Ernst & Young has agreed to pay a settlement charge in excess of $4 million to the SEC after violating auditor independence rules in lobbying activities.

Ernst & Young has agreed to pay a settlement charge in excess of $4 million to the SEC after violating auditor independence rules in lobbying activities.

The charge came after Ernst & Young subsidiary Washington Council EY lobbied congressional staff on behalf of two audit clients, the Securities and Exchange Commission said in a statement.

This goes against the SEC’s auditor independence rules as it put the firm in the position of being an advocate for its audit clients, despite Ernst & Young declaring itself as “independent” in audit reports issued on clients’ financial statements.

The SEC ruled that WCEY impaired the firm’s independence multiple times, with actions including: sending letters signed by a senior Ernst & Young executive to congressional staff requesting certain legislation to be passed; asking congressional staff to phrase a bill in a way that was favourable to Ernst & Young audit clients and trying to defeat legislation detrimental to the business interests of audit clients by meeting with congressional staff.

Furthermore, WCEY asked third parties to approach a US senator, seeking support for a legislative amendment sought by an Ernst & Young client; and marked up a draft bill which included an Ernst & Young audit client’s language and sent it to congressional staff.

Despite Ernst & Young issuing a written independence policy with guidance on the provision of legislative advisory services to audit clients, it was found that the firm did not provide WCEY with formal training on this.

As part of the SEC’s ruling, Ernst & Young must cease and desist from violating the auditor independence rules and from causing violations of the corporate periodic reporting provisions of the federal securities laws.

The $4.07 million settlement is comprised of a $2.48 million penaly, $1.24 million in disgorgement and prejudgment interest of $351,925.98. Ernst & Young’s cooperation with the SEC was taken into account in the judgement, as well as its voluntary issue of new guidance in June 2012 and May 2013 restricting legislative advisory services.

The SEC’s investigation was conducted by Jeremiah Williams, Kam Lee and Robert Peak under the supervision of David Frohlich.