Whenever I hear someone talk about how honest they are, I instinctively put my hands in my pockets to see that everything that should be there is still there. So, pardon me my skepticism when I read this blurb from a large accounting firm’s website: “Our Global Code of Conduct is a clear set of standards for our business conduct. It provides the ethical and behavioral framework on which we base our decisions every day.”

Or this one: “… we hold ourselves to the highest moral and ethical standards at all times.”

The first one is from giant accounting firm Ernst and Young, which has just been hit with a $100 million fine by the U. S. Securities and Exchange Commission for covering up employees who cheated on mandatory ethics tests. The second is from another giant accounting firm’s “Code of Conduct,” this one called KPMG. Last year KPMG was fined $50 million for doing the same thing as Ernst and Young.

Why is this kind of thing important? Because it seems indicative of an almost complete lack of ethical conduct in big business. A major function of these accounting firms is conducting audits of their clients’ finances. They certify financial records for businesses to see that the businesses are financially sound and that their business statements reflect reality.

They help businesses to follow best accounting practices and warn them when the audit finds something amiss. When auditing firms abuse their ethical responsibilities, bad things happen. In 2001 energy giant Enron was found to have misled investors by claiming $100 billion of earnings they never had. Their accounting firm, Arthur Anderson was found complicit and both companies went out of business, financial panic followed, and 29,000 former Enron employees saw their 401k retirement savings disappear as Enron stock slid from $90 a share to 26 cents.

Auditors and Certified Public Accountants have ethical standards imposed by the rules of their professional organizations. Individual members are required to take an ethics test annually, and the results of those tests are given to the individuals’ employers. Ernst and Young employees cheated on their ethics exams, the company knew about it and mislead the SEC about how it was being handled, which was not at all.

“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said the SEC’s Enforcement Division Director Gurbir S. Grewal.

How did they cheat? They cheated by using a computer program that allowed them to pass the tests by answering only one question. They also shared the multiple-choice answer codes.

Why did they cheat? Responses ranged from not having the time to take the ethics test to not being able to pass it without cheating.

And how hard are these tests? Examples I have looked at range from 40 to 50 questions, multiple choice, open book, with generous time limits. In California it can be retaken 5 times in a year until the person passes the test.

Here’s a sample question from the California test:

“The Principles [of the organization] state that a member has responsibility to: (a) Colleagues. (b) Clients. (c) The public.  (d) All of the above.”

The correct answer is “all of the above”.

Why are ethics important? Let’s reduce it to an understandable level. What would you feel if you found out that a teller at your bank told people how much you had in your account? Would you go to a doctor whose nurse told others about your health? Would you use a contractor who padded your bill?

That’s ethics reduced to the personal level. Big businesses have a responsibility to their investors and to the public. When they lie about their finances, it impacts the American and world economy. People who are connected to the businesses suffer, and people who have no connection to the business at all also suffer from the economic fallout.

To make sure that companies are on the up-and-up there are standards imposed on financial record keeping. The organizations responsible for reviewing those finances for accuracy are the auditing firms—the guards. When the guards themselves are corrupt, how can we trust their statements about the companies they audit, and then how can we trust those companies themselves?