Lies told in a heartbeat can have permanent and irreversible consequences. One instance of rationalized dishonesty can lead to a pattern of fraud. 

About 10 years ago, I was instructing a CFE Exam preparatory seminar in Newark, N.J. There were about 50 people in the class. As is customary for such events, attendees signed in each day for the three-day course to obtain continuing education credit.

During one of the breaks on the third day, a student approached me as I was standing alone at the end of the hall. Quietly, he said, "There are two CPAs signed in from the same firm. But one of them, Wally, hasn't been here since the first day. His friend Jack is signing in for him."

When I returned to class, I casually inspected the sign-in sheet. Sure enough, it appeared that Jack's and Wally's signatures were signed by the same hand and by the same pen. I waited until just before lunch. Then, while the class was working an exercise, I stood before them pretending to look over the sign-in sheet.

With my best confused look, I said, "Where is Wally?" I could see Jack sinking in his seat. "I don't understand," I said. "I met Wally on the first day along with Jack. And I just noticed that he is signed in for the class but he is not here." When I looked at Jack, he sank lower. "Jack, you work with Wally. Where is he?"

Now turning red in the face, Jack mumbled, "I am not sure." Then I pretended to study the two signatures. "Jack, it looks like both you and Wally signed with the same pen," I observed. "Did you loan him yours when the both of you signed in this morning?"

Jack sat in stone silence, not knowing what to say. After an uncomfortable pause, I simply said, "Jack, please see me when the class ends for the day." But I was not surprised when Jack did not show; he left immediately at the break. I later instructed the staff not to issue certificates of completion to either CPA. Then I went back to work and thought no more about it.

Perhaps a year later, I saw Wally's name again. It was on the letter I was about to sign congratulating him on passing the Uniform CFE Exam. (Even though I am not involved in the certification process, I have traditionally signed all these letters personally.) But my pen stopped upon seeing his name.

At first, I thought: Wally's faked attendance at the prep seminar was not the worst of sins. He was probably busy or got called away on assignment. And because I embarrassed his friend Jack in front of the class, they would probably never try to pull such a bone-headed stunt again.

But I could not convince myself of my own logic; so I called the chair of the certification committee and told her what happened. Because the certification had not been formally issued, the three-person committee unanimously voted to withdraw it. Instead, Wally was sent a letter along with a refund of his exam fee and we permanently barred him from certification.

Not surprisingly, Wally was upset. I finally agreed to talk to him by telephone and let him plead his case. He was called away on an important assignment, Wally allowed. But Wally was hard-pressed to give a logical reason why he asked his friend to fake the seminar attendance records.

Exasperated, Wally finally said, "I am an honest person. If this had been a big deal, I would have never lied about it." I smiled into the phone and said, "Wally, let me give you a different point of view: If you would lie about something this small, why wouldn't you lie when something big is at stake?" Wally could not explain that one, either.

Permanently being barred from certification may seem like exceedingly harsh punishment for such an offense. But organizations must look past the individual to consider the common good of the members and act to protect their reputations. To be blunt, the certification committee had to know that the media would have had a field day with the notion that an anti-fraud organization knowingly admitted a cheat to its esteemed ranks.

A larger question is why any reasonable professional - duty-bound to act ethically - would knowingly and willingly engage in such conduct? We will try to answer that question later.

In an equally dumb move, a CPA from Atlanta took out an ad in a local legal journal touting his new CFE designation. The problem: Hank, the CPA, had only filled out his application when the ad ran; he had not passed the test, provided references and other documentation, or been formally approved by the certification committee. The process takes months.

Like déjà vu all over again, Hank's indiscretion was discovered after he had passed the exam but before he was certified. The certification committee wrote Hank asking for an explanation for the ad.

Hank's written reply blamed the problem on the ad agency, which he claimed was supposed to hold the ad until he told them that he had been formally approved. The certification committee wrote back to Hank requesting written confirmation of the ad agency's mistake.

Sure enough, in due time, a letter from the agency was forthcoming. They accepted all the blame. But when a certification committee staffer called the agency to verify the letter, the writer said he had been pressured by Hank to falsely bear the responsibility. "Hank called me in a panic," the ad agency employee confessed. "He told me that he was in big trouble because he had jumped the gun on placing the ad, and if I didn't write the letter, his certification was in jeopardy. I felt sorry for the guy and was trying to help him out. Besides, we'd like to get his business."

