Young client into at least one bill, met with staffers in a bid to defeat legislation that was unfavorable and asked “third parties” to approach a senator about an amendment sought by a client.

“Ernst & Young engaged in lobbying activities that constituted improper advocacy and clearly violated the rules,” Friestad said.