This made me chuckle. I deal with auditors every day. Public company fraud doesn't continue for years on end, through multiple audit cycles, because the auditors can only work with the facts they are given. It continues because in very large public companies, audit firms are paid tens of millions of dollars for their work, and there is a lot of incentive to look the other way. It's also a numbers game. Auditors carry the largest insurance policies on the street. Class action claims are always settled, and insurance covers it. Reputational damage? There is none, because if you want a big 4 audit firm, you won't find one that hasn't been hand-slapped for looking the other way, whether it's KPMG, Deloitte, E&Y or PwC (AA was a special case because those guys took auditing to another level when they started shredding evidence).
My all-time favourite was a company called Sino-Forest (TSX listed). A forestry company without...trees. E&Y was the auditor. Those were the days. But I digress.