Just like Wally, Hank was permanently barred from certification. And like Wally, Hank insisted on pleading his case to me personally. I took no pleasure whatsoever in Hank's punishment; he was a highly qualified CPA with significant fraud investigative experience for a respected firm. All the more reason, I told him, that his conduct made no sense whatsoever. Hank learned an extremely hard lesson. Frankly, had he admitted upfront that he had prematurely placed the ad, it is unlikely that this misstep would have been fatal to his application. But not only did he lie, he engaged in a deliberate scheme to cover it up. That's exactly the same conduct that cost Nixon the presidency.

Hank took the news badly but said he understood. About five years later, he called me again. "Do you remember me?" he asked. Of course I did. Hank said he was calling to see if we would reconsider his application. No, I told him. Just as with Wally, the organization considers its reputation more important than admitting as a member someone with a known history of dishonesty.

The sad fact of life is that actions taken in a heartbeat can have permanent and irreversible consequences. But we can learn a great deal from mistakes like these that will help us avoid them.

Honesty is Situational

As I have written on other occasions, there is no such thing as a person who is completely honest (or dishonest, for that matter) in all situations; it depends on what is at stake - a scrupulously honest individual is likely to lie to avoid execution.

But in the business world, dishonesty usually does not involve life and death; it normally concerns gaining an unfair advantage. Because the root of business is money - which we all want - it is easy to mesmerize oneself into believing an unfair advantage is deserved. Both Wally and Hank knew that what they were doing was wrong. But they convinced themselves it was okay.

They acted dishonestly, not because they are inherent liars but because something tempting was at stake: Wally would be getting continuing professional education credit without working for it; Hank could start increasing his income from fraud-related assignments.

In my former career as an FBI agent, I interviewed liars for a living. What I learned is how cheaply some people were willing to sell their honor. I have seen first-hand how high-ranking pillars of business and government can fall from grace for seemingly minor indiscretions - politicians caught up in expense account abuses, captains of industry who lied on their income tax returns to save a few thousand dollars, heads of non-profits disguising "performance bonuses" that they paid to themselves.

Indeed, I remember clearly when my own personal moral code took a giant step up. I had been assigned to the investigation of former Attorney General John N. Mitchell for his role in the Watergate scandal. There were occasions when I was required to interview Mitchell under oath and ask him a written set of questions sent to me by FBI headquarters in Washington.

Like competent investigators, we already knew most of the answers. I remember well my feelings of sadness and disappointment that the former Attorney General of the United States of America - the highest law enforcement officer in the land - would thoughtfully puff on his pipe and lie through his teeth. Mitchell eventually served three years in federal prison before dying a broken man.

Dishonesty is a Slippery Slope

For those of us who remember Watergate, it all started over a clumsy political burglary at the Democratic National Headquarters that was carried out with the knowledge of the president himself. In an ill-conceived plan to protect himself, Nixon and a host of underlings weaved a web of deceit that brought down the president and many of his cronies.

These were smart, well-educated men - just like Wally and Hank. But their logic was clouded by perceived consequences of their deeds. In the end, the price all paid was much higher. Hank could have survived the application process by admitting he had erred; Nixon could have survived Watergate if he had just come clean.

The lesson here is that people who find themselves in these messes do not start out that way; it occurs one lie at a time - each falsehood designed to conceal the previous one. That's the slippery slope of dishonesty. Executives who make a conscious decision to cook the books think it is only a temporary move, not realizing that the problem will only worsen next year.

Seeing the mistakes people have made in the past - and their unintended consequences - has helped me refine my own standards of morality. I do not know if I am more or less honest than the next person, but I do know that I have significantly raised my own bar.

Morality is the Foundation of Ethical Conduct 

Each of us has his or her moral code. It becomes the foundation for the ethical decisions we make on a daily basis. Certain aspects of our moral codes are universal: honesty, fairness, kindness, courtesy, and respect. What gets difficult is sacrificing short-term rewards for longer-term goals. And naturally, the greater the anticipated immediate benefit, the more likely we all are to compromise our over-arching sense of morality.

None of this, of course, is new. But what bears emphasis is that abiding by one's own code of honor is a powerful reward, too - one that provides immediate gratification. People like Wally, Jack and Hank had not learned the fundamental lesson about morality: honor is its own reward. And that is the way it should be.

Joseph T. Wells, CFE, CPA, is founder and Chairman of the Association of Certified Fraud Examiners.