In 2022, the Securities and Exchange Commission (SEC) levied a record penalty against the audit
firm, Ernst & Young (Press release, 2022). An investigation revealed that over a period of years, a
significant number of the company’s ethics auditors had cheated on the exams required to maintain
their CPA certification. Portions of these exams evaluated the employee’s ability to properly
evaluate a company’s financial statements.
It was also revealed that the company knew that the cheating had occurred despite reporting to
the SEC that there was no cheating. The company never corrected this false reporting and failed to
cooperate when the SEC initiated an investigation of the matter. Ernst & Young failed to
communicate and enforce high ethical standards for their employees and made false
misrepresentations of the quality of their services to their stockholders, regulators, customers, and
the public. Due to the cheating, Ernst & Young cannot ensure that their cheating employees were
fully capable of properly executing the audits of their customers. This lack of certainty could
potentially place these companies at risk of being in violation of Generally Accepted Accounting
Principles.
Internally, Ernst & Young’s future communications should address the company’s ethical standards,
policies, procedures, and enforcement practices. Externally, Ernst & Young should correct its
misreporting to the SEC. The company should also communicate to the SEC, their customers, and
the public any steps that are being taken to mitigate cheating within the organization, the plan to
correct any questionable audits previously conducted, and the implementation and monitoring
process for future reporting.
You heard the latest news about the big tech companies laying off tens of thousands of employees.
I will discuss some personal experiences related to layoffs or RIFs (reduction in force), in which the
communication was not perfect. I am a corporate accounting manager, so my team does the
accrual for layoffs. We accrued for the restructuring costs when a decision was made, not when the
employees exited the company. This is highly confidential, and the impacted employees were not
yet told. Usually, my boss, the director of accounting, received an email from higher management
asking us to accrue a RIF for the quarter-end closing. We have no other information, such as a list
of names, cost centres, severance pays, etc. Since this was highly confidential, the management
only shared it with us at the last minute because they needed us to book an accrual. We asked for
details and were told to contact the payroll department. After numerous emails and phone calls,
we got the right person on the payroll team with the information. Still, she was not releasing any
information due to the confidentiality of it. On the last day before closing the book, the payroll
director agreed to provide us with a high-level summary of costs for each division so that we can
accrue at the divisional level instead at the plant level. Two months later, when all the impacted
employees were communicated and laid off, we received the complete list of their names, cost
centres, salary information, and severance packages. We did a true-up in the book, which was far
from what we were initially told to accrue for. I felt that the communication was ineffective, the
information was not passed down properly to the people who is needed to do their jobs.
I have been with the company for only one year, but looking into the records and with the rumors
going around, my company makes a workforce reduction every two years. I did the accrual for the
latest RIF and did not see a formal letter to all employees regarding layoff. I believe only the
impacted employees were communicated, and not everyone. My company only laid off about 100
people, so we may not need to release a letter to all employees, as you have seen with the big tech
corporations. However, people are speculating and asking if "I am next?" which is not good. If we
have a mass layoff, it impacts everyone, not only the ones that leave the companies. The
management must communicate appropriately to those who stay so they can feel confident staying
and trusting the company (Hirsch, 2023). So far, I have not seen this communication.
I wanted to share a relatively recent article that discusses an event which happened almost ten
years ago. Back in 2013, I was working for Target when the company suffered the largest retail data
breach in U.S. history. "Starting in November 2013, hackers had stolen detailed information for
about 40 million credit and debit card accounts, as well as personal information on about 70 million
Target customers. The hackers had begun to sell their tremendous data haul on black-market fraud
websites." (Hartzog, 2022) This was the worst possible time for Target as it was holiday shopping
season, and customers were livid. What was not as widely reported was that around the same
time, Target also had a snafu where gift cards did not load correctly and rang up as $0.00 when
customers tried to use them.
This was a very difficult time to be a Target employee, but corporate leadership made matters
significantly worse by blaming employees for these events. "A common narrative told to the public
is that this entire debacle could be traced to just one person who let the hackers slip in. In caper
movies, the criminals often have an inside guy who leaves the doors open. But the person who let
the hackers into Target wasn’t even a Target employee and wasn’t bent on mischief." (Hartzog,
2022) Employees were also blamed for ringing up gift cards incorrectly, even though the problem
was an IT failure and had nothing to do with store employees. Executives tried to preserve the
store's public image by scapegoating employees when the failures were due to policies at the
corporate level. This narrative negatively impacted employee morale and still did not address
customers' concerns.
Eventually Target's CIO resigned, and the CEO was forced to resign shortly after. I quit Target about
eight months later for mostly unrelated reasons but largely due to Target executives being
completely out of touch with store operations. (I was a pharmacy tech and executives were
micromanaging pharmacy operations to an absurd degree, and then sold the pharmacy division to
CVS within the year). Instead of blaming employees, Target should have taken accountability for
their policy failures; it may not have saved holiday sales numbers, but it would have gone a long
way to preserving employee morale which also impacts sales. Target set an abysmal example which
other companies should have learned from, but unfortunately data breaches still tend to bring out
the worst in corporate communications.
Reference
Hartzog, W., Solove, D.J. (2022.) "We Still Haven’t Learned the Major Lesson of the 2013 Target
Hack." Slate. https://slate.com/technology/2022/04/breached-excerpt-hartzog-solove-target.html
Hirsch, Jennifer (2023, January 30). 5 best practices for communicating
layoffs to employees the right way. Your Thought Partner.
https://www.yourthoughtpartner.com/blog/communicating-layoffs-to-employees
Press release. U.S. Securities and Exchange Commission. (2022, June 28).
https://www.sec.gov/news/press-release/2022-114
